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Warren Buffett Passes the Torch
00:27:14
After 60 years at the helm of Berkshire Hathaway, the Oracle of Omaha is ready for retirement.
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- [00:06]
Dylan Lewis
After 60 years, Buffett passes the torch. Motley fool money starts now. I'm Dylan Lewis and I'm joined over the airwaves by Motley Fool Canada analyst Jim Gillies. Jim, thanks for joining me on this momentous Monday.
- [00:28]
Jim Gillies
Indeed, thanks, Dylan.
- [00:30]
Dylan Lewis
We talk about the news very often. We don't always get something this good when something happens over the weekend. To quote the great Warren Buffett himself, the time has arrived. After 60 years as CEO of Berkshire Hathaway, Warren Buffett announced he will be stepping down at the end of 2025 for a well deserved semi retirement. He announced this gym closing out the annual meeting in Omaha over the weekend, which was news to basically everybody except his kids, correct?
- [00:58]
Jim Gillies
Yes. I had a number of friends on the floor and one of them texted me with like, literally as he was speaking going, holy, insert golf word here. Buffett just announced his retirement. And I'm like, okay, I can have to take a moment to process this.
- [01:16]
Dylan Lewis
Yeah. And in typical Buffett fashion, it wasn't, you know, I am leaving the CEO seat, it was him handing over the reins, but it was in an overview of, like, board meetings and votes and recommendations. I think if it weren't for the standing ovation, if you had kind of tuned out for a second, you actually might have missed it because it was right at the end of the meeting and discussion.
- [01:34]
Jim Gillies
Yeah. And look, I am a Berkshire shareholder almost three decades the entire way. Dylan, I've been told, aren't you worried he's so old, like, he's going to die soon? And thankfully. And a key lesson from Buffett, reiterated many times over the years, including in this most recent annual meeting, is like, you know what, take your time, think through, you know, things. Things are not that imperative in the moment. And so I'm very glad I've ignored all of, all of the people saying, oh, boy, he's really old. And I similarly think about it a little bit today. It's like Buffett has been kind of prepping people for this for, quite honestly, nearly two decades. I remember after his first wife passed away, Susie, it was always the intent of the Buffetts to give away the vast wealth that he's created. And Susie was supposed to be the one because she was expected to outlive Warren. She was going to be the one handling the dispensation of that money. Susie's been gone for almost two decades now, Dylan. We've seen him, I remember back might be 15 or so years ago now, where they were first started talking about having the names of multiple People who could take over for him step in whenever the names in the envelope that could step in for him have changed. But a number of years ago, Charlie, who of course left us just over a year ago, Charlie kind of let slip at one meeting that the name, the only real name in the envelope that could take over for Buffett was Greg Abel, longtime CEO of Berkshire Hathaway Energy, Mid American Energy beforehand. And he just kind of confirmed what everybody largely knew. I don't think much is going to change. First off, in a completely unsurprising development, the board did in fact vote unanimously along with Warren's suggestion. Hands up who thought that wouldn't happen?
- [03:49]
Dylan Lewis
Yeah, zero surprise here, right?
- [03:51]
Jim Gillies
Exactly. Like, you know, well, also two board members are Warren's kids who as you said, knew about this. So they have, they have in fact voted unanimously to pass the CEO's title to, to Greg Abel. This is the start of 2026. So you've got, you know, another almost eight months with Uncle Warren at the helm, at which point he will remain as non executive chairman. He did allude to the idea that should markets behave in a certain way, and he didn't say it, but I will plunge precipitously. They would be interested in deploying some of the massive cash hoard they've got now, which I think is playing with $350 billion, that he would be useful, perhaps reputation wise to help deploy some of that capital should circumstances require it. And again he was too polite to say if the markets blow up and people freak out. But that's what we're talking about here. Go back to 2008 and that's, you.
- [04:53]
Dylan Lewis
Know, if, if you find my advice helpful during any times, just, just let me know. Essentially the, the Buffet.
- [05:00]
Jim Gillies
Exactly. You know, so, but I don't think a lot's going to change. And, and, and part of that is because they've been gradually transitioning the day to day operating business into the hands of Greg Abel. They've long transitioned the, you know, the decision making at Geico, or it's not geico, just in the insurance arms. So all of the insurance arms into the hands of Ajit Jain. They have long been adding to the responsibilities of Ted and Todd, the investing lieutenants. And Buffett has long espoused, you know, that a ham sandwich should be able to run this business. In fact, I saw someone was quipping, another fool was quipping with us this morning. I hope Greg had a T shirt at that board meeting that said ham sandwich on it. I see the stock. I Think the stock fell as much as 6 or 7% today. Kind of wish it fell more. I mean, I hope it falls more in the next week or so because obviously I'm talking about it now. So I'm kind of locked out. I would be a happy buyer of shares today without a thing and without a concern, frankly.
- [06:05]
Dylan Lewis
Yeah. I was going to say this is the first time we've ever seen the market have to weigh what they think of a Berkshire without Buffett. Maybe a 4 or 5% discount on shares today. I don't think anyone could find that unexpected. It's a surprise no matter when it happens. It's a surprise no matter how well they lay out the succession planning. We've known Greg Abel since 2021 formally would be taking over this seat. I think you're right. I think they've done such a nice job telegraphing what's coming and also telegraphing there are core Berkshire principles to the way that we approach things and that probably isn't going to change very much. I remember looking back on some of the content from the morning meetings and the Q&As and stuff like that over the weekend. Someone had the foresight not knowing what was coming. To ask, hey, Greg, what is something you've learned from Warren Buffett over the years? And incredibly pressing question, it turns out. And he talked about how when they were first meeting, talking through Mid American Energy holdings and that acquisition, the first thing that Buffett did was zoom in on the balance sheet. The first thing he did was zoom in on the derivative holdings for the company and start asking all these questions about risk exposure. What was actually there. Abel and Buffett both talked quite a bit at the annual meeting about the importance of being balance sheet oriented. Looking at the fundamentals of these businesses, if you're a Berkshire shareholder, none of that stuff's going to change. That is going to continue to be the guide for how this management team is making decisions.
- [07:32]
Jim Gillies
Yes. And I don't think it was a surprise to anyone who's been a long term Buffett Berkshire follower. Like, if you were not aware that Uncle Warren likes his balance sheets, if you ask Greg, what's one thing you learned, I thought you were going to say how to keep a secret because he kind of did that a little bit.
- [07:49]
Dylan Lewis
I'm guessing Greg maybe had a little heart palpitation there on stage, learning alongside all of the Berkshire shareholders that this was happening.
- [07:57]
Jim Gillies
What a, what a vote of confidence though, to have that right. Like even though he knows the job is going to be His, I mean, you know, and again, look, Uncle Warren is 94. He'll be 95 at the end of the summer. If you don't expect, you know, someone approaching that anniversary of their existence to be maybe wanting to slow down a little bit, plan for retirement. Like it had to have been the subject. Well, as I said, I, I have heard variants of the. Are you sure you want to be here? For as long as I've held shares and, you know, my shares, my own personal shares, my, at least my earliest ones can legally rent a car in the U.S. right. Like.
- [08:40]
Dylan Lewis
Yes, they've matured.
- [08:42]
Jim Gillies
Exactly. You know, one way to put it, they should hit the gym more. They're starting to have that, you know, that middle age, you know, precursor happening there. So continue.
- [08:50]
Dylan Lewis
Anyway, so I mean, as you noted, I mean this is, this is a business now sitting on an incredible amount of cash, 347 billion, I think, as of most recent report in the updates over the weekend. I have to imagine that that was also some of the intentionality with this planning. Was Buffett unwinding some of the large positions that existed with bank of America with Apple over the years and really putting Abel and the management team in a position to make decisions that they were excited about, that they were interested in, that followed the Berkshire playbook and probably to be opportunistic as there's possibly some clouds out there on the horizon.
- [09:28]
Jim Gillies
Yeah, I mean, he kind of downplayed some of the people saying, oh, you're just trying to set up things for Greg Abel. It's like, no, I'm not so charitable to make life easy for him. If an opportunity was here for me, I'd take it paraphrased. I mean, Apple is unquestionably the best investment, like stock investment that Buffett has made. You could argue others have done better percentage wise or over a longer term. But in terms of the sheer amount of money, I mean, Buffett himself said Tim Cook, Apple CEO Tim Cook has made more money for Berkshire shareholders than I have.
- [10:06]
Dylan Lewis
Point taken.
- [10:07]
Jim Gillies
Well, point taken. I will push back a little bit on Buffett and say, yeah, but you were the one that went into it again, ignoring what other people were saying, which 2016 ish. Was that it's the biggest company in the world, how much growth is there? Left? Turned out to do okay. I think it's going to be prescient for Berkshire because of course Apple itself went through its own, shall we say, high profile succession plan back in 2010 through 2011 because founder Steve Jobs, of course, famously unfortunately, and I say this with all respect, drew the short straw in life, had a health issue that tremendously shortened his life and that was tragic. But before he went, of course, and Tim Cook had stepped in for a lot of the day to day stuff with Apple before that. But officially I think a few weeks before, it's now back in 2011. So it was a few weeks before Steve's ultimate departure. Tim Cook was made the official CEO. And on that day, you know, the stock didn't have a great day. And I've said for a number of years now on various forums for foolish forums, from a value creation perspective, Tim Cook has been a far better CEO for Apple than Steve Jobs was. Now Tim Cook doesn't get this opportunity without Steve Jobs and without, you know, the vision and the idea. I would say, you know, Tim Cook is an execution guy. Steve Jobs is an idea guy. Was an idea guy. You know, the execution guy doesn't get to work his magic without the idea guy to start. Right. And so you need both. But I mean, like the sheer value that's been created at Apple in the Tim Cook era greatly outstrips what was created during the Steve Jobs era. But, you know, you got to give a job some credit for what, you know, he planted the seeds so that Tim Cook could have the harvest. And I kind of think that's what's probably going to unfold with Berkshire, Buffett, Greg Abel is that Buffett has put all kinds of seeds in play and has put the culture in play and has been, as we said before, slowly farming out bits and pieces of the business to the key players at Berkshire. And he himself has said, you know, literally at this meeting that, you know, he thinks the, the Greg Abel era going forward will probably make more money for Berkshire shareholders then he would.
- [12:48]
Dylan Lewis
Yeah, I think he said, I will remain a shareholder. And that is a financial decision. Right. I trust the management team here. And I'm glad you brought up the Apple example because Buffett gave a nod to that too. I mean, he had a quote, nobody but Steve could have created Apple. Nobody but Tim could have developed it like he has. And I think you could swap out the names there. And he's essentially talking about his own business. Right?
- [13:09]
Jim Gillies
He is. Now will Greg Abel overseeing Ted and Todd? Will they be able to create some of the magic that we've seen in stock picking? And I think actually that'll be a tough sell, but I also think it's a tough sell under Buffett because of the size of the company. Again, Apple has Been the last real big home run. You know, there's been a bunch of little things that haven't worked out, and that's fine, you know, or IBM didn't work out, or the airlines didn't work out. Now, I'm of the opinion that Buffett got out of the airlines because during. During COVID Because, you know, when the facts change, I have. I change my mind. What do you do, sir? You know, the fact the world changed, right. A worldwide pandemic that. That shuts down air traffic for a not insignificant period of time, makes those airlines worth it, changes the calculus about how you calculate the fair value of those airlines. He knew they were going to need government assistance. And he also knew that the optics of having Warren Buffett, you know, one of the richest people on earth, through Berkshire Hathaway, it wasn't Warren Buffett owning them, but it was Berkshire. The fact that Berkshire Hathaway being the largest shareholder of all of these airlines that now all of a sudden need a bailout, the optics of that are going to be pretty bad. And he also knew he didn't want to be the guy bailing out the airlines. So, oh, I'm going to sell my shares. That takes him off the board and takes Berkshire off the board. That way they can qualify reasonably well for government funding. And whatever you think about airlines and their perpetual need to go hat in hand at the government at every crisis, I leave that as an exercise for the listener. I think it will be an interesting play from here. And I don't think, and I say this again, I know I've said I'm trying to remain respectful. And giving Warren Buffett and Berkshire Hathaway have been very, very good to me personally. As I've mentioned, it is my largest shareholding. It is my longest held shareholding. But let us be honest, the stock picking over the past decade or so has not been spectacular, aside from Apple. And I would argue that is not because Warren Buffett has faded in abilities or anything. That is because this is a $1.15 trillion company with a bazillion different irons in the fires. And there's not a lot. Like they mentioned, there was a $10 billion acquisition as well that they passed on. And my response to that, all I could think of when I heard about that over the weekend was, who cares? 10 billion. $10 billion. A $10 billion acquisition for a company with 348 or 350 billion in. In. In dry powder cash. It's 3% of your cash.
- [16:24]
Dylan Lewis
It's not material.
- [16:25]
Jim Gillies
Yeah, it's, it's irrelevant. So, I mean, like, like, I don't want to hear about $10 billion acquisitions prospectively. I want to hear about minimum $100 billion prospective acquisitions. Bigger is better. How many more? How many of those companies are out there that will be available at a price that Berkshire and Buffett and Greg Abel and Ted and Todd would think compelling? And I submit to you, there ain't many, which is why, you know Buffett. One reason why I think Buffett is, you know, you know, I'll go play. He's gonna go day trade.
- [17:05]
Dylan Lewis
It's, it's a, it's a good time for him to step away. The house is relatively tidy. He's been able to put things in pretty good shape.
- [17:14]
Jim Gillies
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- [17:50]
Dylan Lewis
What is kind of amazing to me, taking a step back on. Berkshire is sitting on record levels of cash. And we know what cash is earning right now. It's year to date up more than 10%. The market is in the opposite direction, down about 4% year to date. Investors haven't seemed to mind giving them a little bit of time to put that money to work and they've been rewarded for their patience so far. I don't think that will change. I think anyone who's expecting anything really large is going to be waiting quite a while. I think we're going to see a capital allocation and deployment strategy that is very much like what we've seen in the past. And that might mean we're looking at three figure billion dollars of cash on the balance sheet for a long period of time.
- [18:31]
Jim Gillies
Yeah, I think you can probably assume, because they've said this, expect that cash balance to never again drop below 50 billion. Now when you have 350 billion, there's.
- [18:46]
Dylan Lewis
Room to go down.
- [18:49]
Jim Gillies
We can just hold that and it's fine. I am genuinely curious to see, and I don't think you're going to see it anytime soon. I think Buffett probably needs to ultimately exit the board fully before you'll ever see anything here. But I am curious to see because, you know, it took about a minute and a half after the announcement, before, you know, various denizens of Twitter started saying, ah, break up Berkshire Hathaway. Now it needs to be broken up or when are they going to pay a dividend? Don't, you know, calm down, folks. That's, I think, really, truly nothing is going to change. Nothing is going to change as long as Buffett is consuming oxygen. I think nothing changes when he ultimately leaves the scene. I think nothing's going to change, really, for a little while longer. I think they will continue in reinvesting in their existing businesses. It wouldn't shock me to see them deploying incremental capital in some of their already existent areas. More energy. They famously talked over the past, I'll say, 15 to 20 years about how they like businesses where they can deploy significant capital at good expected returns. But that would be the railroad and that would be a few of their other businesses where they can, you know, again, the utilities. I would be shocked. Outside of a market dislocating event, I would be shocked to see them make any meaningful drawdown of that cash hoard. I don't think they're, you know, I don't think they're going out and buying Disney tomorrow. You know, I don't think they're going out to, you know, to, or to go out, take out Hershey or try to acquire Mars privately. They might, but, you know, these are the types of businesses that would be fun to see a make a run at Coca Cola. I will, I will, I will say that would be. That would tickle me a little bit.
- [20:46]
Dylan Lewis
You know, it would fit the profile. It would certainly fit Buffett's tastes. Yeah, I think you're right. The market may give them that dislocating moment. We've talked at length on the show about how there is a bit of a precarious situation going on. Macroeconomic.
- [21:03]
Jim Gillies
I don't know what you're talking about.
- [21:06]
Dylan Lewis
Buffett has provided some commentary on that, and I can't think of a better position to be in to have $350 billion in cash if you expect there may be a lot of headwinds away and there may be some discounts available to the business. You mentioned railroads. You talked about energy. A little bit. Any other sectors you think might fit the profile for a Berkshire acquisition? If we start seeing some things on.
- [21:31]
Jim Gillies
Sale, Coca Cola would be funny, but it's also possible, right? I don't know how far they'd get. No, I think you'd, you want to look in a space where, where they already have an interest with it's not. It will not be technology motivated. It's always going to be. Well, you know, where we like to invest in places where we think we know. I mean, there's the famous story about what, you know, what was the best selling candy bar in the 80s? Well, it was Snickers. What was it in the 90s? Well, it was Snickers. I don't know who's going to have the dominant operating system. And 20 years, you probably make a good guess, but people are going to.
- [22:13]
Dylan Lewis
Still be eating Snickers, but you're probably.
- [22:15]
Jim Gillies
Going to be buying Snickers. And the pricing power of a Snickers or the pricing power of a can of Coke is probably going to. Or a bottle of ketchup because he's got. Famously got. The Kraft Heinz association is probably going to be there. I mean, you know, I would, I would like to see them. So it's going to be a low technology possibility. It's going. The obvious things are more insurance, more energy, consumer products with a significant brand moat. So, you know, a Coca Cola. I joke a little bit even at Disney, but even Disney is, you know, there are problems. If Disney were to ever be something like that, I think it's going to be interesting to see where it goes. I am signing up for the ride. I mean, I've been signed up for the ride for a while. At the very least, I'd like to not vacate my shares while I'm still drawing a regular paycheck because don't particularly want to hand the government a large check. As you say, it's a great place to be. And yeah, it has been a great place to be in the cornerstone of my philosophy or my investing philosophy has to have the ballast holdings in my portfolio, of which Berkshire is absolutely one, it's the largest one, as I've said. And those ballast holdings, that for me, Brookfield is another one. Some people really like Fairfax Financial, have your ballast holdings so you can go out and do some more riskier plays. I'm not talking day trading or penny stocks or stuff like that, but still things that may or may not work out for you, but you've always got the ballast and just to keep you kind of calm. And then in days when you see those market dislocations, I would really encourage people to go back and look at what Buffett was doing during the global financial CRIS crisis, the 2008 crisis, you know, like wasn't panicking. Stock got hit along with everything else. That's fine. Buffett has said even this weekend we don't care about that kind of stuff. Berkshire's fallen I don't know how many times by 50%. Doesn't bother us in the slightest. Focus on the business, all that wonderful stuff. But remember what he did back then, you know, Goldman Sachs came hat in hand. You know, the vampire squid came hat in hand. Buffett said, sure, I'll help you. Here's your 15% anchor. Harley Davidson came hat in hand. Sure, we'll help you. Here's your 15% anchor. Bank of America, I think gave penny warrants or dollar warrants as part of the investment. Don't call it a bailout as part of the investment that Buffett made in bank of America. And there's others. And that's one thing I think I want people to remember about. Buffett's got this kindly bid western old dude kind of Persona when it comes to allocating capital. Dude's killer. You want my money? It's going to be 15%. My end is 15 precious. And that's how we're starting. And we're going to take a little bit of, we'll take a little bit of equity comp as well. I hope that Greg, Abel and Ted and Todd can be similarly value extractive, shall we call it, during future market dislocations, which as Buffett again said this weekend are coming. We don't know when they are. They will come. Probably be a Tuesday. He seems to think that the business is in good hands with Greg running it. And again, if we have trusted Buffett's process on the building of Berkshire, I suggest to you we should be similarly trusting of his transition planning for the business that he's picking.
- [25:57]
Dylan Lewis
Jim, it sounds like even though he won't be calling the shots for your largest holding, his tenants, his investing style remain the pillars of your portfolio and how you expect both. Berkshire will continue to be rock sounds.
- [26:09]
Jim Gillies
Sounds about right to me. Yes.
- [26:11]
Dylan Lewis
Jim, thanks for talking through it tonight.
- [26:13]
Jim Gillies
Thank you, Dylan.
- [26:19]
Dylan Lewis
As always. People on the program may have interests in the stocks they talk about. And the Motley fool make a formal recommendations for or against. So don't buy anything based on what you hear. All personal finance content follows multiple editorial standards, is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. See our full advertising disclosure. Check out our show notes. For the Motley fool money team, I'm Dylan Lewis. We'll be back tomorrow.