- Buffett has confidence in successor
- Berkshire owns fantastic set of businesses
- Investment style should stay the same
Warren Buffett has handed over the reins of Berkshire Hathaway (BRK.B:NYSE) to Greg Abel, who will take on the role of chief executive from next year.
As the world’s greatest investor steps down after more than six decades at the helm of Berkshire Hathaway, the owner of a fantastic set of businesses, with stakes in the likes of Apple (AAPL:NASDAQ) and Coca-Cola (KO:NYSE), what are the implications of the great man’s retirement for the cash-rich Omaha-based conglomerate and its portfolio?
William Lamond, investment director at Oakglen Wealth, says the ‘Sage of Omaha’s’ decision to announce his retirement at Berkshire Hathaway’s annual general shareholders meeting (3 May) ‘came as a surprise to many and company shares declined by circa 5% on the announcement. It brings to an end his tenure as CEO of the world’s most renowned investment holding company. His decision certainly shows his confidence in his handpicked successor, Greg Abel. Mr Buffett is not retiring as such as he will become chairman and remain the largest shareholder.’
DON’T EXPECT DRAMATIC CHANGE
Lamond believes it is not unreasonable to expect changes within the company, but it is highly unlikely Berkshire will dramatically change its investment style or its investment portfolio.
‘Abel has worked within Berkshire for a number of years and closely with Buffett for the last four. Abel is perceived as a more hands on manager compared to Buffet’s more diplomatic and measured style. He may look to place tougher operating goals on businesses and drive cost and revenue synergies to improve Berkshire Hathaway’s earnings over the coming years.’
Imran Sattar, manager of the £1.1 billion cap Edinburgh Investment Trust (EDIN), explains that ‘every fund manager will have considered Warren Buffett’s writings. There is surely something in what he has written for every investor, even if you don’t agree with every word.’
For Sattar, ‘the fascination will be in how the portfolio of Berkshire Hathaway businesses evolves. Buffett has successors in place and they have become much more involved in the portfolio. But the core features of today’s Berkshire Hathaway’s portfolio reflects the investment beliefs of Buffett himself and his long-time partner Charlie Munger.’
ROBUST RETURNS
Sattar particularly admires Buffett’s concept of the economic moat, which refers to a company’s ability to maintain competitive advantages over its peers.
‘For Buffett, he has invested in businesses with these traits across many industries, whether it be railroads, insurance, confectionary or banking,’ says Sattar.
‘The strength of each of these companies typically leads to pricing power, which in turn supports robust margins and returns on capital. While it is hard to imagine any significant change in Berkshire portfolio characteristics under Greg Abel and his team, we will be really interested to see what they buy and how the portfolio evolves over time.’
