Last week’s death of Warren Buffett’s long-time “partner”, Charlie Munger, got us thinking about what might happen to Berkshire when Buffett, now 93 years old, either dies or becomes unable to continue as CEO.
 
As almost everyone in the investing world knows, Buffett has been unimaginably successful as the CEO of Berkshire. Buffett became CEO in 1965.
 
Today, each share of Berkshire sells for about $538,184. When Buffett became CEO in 1965, shares were trading below $12.
 
But what happens after Buffett?
 
No Crystal Ball
First, let us state the obvious: we have no crystal ball. No one knows for sure what will happen to Berkshire’s share price after Buffett.
 
But we do know a few things.
 
We know what Buffett says will happen, in the short-run, to Buffett’s Berkshire holdings.
 
We know who Buffett/Berkshire have publicly stated will take over as CEO.
 
We know what Berkshire’s assets are.
 
Perhaps equally interesting, we can look at what has happened to the share prices of other excellent companies after the death or retirement of a superstar CEO.
 
Berkshire After Buffett
Buffett has stated that after his death, virtually all his shares of Berkshire, representing by far the largest single owner, will go to one or more charitable trusts.
 
Buffett has also stated that current Berkshire executive, Greg Abel, will become CEO. Abel, able though he undoubtedly is, will probably have a very hard time filling Buffett’s shoes.
 
And that difficulty is widely recognized. Thus, the stock-picking function is expected to be performed jointly by Todd Combs and Ted Weschler, who have been working with Buffett in that role for over a decade.[1]
 
If we forget the Buffett factor, and simply look at Berkshire Hathaway as a collection of assets and liabilities, we would probably say that Berkshire is a conglomerate. Its largest holdings are:
 

• A railroad: Burlington Northern Santa Fe – value perhaps $200 billion
• A utility: Berkshire Hathaway Energy – value perhaps $200 billion
• “Manufacturing, Service and Retailing”: with 2022 net earnings of about $12.5 billion[2]
• Insurance: Berkshire’s portfolio of publicly traded stocks is worth about $360 billion[3]

And the balance sheet also reported liabilities of $467 billion.
 
We mention these not because we have an opinion on the value of the company, but because when we look at Berkshire Hathaway this way, as a collection of assets that most people would not consider “exciting,” we wonder what will happen when the Buffett mystique is gone.
 
Other Companies after Great CEOs
General Electric – Jack Welch
During the last quarter of the 20^th century, there was probably no CEO more famous than Jack Welch of General Electric. Although Welch’s reputation has suffered recently, when he retired in 2001, General Electric was the most valuable company in the world, with a market cap of over $400 billion. GE’s market cap grew under Welch’s tenure by over 20 times.
 
After Welch left, the company faltered and never recovered. There are lots of good reasons for that, and we’re not comparing Buffett to Welch in any way other than that they’re both considered great (in the case of Welch – he was when he left office).

Disney – Bob Iger
Bob Iger became CEO of Disney in 2005. He retired at the end of 2021. During his tenure, Disney’s market cap grew by about nine times!
 
When he left, it promptly lost half its value.

Walmart – Sam Walton
When Sam Walton died, he had built Walmart from nothing to the largest retailer in the world.
 
Walmart was, and is, a great company. But it took the better part of a decade for the stock price to begin climbing again after Walton’s death at age 74 in 1992. Walton was chairman when he died. Here’s what happened with Walmart stock after Sam Walton died:

Walmart eventually recovered its greatness, but money invested in Walmart was “dead money” for years, after decades of relatively steady growth while Walton was running the company.
 
Apple After Jobs
You might well counter the above examples by pointing out that Apple continued to thrive after Steve Jobs died. And it did.
 
However, Apple, because of intellectual property and branding, seems to be much like a monopoly business that doesn’t require a genius to run it. In contrast, GE competes fiercely in its industries; Disney faces tremendous competition in the entertainment field, and few industries are more competitive than retailing, Walmart’s business.
 
Berkshire
In light of that, consider Berkshire’s portfolio of businesses. It hardly seems like the stuff of obvious competitive advantage like Apple enjoys. Hence, perhaps, it takes a superstar to make it perform like a superstar.
 
Superstars like Buffett are few and far between. No doubt Buffett has spent tremendous effort training his successors. No doubt he has put enormous effort into building a team that can continue to thrive without him.
 
But the same effort is likely expended by great sports coaches, like the New England Patriots’ Bill Belichik. While Tom Brady, who most fans will admit was one of the best ever, was playing for the Patriots, New England was almost unstoppable.
 
But without Brady, the Patriots have struggled. In a competitive world, a true superstar can make the difference between ordinary and extraordinary performance.
 
There is no doubt that Buffett is a true superstar – arguably the greatest investor in the history of the world. That he has been able to achieve world-beating results with a collection of assets – railroads, utilities, insurance and the like – that others have not, proves it.
 
Superstars are hard to replace.
 
If history is any guide, Berkshire Hathaway is likely to revert to closer to average after it loses its superstar.
 
Only time will tell what that means for the stock price.
 
 
How to Diversify Tax Effectively
If you or any of your clients hold a significant position in Berkshire Hathaway, you may want to diversify that stock in a tax-efficient manner.
 
Please call us to see whether a Stock Diversification Trust might be a good solution. You can also ask us for a free copy of our Advisor Guide on stock diversification. Click here for a free copy of our Advisor’s Guide to Stock Diversification. Please call 703 437 9720 and ask for Connor or Katherine, or email us at [email protected].

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[1] https://www.investors.com/news/warren-buffett-getting-older-berkshire-hathaway-stockholders-getting-uneasy/

[2] See Berkshire’s annual report for details, https://www.berkshirehathaway.com/2022ar/2022ar.pdf

[3] See, for example, https://www.cnbc.com/berkshire-hathaway-portfolio/