【原版杂志阅读】 文章预读：Warren Buffett has created a $348bn question for his successor

Finance & economics | The oracle plans to step down

Warren Buffett has created a $348bn question for his successor

Berkshire Hathaway’s next CEO has huge shoes to fill—and a mountain of cash to invest 

SURPRISING PEOPLE at the age of 94 is no mean feat. But that is what Warren Buffett did at the end of Berkshire Hathaway’s annual shareholder meeting on May 3rd, when he announced that he would be stepping down as the company’s chief executive at the end of the year. Mr Buffett gave most of Berkshire’s directors no advance notice of his decision. Nor did he tell Greg Abel, his presumptive successor.

Berkshire Hathaway was a textile-maker when Mr Buffett bought it in 1965. In the years that followed he turned it into an immense insurance firm and a sprawling conglomerate with interests in everything from energy to sweets.

He employed a value-investing strategy, seeking out companies that appeared cheap relative to their intrinsic value. From 1965 to the end of last year, Berkshire’s market value had increased by more than 5,500,000%, with a compounded annual return of almost 20%. The total return of the S&P 500 index over the same period was 39,000%.

Today Berkshire has a market capitalisation of $1.1trn, having dropped a bit on Mr Buffett’s announcement. Mr Abel has been with the company for a quarter of a century. He has run its non-insurance operations—such as its energy, railway and retail businesses—since 2018. His next challenge goes beyond filling Mr Buffett’s shoes as an “oracle”. Berkshire’s strategy is becoming more difficult to pull off.

Over the past year, Mr Buffett has aggressively sold stocks, including a large chunk of its stake in Apple. Now, for the first time in two decades, Berkshire owns more cash than listed equities. At the end of March it held $348bn in cash and short-term American government debt, more than twice the amount it held at the close of 2023. The firm’s Treasuries account for 5% of the outstanding market. If Berkshire was a country, it would be the tenth-largest holder of American government debt, above India, Switzerland and Taiwan.

Mr Buffett’s decision to withdraw from the stockmarket has so far benefited the company. Its stock is up by 14% this year, while the S&P 500 is down by 4%. The problem, for Messrs Buffett and Abel, is working out what to do with the enormous pile of cash. Lately Mr Buffett has griped that there is not much out there to buy at a reasonable price. Even after the recent market tumult, valuations of listed companies are high relative to their historical levels.

One option would be to expand more aggressively overseas. In recent years Mr Buffett has made successful bets abroad. For example, he has poured billions of dollars into several of Japan’s trading conglomerates, such as Mitsubishi and Sumitomo. Mr Abel might note that among companies worth over $5bn and with price-to-earnings ratios below ten—suggesting they are cheaply valued—80% by value are domiciled outside America.

Another option would be to stray from value investing in the hope of finding firms worthy of capital allocation. That seems unlikely, at least for now. Such a move would transform Berkshire’s culture and risk the ire of Mr Buffett’s admirers. After 25 years at the firm, Mr Abel is unlikely to pull an immediate handbrake turn.

Absent a change of strategy, Berkshire will have to wait for a market downturn. Mr Buffett has a history of spotting such opportunities. He snapped up a large stake in Wells Fargo, an American bank, during a slump in 1990. He invested in companies including Johnson & Johnson and Kraft Foods (and Wells Fargo again) following the global financial crisis of 2007- 09. The list goes on. Berkshire’s shareholders must hope that Mr Abel has the same vision.