Buffett followers contemplate Berkshire without Munger

For years, as Berkshire Hathaway climbed towards its $780bn valuation, investors wondered what would happen when Warren Buffett or Charlie Munger, the nonagenarians who personified the sprawling conglomerate, died.

They got their answer on Wednesday: almost nothing.

The market response to Munger’s death was the kind of reaction that the two men, who spent more than a decade priming investors for their eventual departures, had long wanted.

“If I die tonight, I think the stock would go up tomorrow,” Buffett, 93, quipped at the company’s annual meeting in 2017.

On Wednesday, the first trading day after Munger died, Berkshire Hathaway’s shares fell just half a percentage point, only marginally lagging the broader US market.

Munger helped draw up the principles on which the company’s next generation of leaders have been trained. This has reassured investors that Berkshire can survive the loss of either man, but Munger’s absence will still be felt deeply within Berkshire.

The Omaha native helped transform the company, once a struggling textile maker, into an industrials and insurance behemoth. Buffett credited his longtime partner with shifting his investment approach from the purely value-focused training he learned under the tutelage of Benjamin Graham, the father of value investing.

Munger was the sounding board for Buffett on a number of the company’s biggest deals, going back to their $25mn takeover of See’s Candies in 1972, executed through their joint investments in another company.

The See’s buyout — the biggest deal either man had clinched up to that point — was a turning point for Buffett. At Munger’s urging, he started moving away from the troubled but cheap businesses he had long chased. See’s has generated more than $2bn in pre-tax profits since the takeover, cash that was critical in funding Berkshire’s ascent, including its lucrative stock market investments.

Munger’s fingerprints could be seen on several of Berkshire’s later transactions, including its $6bn purchase of Israeli metals company Iscar and its purchase of shares of Chinese carmaker BYD.

In recent years, it has been harder for investors to decipher which transactions Munger influenced, in part because they have few sources from which to draw their information: Buffett’s annual letters, his relatively rare press appearances and Berkshire’s annual meeting. The company did not respond to a request for comment for this article.

Charlie Munger at Berkshire Hathaway’s annual meeting in May 2017 © Daniel Acker/Bloomberg

“While he’s largely been out of much of an operational role, he remained a sounding board to the end,” said Christopher Bloomstran, president of Berkshire shareholder Semper Augustus Investments.

He noted that Munger was “probably the only one that could tell Warren no and that he was doing something dumb”, adding that Munger had earned the “Abominable No-man” nickname Buffett gave him.

Christopher Rossbach, chief investment officer of longtime Berkshire shareholder J Stern & Co, said investors would have to wait to see whether the executives who have worked side-by-side with the two men would be given expanded responsibilities.

That list includes Todd Combs and Ted Weschler, who help manage Berkshire’s $319bn stock portfolio, as well as vice-chairs Greg Abel and Ajit Jain, who run its operating businesses and insurance unit, respectively. Munger in 2021 said Abel, the company’s 61-year-old heir apparent, would “keep the culture” after he and Buffett were gone.

“The question now for Warren is now that he has surrounded himself with a number of people who he has worked with for a long time that he trusts, can they step into [Munger’s] shoes?” Rossbach said. “Can they have a dialogue with [Buffett] that is as open and critical and helpful in making the right decisions?”

Investors and analysts do not believe the company will make any immediate changes, given that succession plans have largely been laid out and Munger’s $2bn-plus stake was not large enough to affect control. Buffett has also remained squarely at the helm, guiding investment decisions and takeovers.

But investors said they would be closely scrutinising Buffett’s annual letter next February for any indications that change is afoot at the conglomerate, which counts insurer Geico and the BNSF railroad among its assets.

The deaths of several board directors had already forced Berkshire to find new overseers. Walter Scott, a director for more than two decades, died in September 2021, aged 90. In February 2022, Thomas Murphy, 96, stepped down from the board and died three months later. Another director, David Gottesman, died in September last year at 96. In several instances, the departures meant Berkshire briefly fell foul of New York Stock Exchange listing requirements.

They have been replaced with value investors, including money managers Christopher Davis and Wally Weitz.

The board is expected to take a much more active role once Buffett is no longer chief executive. His successors will have to deal with the shareholder register change that will take place when Buffett, who controls almost a third of the voting rights, dies. That could finally force Berkshire to yield to the institutional investors that it has largely been able to shrug off.

Beyond such practical considerations, Berkshire followers are also focused on the personal impact on Buffett after losing his longtime right-hand man.

“Investors should be focused on what this means for Warren Buffett going forward,” said Cathy Seifert, an analyst with CFRA Research. “This is a big loss. He’s in his 90s, and investors are going to be focused on what does this mean for his day-to-day activities and functioning.”

Buffett has lamented some investments he made without Munger’s input, including the purchase of $2bn worth of bonds backing the disastrous buyout of Energy Future Holdings, the Texas utility that eventually filed for bankruptcy.

The company suffered an $837mn pre-tax loss on the investment. Making the investment “without consulting with Charlie . . . was a big mistake”, Buffett told shareholders in 2014.

He added: “Next time I’ll call Charlie.”

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