The news is finally official: Warren Buffett will step down as Berkshire Hathaway'S. (NYSE: BRK.A)(NYSE: BRK.B) CEO by the end of 2025. Why? “There was no magic moment,” Buffett told reporters. “How do you know the day you get old?”
If you think Berkshire Hathaway is no longer a good investment without Buffett at the helm, think again. He has already been getting the transformation for years.
In many ways, few will change. To a large extent, the company will be led by its hand -selected successors, already employed by Berkshire. This team is responsible for some of its biggest investments.
Could you still buy Berkshire stock for life? Absolutely. In fact, there are two reasons to stay excited over the long term.
The stock has been one of the best performing investments ever, posting two -digit percentage earnings for decades at a time. Although it has not yet been a large drain on forms, Berkshire's growing cash pile will become increasingly a problem for matching market earnings.
It's hard enough to beat the market year on year. It is even harder to do when a significant amount of your capital is tied in cash. With a market cap of around $ 1 trillion, Berkshire has nearly $ 350 billion in cash, company record.
Fortunately, the Buffett Investment Team is ready for the challenge. How do we know? Without them, nearly half of Berkshire's valuation could be tied in cash at present.
In 2016, management made an unlikely movement: bought shares of Apple. Buffett had avoided technology stocks like this for a long time. “I know as much about integrated conductors or circuits as I make from the matching habits of the Chrzaszcz (glossy beetle),” Buffett once said. In 2012, he claimed he would never buy shares from Apple because he didn't know how to appreciate them.
And again four years later, the company started uploading on Apple's shares. Today it is the largest site in its public trade portfolio, with a value of more than $ 60 billion.
What changed? He was not Buffett, but rather two of his investment lieutenants: Todd Combs and Ted Weschler. These are the two figures that are widely thought to be responsible for the huge bet on Apple. He has netted Berkshire's huge profits over the years, witnessing being able to comb and Weschler.
With more cash than ever, Berkshire will need fresh ideas to keep her streak of high annual earnings to go. Fortunately, we already have evidence that the remaining team can give big money to work with great results, a strong optimistic sign for the coming decades.
Image source: Getty images
Berkshire is in great hands in terms of its investment capabilities. Weschler and Combs are only responsible for one of the biggest and most profitable bets in the company's history. But what about the rest of the business? As such, everything stays in place too.
Perhaps the company's biggest advantage has been its institutional structure. At the core is a portfolio of insurance businesses. Although not extremely profitable, they produce a lot of cash that can be invested. Buffett calls this excess money “float.”
Float is produced because insurance companies collect premiums on policies, but they do not need to pay that cash until a claim is filed. Decades ago, Buffett realized that this was essentially free investment capital. By investing this float, he has turned his company to what it is today.
Beyond that, Berkshire has a publicly traded portfolio. But he also owns a long list of private businesses. All, Buffett emphasizes, are largely independent. “The important thing we do with managers is to find the .400 hitter and then not tell them how to rock,” he said.
Even after Buffett steps down, none of this will change. The company will retain the same structural benefits that have boosted its huge erection over the decades. So if you own shares or still think about jumping in, Berkshire Hathaway remains one of the few companies “buy it for life”.
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Ryan vanzo He does not have a position in any of the stocks mentioned. The Motley Fool has jobs in and recommends Apple and Berkshire Hathaway. The fool has motley and Disclosure Policy.
