Transcript: Dispatch from Omaha — Berkshire after Warren Buffett

This is an audio transcript of the Behind the Money podcast episode: ‘Dispatch from Omaha — Berkshire after Warren Buffett’

Michela Tindera
It’s a Thursday afternoon in early May and I’m standing on the sidewalk in a quiet neighbourhood in Omaha, Nebraska. The houses have thick green lawns and some even have white picket fences. It’s fairly unremarkable, but there’s one house on the corner that’s attracting some attention. And people have come from literally all around the world to see it.

Fans voice clip
I flew here from Poland.
I’m from Brazil.
Indonesia.
Naples, Florida.
Hong Kong.

Michela Tindera
That’s because this house is owned by Warren Buffett, the legendary investor and CEO of Berkshire Hathaway. And these people are all gathering here because they’ve come, like thousands of others, into town to attend the annual Berkshire Hathaway shareholder meeting. It’s happening later in the weekend. So I talk with a number of Buffett’s fans who are snapping photos and videos of his house and they have a lot to say.

Fans voice clip
It looks like a very, you know, common house for such a (inaudible) super man.
It’s a nice house, but it’s not what you would expect, maybe from a billionaire.
This neighbourhood is patient, quiet and that’s what Buffett like. When he’s quiet, he can think.

Michela Tindera
Stopping by Buffett’s house is a can’t-miss attraction for some superfans visiting Omaha. As the story goes, he bought it in 1958 for $31,500, and following his classic buy-and-hold investment strategy, more than 60 years later, he still owns it. Now, for decades, these kinds of stories about Buffett have all played into the myth that makes him well . . . 

Fan voice clip
He’s like the legend, you know, is an Omaha Oracle.

Michela Tindera
But in a few months, Warren Buffett will celebrate his birthday. He turns 94 years old. Buffett himself has acknowledged that he won’t be around for forever, and there have long been questions about who will take the reins of Berkshire Hathaway after Buffett. The $300bn-plus stock portfolio, the dozens of subsidiary companies and who could possibly match Buffett’s astonishing run? So when the time comes, who will take his place as the Oracle of Omaha? And what will happen to the behemoth that he’s built?

[MUSIC PLAYING]

I’m Michela Tindera from the Financial Times. For years, people have wondered what might happen to Berkshire Hathaway without Warren Buffett at the helm. Now, the company’s staring down a new era without Buffett in charge, and billions and billions of dollars are at stake. Today on Behind the Money, we’re taking you inside Berkshire Hathaway’s annual meeting. And looking at what a Berkshire without Buffett might become.

The Berkshire Hathaway annual shareholder meeting is one of the biggest, if not the biggest event in Omaha every year. Owning a share of Berkshire Hathaway stock is your ticket to attend. But before we get to the main act, there’s the opening act. On Friday afternoon, shareholders arrive to see Omaha’s convention centre transformed into what’s basically a giant shopping mall and trade show. Stepping inside, you’ll immediately see to your right a giant RV with people lined up to climb inside and take a tour. (Crowd noise) There’s displays of leather cowboy boots for sale, model train sets speeding around a track, and groups of people are cramming around red freezers where Dairy Queen ice cream treats are on sale for a dollar. Now, this hodgepodge of shops and booths all has one thing in common: they’re companies owned by Berkshire Hathaway.

Eric Platt
Berkshire Hathaway is the last great American conglomerate, period. It is a really odd mix of different businesses that touch almost every industry in this country. They employ almost 400,000 people.

Michela Tindera
That’s Eric Platt. He’s the FT’s senior corporate finance correspondent. And Eric has attended this weekend for years.

Eric Platt
They own the BNSF Burlington Northern Railroad. They own Duracell. They’ve got utilities on the west coast. They got one of the largest real estate brokerages.

Michela Tindera
On Friday afternoon, I meet up with Eric and we decide to walk the convention centre floor together. We stop in front of a massive display for Geico insurance. In one corner, there’s a blow-up version of the company’s mascot, a green gecko towering over the crowd. How many feet tall would you say that gecko is?

Eric Platt
It’s like a 15-foot gecko.

Michela Tindera
Yeah, he’s his little lizard hands are sticking out up to the ceiling.

Eric Platt
Yeah, exactly.

Michela Tindera
Eric says you wouldn’t necessarily know it by looking at all the different flashy booths inside the convention centre. But he says the Geico and Berkshire’s other insurance holdings are key to the company’s success. Now, a bit of history here. In 1965, Warren Buffett, then in his mid-thirties, takes control of a struggling textile mill called Berkshire Hathaway. But Buffett quickly realises that the way to make lots of money isn’t by producing textiles, it’s through insurance.

Eric Platt
So Warren Buffett figured out very early on that the insurance business can be used effectively as like a really cheap credit line.

Michela Tindera
Eric says, think about it like this: If you’re a Geico customer, you take out an auto insurance policy and every month you pay Geico a premium. Geico pulls that money to perhaps pay out a claim for you if you’re ever in a car accident. But what they do with that money in the meantime is invest it, and they invest it differently than almost any other insurer in the world.

Eric Platt
Normally, you’re investing in really safe assets in corporate bonds, US government debt. But Buffett was investing in higher returning assets. He was investing in riskier assets, stocks, and it allowed the company to grow much more rapidly than it otherwise would. Think about stocks. They’re growing up like 12 or 14 per cent a year. Return on a corporate bond might only be like 6 or 7 per cent.

Michela Tindera
This is where Buffett’s famous value investing strategy comes into play. That strategy is based on the practice of finding companies that are trading at prices that don’t truly represent what they’re worth. It’s how he ended up buying stocks he’s well known for, like Coca-Cola and American Express.

Eric Platt
I had a colleague say this one sentence that stuck with me forever in finance: If you outperform by a percentage point in some asset classes, that is, you’ve won like you’ve made your money for the year, right? If you outperform by ten points, you have like, wow, you’re really killing it. Since 1965, Berkshire has outperformed the S&P 500 by 4.3mn percentage points. It is an ocean of a difference.

Michela Tindera
But there’s even more to it than that. This company is a cash-generating super machine.

Eric Platt
Unlike every other like publicly traded company — which is pushed by its shareholders like issue dividends and buyback stock — they haven’t issued a dividend since 1967, which means that money has just been compounding. Unparalleled in this country.

Michela Tindera
It’s this kind of stuff that’s pushed Warren Buffett’s financial success into the stratosphere. It’s turned him into this legendary figure. And this brings people from around the world to Omaha every year. For a long time, people have called Berkshire’s annual meeting the Woodstock of capitalism. But someone I talked with over the weekend said it felt more like their Taylor Swift concert. There’s one-star act here, and that’s Warren Buffett. The weekend’s main event is a marathon five-hour long Q&A session with Buffett and other key Berkshire Hathaway executives. It all happens inside an arena downtown. Diehard fans will line up hours before the doors open, so they can snag seats to see Buffett up close in person and listen to him opine on business and life.

Voice clip 1
I came 5am so woke up pretty early. I’ve been in line already, two hours in the cold, but with my coffee, and it’s inspiring. I’m excited to be here. This is why we came. Every minute counts and it’s worth it.

Voice clip 2
I’m from Thailand so I planned this trip since like July last year. So yes, I’m very happy to be here. And Omaha is like Disneyland for me. And I have invested in stock for 10 years already. And Warren Buffett has been my idol since the first day I invested.

Voice clip 3
We came at 4:45 and joined the queue, so that’s why I left relatively fast towards the front. This year feels like there’s more people here. It feels busier, that people, who perhaps haven’t come before have made the effort.

Michela Tindera
The reason this person saying it feels busier is because this year’s meeting is an especially poignant one. Not only is Buffett turning 94 this year, but it’s also the first meeting without Buffett’s right hand, Charlie Munger.

Eric Platt
Charlie Munger, Berkshire’s vice chair, passed away in late 2023. We heard from our sources that that really shook Warren. Charlie was a really close business confidant.

Michela Tindera
And so Charlie Munger’s death has, in some ways, really underscored how little time the company has left with Buffett at the helm.

Eric Platt
For the investors of this giant business, it really raises the stakes that the transition is happening now. So they have to really get comfortable with the people who are gonna be taking over.

Michela Tindera
Now, succession at Berkshire has been a topic of discussion for decades.

Eric Platt
There have been names who have been floated over the years. There was a period when Charlie Munger and another stockpicking executive at Berkshire were like the chosen two. And then they realised the problem was they were all too close in age. And sure enough, Buffett has outlived both of them.

Michela Tindera
But over the years, all the other candidates lost out to this guy named Greg Abel. He was officially anointed as the CEO in waiting in 2021. After the break, who is Greg Abel and is he the next Oracle of Omaha?

[UNTOLD: POWER FOR SALE TRAILER PLAYING]

Michela Tindera
This annual meeting starts off differently than in years past. A tribute video to Charlie Munger plays on the big screens inside the arena. The video ends with loads of applause and then the lights come up. Buffett is revealed seated at a table on the arena’s main stage.

Warren Buffett audio clip
Yeah, don’t wear out all your clapping on Charlie. I mean . . . 

Michela Tindera
Usually Charlie Munger would be sitting next to him, but this year it’s just two of Buffett’s vice chairs Ajit Jain, who runs the insurance business, and . . . 

Warren Buffett audio clip
Greg Abel, a director and . . . (Audience clapping)

Michela Tindera
So the Q&A starts. Shareholders inside the arena and elsewhere submit questions on all kinds of things, from who Buffett’s most trusted advisers are to this question about the effects of climate change on Berkshire’s utilities business.

Warren Buffett audio clip
But I don’t regard you to all as, being unfriendly to the idea of utilities being treated fairly, Charlie. Charlie, I’m so used to . . . (laughter)

Michela Tindera
If you didn’t catch that there, Buffett accidentally calls Greg Abel, Charlie.

Warren Buffett audio clip
I had actually checked myself a couple times already, but I’ll slip again.

Greg Abel audio clip
That’s a great honour. Yeah, when you touched on it . . . 

Eric Platt
Greg Abel was born in Edmonton, Canada, went to university, gets a job at PwC and ends up working for one of his clients called CalEnergy.

Michela Tindera
CalEnergy is a power provider that later acquires a company called MidAmerican Energy, which Berkshire Hathaway ends up buying in the year 2000. The company grows under Greg’s direction and in 2018, Warren Buffett appoints him to become a vice chair at Berkshire. Eric tells me that that really signalled that Abel was among the top finalists to replace Buffett.

Eric Platt
And Warren is starting to slow down. He’s stepping off of other boards, he’s limiting his activities, and Greg starts picking up those responsibilities. And you can see as he’s managing these businesses that Berkshire owns, like their profitability is starting to improve. He is really digging into the companies, whereas Warren kind of let the managers or the families from them still how they want it to.

Michela Tindera
In 2021, Abel receives a big vote of confidence. Buffett makes public the company’s succession plans and reveals that when he’s no longer at the helm, Greg Abel will replace him as the next CEO.

Eric Platt
And Greg is kind of this, like, plain-spoken, even-keeled guy who, when we talk to people who know him and know him well, they’ll often bring up, you know, he doesn’t have that folksy charm that Warren has, or he’ll never be as entertaining as Warren is. But he’s really smart and he’s a really good operator.

Michela Tindera
But there are still uncertainties around who will truly be in charge of what at Berkshire. There are just so many different pieces, the insurance business, the investment portfolio. At the time, some shareholders think the board might also appoint a separate person to direct the company’s investment strategy, or someone else to act as its head of insurance. Either role would leave Greg to more so oversee the operating businesses. But this year, Buffett makes it clear that that’s not what he intends for the future of Berkshire. Back at the meeting later on in the morning, this key moment happens. The moderator, Becky Quick of CNBC, reads this shareholder question.

Becky Quick audio clip
The next question comes from Slaven (audience surname). As CEO, will Mr Abel be in charge of the portfolio of common stocks that Mr Buffett has been managing, or will this function be . . . 

Michela Tindera
The person is asking about who will manage capital allocation? That is how all that cash the company generates will be invested when Buffett is no longer there.

Warren Buffett audio clip
Yeah, I would say that decision actually will be made when I’m not around. And I may try and come back and haunt them if they do it differently then. Knowing Greg, I would leave the capital allocation to Greg. And he understands businesses extremely well. And if you understand businesses, you understand common stocks. I mean, if you really know how business works.

Michela Tindera
As we walked out of the arena after the meeting, I talked with Eric about this moment. Just days earlier, Eric had published a story in the FT revealing how Warren Buffett’s two investment deputies had been performing in the stock market over the last decade. His reporting showed that they had been underperforming both Buffett’s own picks as well as the S&P 500. So the fact that Buffett pivoted away from the two investment deputies and over to Greg is significant. So I wanted to ask Eric what he thought.

Eric Platt
We learned a few new things. Right? Including about Warren’s wish. This is probably the most important thing we learned that Warren is really keen for Greg to have full oversight of the entire company. Not really a splitting of the investment role from operations and for insurance. He really sees it kind of all going to Greg. He said the board will have to make that decision ultimately. But that’s what he thinks they should do.

Michela Tindera
And important investors at the meeting noticed this shift, too.

Christopher Rossbach
I thought the meeting, today was very moving.

Michela Tindera
That’s Christopher Rossbach. He’s the chief investment officer at the investment firm Jay Stern and Co. The Stern family are long-term shareholders in Berkshire Hathaway. And Eric and I caught up with Chris after the meeting.

Christopher Rossbach
I think the most important thing that I took away from it is that the transition is really taking place. I think Warren Buffett has made very clear how the structure of management is gonna be going forward, and in particular that Greg Abel will not just be the successor, but that as CEO, he will have the full responsibility to run the company, to be in charge of capital allocation, which I think he said very clearly and perhaps more clearly than he has said it before.

Michela Tindera
Rossbach says that to him, this moment showed that the major decisions — not just for the operating businesses and the insurance businesses, but also the investing business — it would all be up to Greg Abel as the next CEO.

Christopher Rossbach
Berkshire Hathaway is a very large company that has a multitude of businesses that has generated a tremendous amount of value. And therefore the responsibility of managing it is an awesome one. And from what we’ve seen today is that Greg Abel is stepping into that.

Michela Tindera
Other shareholders I met walking around over the weekend also seemed optimistic about Greg Abel, though certainly less familiar with him compared to Warren Buffett.

Shareholder voice clip
Given how solid and diversified this company is, it’s really like an index of the US. And I don’t expect, unless the US collapses — which I don’t expect to happen — I think Berkshire will keep doing well.

Michela Tindera
But it’s not gonna be smooth sailing. There are vast challenges ahead. Greg Abel is facing a lot that Warren Buffett and Charlie Munger didn’t really have to contend with during their decades at the top of Berkshire. First off, Eric says Buffett himself has been flagging to shareholders for years how hard it will be for Berkshire in the future to find deals that will actually help the company grow even larger.

Eric Platt
It was easier for them to move the needle, you know, when the company was worth $100bn or $200bn. But as it’s grown larger and larger, you have to do acquisitions of such size, for it to actually have a meaningful impact. And Warren has said, you know, they picked through most of the acquisitions that are out there. They’re competing with private equity, which are pushing valuations to levels that, in the future, Greg would probably find untenable. And so that’s making it increasingly difficult for Berkshire to find the kinds of deals that will help grow operating earnings at the conglomerate.

Michela Tindera
There are other challenges, too.

Eric Platt
There’s a big question for Berkshire on like Warren and Charlie have long not invested in businesses that they don’t understand. We’re on the verge of another technological revolution with AI, with self-driving cars, with EVs. And there’s a question of like the people who are going to be taking Berkshire forward. Are they able to push Berkshire into the future US economy?

Michela Tindera
And then there’s a more intangible challenge that Greg will face.

Eric Platt
Greg, isn’t Warren right? People like selling their businesses to Warren Buffett. It’s unclear if that transfers to Greg, especially if he’s not gonna come with the kind of dollars that other competitors are.

Michela Tindera
So can Greg Abel become the next Oracle of Omaha? And in reality, does he have to?

Eric Platt
This might not be an exciting answer but Berkshire can meddle along. It’s been built conservatively and managed appropriately. And when I, you know, talk to a lot of investors, there’s a view maybe the operating earnings are a little less strong. Maybe they’re not earning as much on investment income. And so the stock doesn’t trade as high. But a lot of folks are OK with that. When I take a step back, I think all of that might be true initially, but I don’t know how long it ultimately lasts. You know, if the stock is underperforming for years and years after Buffett’s time at the top, you could really see investors come in and raise serious questions about Greg. They could raise the threat of calling to break up the company even. And why that matters is Berkshire is the last great American conglomerate. And you could really see it go the way of General Electric or any of its peers who have had, you know, a smattering of businesses in far-flung reaches of the economy. And I think that’s exactly what Warren Buffett doesn’t want. And so there will be folks around really championing what he built, but ultimately it’ll be for Greg to carry that torch forward.

[MUSIC PLAYING]

Michela Tindera
Behind the Money is hosted by me, Michela Tindera. Saffeya Ahmed is our producer. Topher Forhecz is our executive producer. Sound design and mixing by Sam Giovinco. Our contributing producer is Max Johnston from Goat Rodeo. Special thanks to Kasia Broussalian. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.