The Biggest Post-Buffett Skill We Should All Develop

Jason’s Random Words

So far, our record at Investing Unscripted is undefeated when it comes to Berkshire Hathaway (BRK.A)(BRK.B) annual meetings. The 2023 meeting we attended turned out to be the late, great Charlie Munger’s last, and this weekend’s meeting will be Warren Buffett’s last as CEO.

Whew. There’s a decent chance the Board doesn’t let us come back.

On a more serious note, Charlie’s unexpected death in 2023 a few months after the meeting was a bit unexpected in its exact timing, but not a surprise based on his recent health. As Buffett likes to kid about himself, based on the Social Security actuarial charts, Munger was already living on free time, just shy of his 100th birthday. For Warren, it seems that he’s reached the decision to step down, if maybe not exactly when he would want, certainly more on his own terms. He remains in reasonably good health considering he’s approaching 95, and based on his four hours of answering questions on Saturday morning his mental faculties seem as sharp as ever. As friend of the show Wayne described him on our livestream Saturday afternoon after the meeting, he’s the “Greg Maddux of investing.” He may have lost his fastball, but he can still locate his pitch with the best of them.

What does this mean for Berkshire?

I think in the near term, not much of anything. Greg Abel — the longtime executive in charge of the utility business who came to Berkshire when it acquired Mid-American Energy in 1999 — is his named successor (though the Board will make an official decision on that in a meeting soon) and has taken on more responsibilities over the past few years. Ted Weschler and Todd Combs have spent 13 and 15 years respectively managing a portion of Berkshires investment portfolio, as well as taking on more leadership roles with the subsidiaries. Ajit Jain remains central to leading Berkshires insurance businesses.

For the smaller subsidiaries, this is almost certainly a non-factor in how they operate. Those businesses are largely self-operated. They report up to headquarters, but headquarters rarely dictates back down to the subsidiaries what they should do. Beyond discussions around long-term capital needs and planning, and meeting their obligations in earnings they contribute to Berkshire, they’ve largely been left to their own designs. We’ve also seen more and more of them report up to someone besides Warren over the past decade.

In other words, the process of decentralizing Buffett’s prior responsibilities started years ago. Sticking with the baseball parlance Wayne used on the livestream, it’s almost like Buffett has already transitioned away from being the great player who locked down their defensive position while also having a potent bat, and has already transitioned into the “designated hitter” portion at the end of his career. He may have slowed down in the field, but he can still knock it out of the park.

What happens next?

The next year will almost certainly be nothing unique except being the end of an era. The transition from Buffett, as noted above, started years ago. And as our friend Tyler of Misfit Alpha (use the link! Get a discount!) pointed out, his answers to questions have become a bit more wandering in recent years, though he still gets to the destination with his usual wit and insight. So this timing may have surprised some people, but isn’t really that surprising (the reason we came to the meeting was in large part because we expected it would be his last as CEO) considering everything that’s happened in recent years.

But looking beyond Buffett and the C-suite, I do think there is reason to be concerned about further deterioration at the smaller subsidiaries. Like Buffett, many of the founders and managers at those companies are going through a turnover. Buffett wrote about Pete Liegl, the founder of Berkshire RV and boat manufacturer Forest River in his annual letter, after his death late last year. Berkshire bought Forest River from Pete in 2005, and he remained on board to run the company for the next 19 years.

This isn’t particularly unique with many of Berkshire’s smaller subsidiaries, and the loss of this generation of leaders could fundamentally alter the culture of businesses that Berkshire has had a relatively light touch on for many years.

To put it another way, what has largely been a feature of Berkshire’s ownership of these businesses under Buffett could prove to be a bug for Abel and co down the road. My hope is that future management has the same mental flexibility that Buffett has had, and the willingness to very quickly do things differently when the reality on the ground has changed, too.

The hardest part of transitions

Buffett’s mental flexibility — that willingness to adapt and change — is his most underappreciated superpower. And I think that same skill may be the one that’s most needed by Abel and his team once Warren isn’t CEO anymore.

And that’s the lesson I have tried to take for myself as well. Change happens. Life moves forward and we have to adapt. Learning how to be more mentally flexible is hard, but if there’s one Buffett trait we should all try to emulate, I think it’s the most important one.

Jason