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We all are humans. Humans are mortal, and so is Warren Buffett. Given that he is an elderly man close to 90, it is quite likely that he will pass away in the next few years.

Sad events like these often cause the value of a connected share to abruptly decline. On the other hand, it is said the market knows everything and all future events which are certain are already priced in.

Will Berkshire Hathaway remain a good investment in the long term? Are there other examples in history with a similar constellation where conclusions can be drawn from?

Sorry if this question is perceived as rude, I have tried to phrase it as softly as I could.

  • What does "constellation" mean in this context? – Flux Sep 13 at 21:48
  • @Flux That's supposed to mean something along "one company whose fate is more or less tied to its topmost boss". – glglgl Sep 15 at 10:04
  • More than a week ago, I made a question about "constellation" on the English Language Learners site: ell.stackexchange.com/q/259534. Perhaps you might be interested in settling the debate by answering the question over there. – Flux Sep 15 at 10:10
  • @Flux Thanks, I'll have a look. – glglgl Sep 15 at 11:02
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No one can tell what will or will not be a good investment in the future. However --

Berkshire Hathaway's annual newsletter to shareholders has, for the past several years, discussed this. Warren Buffett is 89, and his right-hand-man Charlie Munger is 96. They know they're not getting any younger and they're not going to live forever. They have been making succession plans so that the reins are handed over to capable -- but younger -- people.

Two names that have risen to the top in the past few years are Ajit Jain and Greg Abel, who were added as vice-chairs to the board a couple years ago.

This year's letter to shareholders, written before the COVID-19 shutdown, states:

Charlie and I long ago entered the urgent zone. That’s not exactly great news for us. But Berkshire shareholders need not worry: Your company is 100% prepared for our departure.

The two of us base our optimism upon five factors. First, Berkshire’s assets are deployed in an extraordinary variety of wholly or partly-owned businesses that, averaged out, earn attractive returns on the capital they use. Second,Berkshire’s positioning of its “controlled” businesses within a single entity endows it with some important and enduring economic advantages. Third, Berkshire’s financial affairs will unfailingly be managed in a manner allowing the company to withstand external shocks of an extreme nature. Fourth, we possess skilled and devoted top managers for whom running Berkshire is far more than simply having a high-paying and/or prestigious job. Finally, Berkshire’s directors – your guardians – are constantly focused on both the welfare of owners and the nurturing of a culture that is rare among giant corporations. (The value of this culture is explored in Margin of Trust, a new book by Larry Cunningham and Stephanie Cuba that will be available at our annual meeting.)

The newsletter does not state who will succeed Warren and Charlie, but when discussing the (now-canceled) annual shareholders' meeting, which is a big to-do with a jam-packed weekend of events, Buffett said:

On pages A-2 – A-3, you will find details about our annual meeting, which will be held on May 2, 2020. ... I’ve had suggestions from shareholders, media and board members that Ajit Jain and Greg Abel – our two key operating managers – be given more exposure at the meeting. That change makes great sense. They are outstanding individuals, both as managers and as human beings, and you should hear more from them.

Shareholders who this year send a question to be asked by our three long-serving journalists may specify that it be posed to Ajit or Greg. They, like Charlie and me, will not have even a hint of what the questions will be.

So, we do not know what the future holds for Berkshire. We only know that its current leaders have been planning for the handover for probably decades. It does look as though Ajit Jain and Greg Abel are being groomed to succeed Warren Buffett and Charlie Munger, but there hasn't been any concrete announcement yet.

Regarding other examples in history, I can't think of another company that is even like Berkshire Hathaway to compare with.

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  • 9
    Click the shareholder letter link. It's interesting reading, very folksy as is usual for BRK. Buffett even describes what's in his will regarding his shares. – shoover Apr 21 at 10:36
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Will Berkshire Hathaway remain a good investment in the long term?

Depends on what "long term" means. A good portfolio manager will build up a portfolio that will stand the test of time. Yet, over very long intervals, let's say 50 years, it might be beneficial to gradually do changes to the portfolio, slowly divesting some and investing into others.

Berkshire Hathaway is the world's cheapest actively managed mutual fund. Divide the management costs by the total market value and you'll see why.

The worst that could happen is that Berkshire Hathaway becomes a passively managed mutual fund. Considering that an average passive investor sees the same return as an average active investors (sans costs -- with costs, passive investors exceed the return of active investors), we need to ask whether the costs of Berkshire Hathaway would be excessive if it was passively managed.

It 2017 the management cost of Berkshire Hathaway was about 159 million USD, and today its market cap is 521 billion USD. So its management fee is about 0.03% unless the management costs have skyrocketed since 2017.

Just try to see if you can even find an index fund having 0.03% management fee! (Hint: you probably won't easily find such a fund -- usually index funds are above 0.1% management fee, and should you find as cheap a fund, it is likely unsustainable so you can't enjoy it for long.)

Actually, there is an even worse scenario but it is unlikely to materialize. If the management of Berkshire Hathaway changes to someone who wants to see the management costs skyrocket, then Berkshire Hathaway could become a poor investment. However, I'm sure Mr. Buffett has plans to prevent this from happening after his death or retirement, whichever happens sooner.

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