The most pressing questions on Berkshire watchers' minds ahead of Greg Abel's first annual meeting as CEO
· Business Insider
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- Berkshire Hathaway's annual meeting is next week, but Warren Buffett won't be hosting.
- New CEO Greg Abel will welcome tens of thousands of shareholders from across the world to Omaha.
- Berkshire gurus want Abel to share his plans for stocks, businesses, cash, and leadership.
What is Berkshire Hathaway without Warren Buffett in charge?
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Tens of thousands of shareholders are hoping to find out when they descend on the legendary investor's hometown of Omaha next week.
They're making the pilgrimage to attend Berkshire's annual meeting, dubbed "Woodstock for Capitalists" because it attracts a huge crowd of like-minded investors for a weekend of learning, networking, and celebration.
But for the first time, Buffett won't be hosting the gathering. Instead, it will be Greg Abel, who took over as Berkshire's CEO at the start of this year, marking the end of the business icon's six-decade run.
Business Insider asked five Berkshire gurus what they'd like to hear from Abel next week. They shared questions about his management approach, plans for Berkshire's cash pile and stock portfolio, and even his personal life.
1. Trailing the index
Berkshire stock has declined 14% since Buffett's surprise retirement announcement on May 3 last year, while the S&P 500 has gained 26%.
David Kass, a finance professor at the University of Maryland and a longtime Berkshire blogger, said he would like to hear Abel's "explanation for Berkshire underperforming the S&P 500" by roughly 40 percentage points in under 12 months.
2. Money mountain
Berkshire held a record $373 billion of cash, Treasury bills, and other liquid assets at the end of December. That figure exceeds the market value of Chevron ($371 billion), Palantir ($365 billion), and Cisco ($355 billion).
Buffett, perhaps the world's foremost bargain hunter, struggled in recent years to deploy Berkshire's cash as stock valuations surged, acquisition prices soared, and even buybacks grew unattractive as Berkshire shares climbed.
Now Buffett has stepped aside, it's up to Abel to put that money to work.
"What are his plans to invest $373 billion in cash?" Kass asked.
Brett Gardner, an analyst and the author of "Buffett's Early Investments," raised the prospect that Berkshire might use its dry powder to purchase Buffett's roughly 14% stake in the business, a position worth $138 billion.
"Does Berkshire plan on buying Warren's stake in a negotiated transaction someday?" he asked.
3. Leadership revamp
Abel has made a few changes to Berkshire's top brass since taking over, most notably appointing NetJets CEO Adam Johnson as president.
Johnson and Katie Farmer, the CEO of Berkshire-owned BNSF Railway, will join Abel onstage for the second Q&A session.
Larry Cunningham, the author of several books about Berkshire and the director of the University of Delaware's Weinberg Center, told Business Insider he's looking forward to seeing Abel engage with the two subsidiary CEOs, "a new practice that I hope will add tremendous value to the meeting."
Gardner is also looking for indications of whether Abel intends to appoint other divisional leaders like Johnson. Under Buffett, subsidiary CEOs reported to Abel as the head of the non-insurance businesses, and Berkshire's insurance chief, Ajit Jain.
Chris Ballard, a managing director at Check Capital Management, said he was curious about Ted Weschler's expanded role at Berkshire. Abel touched on that in his first shareholder letter, following the departure of the other investment manager, Todd Combs.
Ballard said he was hoping Abel would share "some details on how often he sees Ted, how often he is in contact with Ted, and what sort of behind-the-scenes responsibilities Greg leans on Ted for."
Warren Buffett is Berkshire Hathaway's chairman and former CEO.Daniel Zuchnik/WireImage via Getty Images
4. Stocks and subsidiaries
In his first shareholder letter, Abel listed Berkshire's core stock holdings as Apple, American Express, Coca-Cola, and Moody's, leaving out two large positions — Bank of America and Chevron.
Ballard said he was "very interested" to hear Abel's thoughts on Berkshire's stocks and what kinds of businesses he'd consider adding to its core portfolio.
He also highlighted that almost nothing is known about Abel's investing experience.
"We don't know what Greg's past personal or professional investment performance looks like, and we are very interested in him describing some investment successes and failures, so we can get a sense for what we might expect going forward," Ballard said.
Paul Lountzis, a longtime Berkshire shareholder and the president of Lountzis Asset Management, said he was curious whether Abel would look to offload any subsidiaries. Buffett famously offered businesses a permanent home, which distinguished Berkshire from other buyers.
"Does he see Berkshire selling any businesses if they receive offers to buy some of the companies at attractive prices?" Lountzis asked.
5. Hands-on vs. hands-off
Buffett and his late business partner, Charlie Munger, structured Berkshire as a decentralized web of autonomous subsidiaries, which allowed them to focus on allocating capital inside and outside the company instead of running the businesses themselves.
Abel is a more hands-on manager and may demand more of Berkshire's businesses. He wrote in his letter that Pilot had ranked second in a study of travel centers' popularity, and he wouldn't be pleased until it takes the No. 1 spot.
He also noted that Berkshire first invested in Pilot in 2017 but was "contractually delayed" from managing it until 2023, and said, "that mistake will not happen again."
"His comments were uncompromising and could be taken as unwelcoming," Ballard said. "In the past, Buffett wanted Berkshire to be seen as a great home for a long-held family business, and he would remain hands off and allow the current owners to have autonomy. Abel's comments could deter such owners from approaching Berkshire in the future."
Ballard asked whether Abel would promise a permanent home to potential sellers, and whether he would allow the same level of autonomy as Buffett and Munger did or seek to optimize businesses after buying them.
6. Getting personal
Buffett is famous for his investing prowess, his philanthropy, his frugal lifestyle, his junk-food diet, and more. Very little is known about Abel by comparison.
"What does his typical day look like?" Kass asked. "What percentage of his time is spent on travel to Berkshire's companies? How many hours per day does he spend on investment research, such as reading 10-Ks?"
Ballard said he's eager to learn "more about Greg as a person, both personally and professionally." He suggested Abel could talk about his love of ice hockey, his formative life experiences, his philanthropy, and his friends in the business world.
"It'd be nice to hear stories about some interactions that have taken place with other professionals, who he admires — other than Buffett — and what inspires him," Ballard added. "What books does he like? What movies, etc.?"
7. Next generation
Berkshire has already seen its biggest shake-up in decades, and there could be more changes to come.
Gardner said he'd like to know who will succeed Jain, who turns 75 this summer, as insurance chief. Lountzis inquired about how Abel is working with his lieutenants to line up successors for when Jain and other executives step down.
Buffett has headlined Berkshire's big bash for decades. Shareholders are about to find out what it's like when he's not running the show.
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