Many investors bought shares of Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) so they wouldn't have to worry too much about their investment. After all, who better to trust with your money than Warren Buffett and his team? However, there is one major worry among Berkshire shareholders: What happens when Warren Buffett is no longer leading the company?
The biggest worry of Berkshire's shareholders
It's fair to say that many Berkshire investors bought shares because they wanted Warren Buffett to be calling the shots with their investment dollars. And that makes sense – in the half-century that Buffett has been at the helm, Berkshire has not only beaten the market, but delivered unheard-of returns to shareholders.
Well, Warren Buffett is now 86 years old, and his right-hand man Charlie Munger is 93. And while I certainly hope Buffett and Munger both live well into their 100s, the reality is that neither will be running Berkshire forever. Buffett has suggested before that he might actually retire at some point.
When Buffett isn't running Berkshire anymore, who will be?
In his 2014 letter to shareholders, marking 50 years since he'd been running Berkshire, Warren Buffett laid out his vision for the next half-century at the company. While we don't yet know who is next in line to succeed Buffett as CEO, and probably won't until the time comes, he did offer some hints.
He said that Berkshire's directors believe in hiring future CEOs from within, and that candidates should be relatively young. Buffett has now spent 52 years at the helm of Berkshire, and ideally, the next CEO would do the same. He went on to say that the board has selected his successor, who will be ready to assume the job the day Buffett is no longer running the show, and he is confident that this individual will do as good of a job as he has -- even better in some respects.
In addition, Buffett has expressed his wishes that his son, Howard, be made a non-executive chairman, specifically to act quickly if the company's new CEO isn't working out.
As far as Berkshire's investments are concerned: Buffett's two stock-picking lieutenants, Ted Weschler and Todd Combs, have been entrusted with investing more and more of Berkshire's capital in recent years. The idea is that they will be in charge of the company's vast portfolio after Buffett is gone, and will also help the next CEO evaluate acquisition prospects.
In short, Buffett feels that the mechanisms are in place for Berkshire's business trajectory to continue in perpetuity, so investors shouldn't worry about Berkshire Hathaway in the post-Buffett era.
It doesn't matter much who is in charge at Berkshire
Warren Buffett once said, in reference to Berkshire's investment in Coca-Cola, that one of the reasons he loves Coca-Cola's business is that "a ham sandwich" could run the company. In other words, Coca-Cola is such a smooth-running business, and requires so little effort from the person sitting at the CEO's desk, that the company would likely do just fine no matter who is in charge.
The same logic applies to Berkshire. Buffett takes a notoriously hands-off approach with the managers of Berkshire's subsidiaries. For example, Tony Nicely, the CEO of GEICO, is generally left alone to run the operation as he sees fit. As Buffett said in his succession-plan discussion: "The extraordinary delegation of authority now existing at Berkshire is the ideal antidote to bureaucracy."
And while Buffett is responsible for the majority of Berkshire's stock portfolio, Ted Weschler and Todd Combs have been given more and more responsibility in recent years, and have done an excellent job.
The bottom line is that while Buffett and Munger won't be running the show at Berkshire forever, there's no reason for shareholders to worry about Berkshire's business over the long run.
Having said that, I completely expect Berkshire's stock to take a short-lived nosedive once Buffett either steps down or dies -- and if that happens, it should be viewed as a major buying opportunity.