Even people who will never buy a single share of stock know the name Warren Buffett. His celebrity as a brilliant investor transcends his niche, and his iconic status has to be recognized as supporting the stock value of his holding company, Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B). But the man is 88 years old, which is why many people -- including, recently a Motley Fool Answers listener -- have been asking themselves about how much "key man risk" there is here. Will Berkshire shares slump the day Buffett announces his retirement?
In this segment, hosts Alison Southwick and Robert Brokamp discuss the eventual future of Berkshire with Buck Hartzell, director of investor learning and operations at The Motley Fool.
A full transcript follows the video.
This video was recorded on Oct. 30, 2018.
Alison Southwick: Speaking of Berkshire Hathaway and Buffett, our next question comes from Evandro, who's in Sao Paulo, Brazil. "What will happen to Berkshire Hathaway stocks the day Buffett announces his retirement? He's 88, so it's possible it could happen soon. I have no issues with him continuing to lead the company, but for natural reasons we tend to think about his eventual retirement. It would be great to hear what you think."
Buck Hartzell: It's a great question. I was at the Berkshire meeting this May, and it's just amazing when you see him. You mentioned Warren Buffett up there at 88 and taking questions for six hours from 40,000-50,000 people. And Charlie Munger, his sidekick and vice chairman, is 94.
Southwick: Wow! And still mentally sharp, right?
Hartzell: Amazing! Amazingly sharp, and still eats about a box or two of peanut brittle and drinks Cherry Coke the whole time. So much for your doctor's orders of eating healthy and longevity. But the great thing about Berkshire -- and I've owned it for a long time -- is I remember reading this question on our discussion boards in the 1990s. "Buffet's 70-something years old."
Robert Brokamp: I remember that, too!
Hartzell: Now we're getting it 20 years later. Here's what I would say. I would be surprised if Berkshire stock went up when Warren Buffett steps down. It's probably going to go down. But then again, this is his baby. He's built this thing. There are some things that are very unique about Berkshire Hathaway.
First of all, they have a wonderful bench strength of managers, and they have a decentralized organizational structure, so although they own 80-plus businesses, they're all run by their own entrepreneurs and great people, and Buffett has no real insight into those businesses. He understands what's going on -- he gets the numbers -- but they run those day to day. He does not. All he really does is capital allocation and management.
The capital allocation stuff, he's hired a couple of really good folks to do that. Todd Combs and Ted Weschler are helping out on that, and he's got same great people in the insurance operations with Ajit Jain. Greg Abel will take over some of the other operations for their management of oversight and the management duties of Berkshire. So he has great people there, and my guess is if you're anticipating that the stock's going to get crushed, that's probably not going to happen. They have lots of capital, and I'm sure that the people who are taking over the reins from Warren will have free rein to buy back stock, at will, if it reaches a certain price.
I'm waiting for that day. It's probably not going to come. The day will come when he'll step aside, but the price probably won't be on sale as much as you think. I wouldn't worry so much about that.
Brokamp: I've also owned it for several years -- although I'm sure not as long as you --but like you, I don't have the same concerns. Buffett has shown an ability to invest in good businesses, and he has also shown the ability to invest in good people. Those people will still be there after he retires.
Hartzell: And they have $100 billion in cash. There's not many companies on Earth that have the balance sheet strength that Berkshire Hathaway has right now, and we know that they are willing to allocate it very quickly. I think he bought almost $40 billion of Apple in the last year or so. He'll put it to work when he finds ideas.
Brokamp: Another example of how you could possible own more Apple than you think you do.
Hartzell: Yes, through Berkshire. That's right.
Alison Southwick has no position in any of the stocks mentioned. Buck Hartzell owns shares of Apple, Berkshire Hathaway (A shares), and Berkshire Hathaway (B shares). Robert Brokamp, CFP owns shares of Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.