OMAHA -- The world's eyes are on Warren Buffett. Berkshire Hathaway's
The stakes have never been higher for Berkshire investors, which is why the Fool has dispatched a team to scenic Omaha to deliver rapid-fire coverage and commentary that you can follow at www.Berkshire.Fool.com. And the questions will flow hot and heavy. Buffett and longtime partner Charlie Munger will face dozens of questions on Saturday, but these are the three burning questions on investors' minds.
Question 1: What will fix Berkshire's stock price?
Berkshire investors are spoiled. Decades of market-drubbing returns have made the past few years feel like the morning after Christmas. The "Buffett premium" the market is willing to pay for Berkshire has shrunk as investors fret over whether the Oracle has lost his touch and who will run the show after he has moved on. Berkshire's shares, which sold at an average 50% premium to book value over the past decade, now swap hands at only a 20% premium.
Have a look:
Source: S&P Capital IQ.
Not that Buffett is sitting on his hands. He launched a revolutionary stock repurchase program in September, offering to buy back shares if they fell below a 10% premium to book value, and dropped clues in his annual letter to shareholders about how he privately values Berkshire. Buffett plays his cards close to the vest when it comes to Berkshire's stock price, making these moves as close as he'll get to saying "This stock is dirt cheap."
But Buffett's job is to manage Berkshire's business, not massage its stock price, and Berkshire's contrarian shareholders should understand that better than anyone. Those who don't should move on. That leads to the next urgent question.
Question 2: Who is Buffett's replacement?
Buffett was never getting any younger, but the market has become obsessed with succession after the embarrassing exit of heir apparent David Sokol and the disclosure that Buffett has prostate cancer. And there's good reason for concern: Buffett is a once-in-a-century talent, and Berkshire won't be the same without him. He's so prolific that his roles of chief executive and de facto chief investment officer will be split in two when he's gone.
Analysts are jabbering about the CEO succession plan as if it were a horse race. The smart money is on Ajit Jain, the quiet head of Berkshire's massive reinsurance group and close Buffett confidant. As Buffett said in his 2009 letter to shareholders, "If Charlie, I and Ajit are ever in a sinking boat -- and you can only save one of us -- swim to Ajit." But Greg Abel, the head of Berkshire's MidAmerican Energy business, and Matt Rose, who heads up BNSF Railway, are also worthy candidates who run major business units.
And then there is the management of Berkshire's precious, prodigious investment portfolio. Buffett has signed on two proven young whippersnappers, Todd Combs and Ted Weschler, to manage a couple billion dollars apiece on behalf of Berkshire. Buffett shrewdly incentivized Combs and Weschler based not only on long-term performance, but also on how well the other young gun performs. The result? A tag team in the mold of a young Buffett and Munger working together, rather than vying for greater personal glory.
Buffett should just say no to investors demanding names. Buffett's prostate cancer thankfully looks easily beatable -- he isn't even starting treatments until mid-July -- which means he may well run Berkshire for several more years. Tabbing a successor today would dishearten the short-listers who get passed over and rob Buffett of time to evaluate the primary candidates. Why buy a car today that you can take for a years-long test drive?
Question 3: Has Buffett gone astray?
Buffett and Munger are like a fine port -- they keep getting better with age. They're both voracious readers and relentlessly focused on widening their circles of competence. Still, Berkshire raised eyebrows in 2008 when the company invested in hyper-growth Chinese battery manufacturer BYD. Questions morphed into praise when BYD's stock took off, and investors lauded Buffett and Munger for having the intellectual dexterity to hit a home run outside their strike zone. It was as if Michael Jordan had started playing baseball -- but was actually good at it.
The praise was almost as short-lived as Jordan's baseball career. BYD's high-priced stock came crashing back to earth because of intense competition and the gravitational laws of valuation. And then Buffett raised investors' other eyebrows this year when he invested $11 billion in IBM
Exclusive: The Berkshire 2012 Experience
The Berkshire meeting isn't televised, there is no transcript, and you won't find it on YouTube. That's why we're here in Omaha -- to bring you behind the curtains to experience the exclusive action. Head to www.Berkshire.Fool.com for our real-time coverage of the full Berkshire 2012 experience. We'll be live-blogging Warren and Charlie's epic question-and-answer session on Saturday, tweeting and photographing the choicest moments of the weekend, and serving up video commentaries on the angles all investors need to know about. We're even sharing our notes and top stock ideas that bubble up from the Value Investing Conference and Value Investing Congress that bookend the Berkshire meeting.
The best part? www.Berkshire.Fool.com is free -- a very good price. Just ask Warren Buffett.
Joe owns shares of Berkshire Hathaway. The Motley Fool owns shares of International Business Machines and Berkshire Hathaway. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.