No investor wants to think about the day that Warren Buffett steps down from the helm at Berkshire Hathaway (NYSE:BRK-B). But after nearly a half decade of remarkable leadership and beyond impressive returns, there will come a time when someone new needs to step into the role of top dog at Berkshire. Based on some of Buffett's investment strategies and historical returns, below are two candidates that could take a shot at filling the Oracle's shoes -- though it wouldn't be easily done by anyone.
A quick note
You will find that missing from the two candidates is Charlie Munger -- but not for want of expertise or abilities. Since Munger has been Buffett's right hand man for some time, it seems that he would be the ideal replacement, whenever the time might come. But because of Munger's age (89), I chose the candidates below for their ability to create a long-term success story like Buffett's that could span another 48+ years.
Candidate No. 1 -- Bruce Berkowitz
Every bit the value investor that Buffett is, Berkowitz employs many of the same investment strategies that have propelled Berkshire Hathaway forward since 1965. As the helmsman of the Fairholme Fund, Berkowitz has produced an average five-year return of 71.22%, besting the S&P 500 by 55%. In fact, in 2012 -- one of the only nine years when Berkshire missed gains equal to or greater than the S&P 500 by 1.6% -- Fairholme beat the index 35.81% to 16%. Berkowitz won the Morningstar Fund Manager of the Decade for the 2000-2009 period because of these risk-adjusted results, as well as his record of serving shareholders -- a trait Buffett holds dear.
Much like Buffett, Berkowitz is also very familiar with financials. With Fairholme's largest holdings in insurer AIG (NYSE:AIG) and Bank of America (NYSE:BAC), it gives clout to Berkowitz's ability to analyze both Berkshire's current holdings and huge insurance operations, as well as future investments that would hold to the Buffett tradition. With the top Berkshire holding in Wells Fargo (NYSE:WFC) and the company's insurance segments' "float" providing the funds for investments, Berkowitz would be aptly fit for the task of managing the evaluation of both operations and investment opportunities.
Candidate No. 2 -- Thomas Gayner
As the Chief Investment Officer of Markel Corporations (NYSE:MKL), Gayner has a different investing task than Warren Buffett, who uses the "float" from the Berkshire's insurance operations and invest it to generate returns that boost the company's growth and profitability. Gayner, to date, has only been able to invest Markel's shareholder equity. But even with that limitation, Gayner and his team have consistently produced impressive returns. Much like Berkowitz's Fairholme Fund, Markel beat the S&P 500 gains in 2012, with a return of 19.6%. In his 20 years with Markel, Gayner and his team have produced returns that made the company a 21-bagger since his joining in 1990.
With its recent acquisition of Alterra, Gayner will have the opportunity to invest Markel's float for the first time since he joined the niche insurer. This gives him both the added capital to invest and the added experience that will make his duties more like those of Buffett. Not only that, but Markel is known on the Street as "mini-Berkshire," a nickname that lends some credence to Gayner's effectiveness as an investment leader.
Time will tell
Though there's no telling how long Warren Buffett will continue to steer Berkshire Hathaway, it is easy to say that none of us want to see him go. But with a new crop of very talented (and proven) investors and money managers leading a pack of younger companies, there are a select few that could take the reigns from the Sage of Omaha. Until that time comes, let's keep enjoying the Buffett-isms and advice we get from Warren.
Heading to Omaha
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Fool contributor Jessica Alling has no position in any stocks mentioned -- you can contact her here. The Motley Fool recommends American International Group, Berkshire Hathaway, Markel, and Wells Fargo. The Motley Fool owns shares of American International Group, Bank of America, Berkshire Hathaway, Markel, and Wells Fargo and has the following options: Long Jan 2014 $25 Calls on American International Group.
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