Abu Dhabi, UAEMonday 20 May 2019

Where will Berkshire Hathaway’s next generation of investors come from?

Chairman and chief executive Warren Buffett is now 88, putting pressure on his executives to court younger investors

Shareholders pose with a stand-up illustration of Warren Buffett, chief executive of Berkshire Hathaway, during the recent annual shareholders meeting in Omaha, Nebraska, AFP
Shareholders pose with a stand-up illustration of Warren Buffett, chief executive of Berkshire Hathaway, during the recent annual shareholders meeting in Omaha, Nebraska, AFP

If you had bought a single share of Berkshire Hathaway class A stock on this day 25 years ago, you would have made about $300,000 by now. Four shares and you’d be a millionaire.

Warren Buffett, among his many achievements and gifts to the world, has made a lot of people rich. But the outlook is different for future investors. The 88-year-old chairman and chief executive won’t be there much longer, and already the stock’s gains have begun to slow, with a four-year return that’s trailed the US market.

Mr Buffett and the executives who will likely succeed him need to start thinking about how to court the next generation of Berkshire investors. It’s something management never had to give much thought to before. And at the recent annual general meeting where fans raced just to get seats up in the rafters of Berkshire’s annual shareholder meeting, it’s understandable that Mr Buffett’s team may not yet fully grasp that need.

Berkshire Hathaway chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway's recent annual shareholder meeting in Omaha, Nebraska. Reuters.
Berkshire Hathaway chairman Warren Buffett walks through the exhibit hall as shareholders gather to hear from the billionaire investor at Berkshire Hathaway's recent annual shareholder meeting in Omaha, Nebraska. Reuters.

Tens of thousands flocked to Omaha earlier this month for the experience of simply having some proximity to Mr Buffett and Charlie Munger, his 95-year-old business wingman, and to celebrate their value-investing doctrine alongside like-minded folks. The crowd ranged from suited-up fund managers to individual investors who tapped into their savings to buy “baby Bs,” the company’s more affordable class B stock.

bz0805 brk
bz0805 brk

Aside from the cost of travel and hotels, there’s the trade-show-style shopping spree, where investors stand in lines to purchase everything from Brooks sneakers and Geico insurance, to boxes of See’s Candies adorned with Mr Buffett’s face and rubber duckies made to look like him and Mr Munger. Anything to feel connected to the investing gurus at whatever the price.

Toy ducks representing Warren Buffett and Berkshire Hathaway vice chairman Charlie Munger. AFP
Toy ducks representing Warren Buffett and Berkshire Hathaway vice chairman Charlie Munger. AFP

On my flight, though, which was filled with Berkshire meeting attendees, and then later at the packed arena, as I looked out at a sea of graying hair, I couldn’t help but wonder: Where were the millennials? It’s something that may not have registered as much with Mr Buffett and Mr Munger. Among their amusing exchanges during the Q&A portion of the meeting was this:

Mr Munger: “Warren and I are a little older than some people.”

Mr Buffett: “Damn near everybody.”

This may be considered blasphemy to the pair’s loyal followers, but it seems to me that many younger people – Americans, in particular – don’t have quite the same fascination with Berkshire or even as strong an appreciation for Mr Buffett’s form of value investing in general.

That’s not to say there weren’t younger people present. I did see kids here and there (there was also at least one crying baby in the stands), and I met some professional investors from the under-50 crowd. Many of them spoke of how they were brought up learning about Mr Buffett, with dads who run asset-management firms or were early Berkshire holders, for example. Some young retail investors seemed more intrigued by Berkshire’s latest tech stock picks, Amazon.com and Apple, and asked for selfies with Tim Cook, the iPhone maker’s chief executive, during the event.

There were younger attendees at the event too: a shareholder and his son, both dressed in Warren Buffett suits try to get a glimpse of the billionaire as he arrives. AFP
There were younger attendees at the event too: a shareholder and his son, both dressed in Warren Buffett suits try to get a glimpse of the billionaire as he arrives. AFP

The fact is, to buy into Berkshire through class A shares nowadays, you have to already be rich. And shares of Berkshire are unlikely to repeat the sharp ascent they’ve had in the past. Even Mr Buffett is struggling to find ways to deploy the company’s endlessly expanding hoard of cash and is increasingly embracing stock buybacks. His last “elephant,” a term he gives to megadeals, was in 2015, when Berkshire agreed to buy Precision Castparts, an aerospace parts supplier, for $37 billion.

If any of Berkshire’s operations – a list in the dozens – were to suffer significant challenges after Mr Buffett’s gone, it’s not inconceivable that an activist would look to break up the company or that investors less loyal to the next chief executive would push for a change at the top. Greg Abel, considered his most likely successor, turns 57 next month, while the other candidate, Ajit Jain, is nearing 68 and is said to face health challenges. That means neither one may run the company for very long anyhow. Furthermore, the average age of Berkshire’s board – excluding Mr Buffett and Mr Munger – is 70. And since Mr Buffett has committed most of his wealth to the Bill and Melinda Gates Foundation, a topic that repeatedly came up in my investor interviews, there’s also a question as to what happens when the charity sells off those holdings and how that redefines the shareholder base.

The average age of Berkshire’s board – excluding Mr Buffett and Mr Munger ([pictured) – is 70. AFP
The average age of Berkshire’s board – excluding Mr Buffett and Mr Munger ([pictured) – is 70. AFP

A bulk of the younger demographic this weekend appeared to be those who travelled from Asian countries, and in fact, with each passing year the Asian audience is likely to be the fastest growing. Several individual investors from China and India told me Mr Buffett’s wisdom is instilled in them from a young age, not just in business school or the finance field – perhaps a cultural contrast to the West. They may be more inclined to adopt the Mr Buffett-like belief in “giving up something today to get more tomorrow,” according to Tom Russo, whose firm Gardner Russo & Gardner owns Berkshire shares among its $10 billion of assets.

The Asian audience at the annual Berkshire event is growing. AFP 
The Asian audience at the annual Berkshire event is growing. AFP 

The annual meeting’s surge in visitors in recent years is partly due to the realisation that each one could be Mr Buffett’s or Mr Munger’s last. The first meeting without Mr Buffett might just draw record attendance. But after that, it will probably start to taper off and could eventually look like just another investor conference.

Jennifer Oppold, who founded Alpine Peaks Capital in 2017, reflected on the significance of her first Berkshire shareholder meeting nine years ago: “It just seemed like all the luminaries were here, and I was shaking the hands of all the people I’d read about.” After Mr Buffett’s gone, she said, “it just won’t be the same.”

Will the luminaries continue to fly out? And if not, what’s the draw for the average investor? Mr Buffett may feel good about his own succession planning as he rounds 89 years old, but much of Berkshire’s followers are ageing, too.

* Bloomberg

Shareholders in an overflow room watch on a big screen as Mr Buffett, left, and Mr Munger preside over the annual shareholders meeting. Photo: AP
Shareholders in an overflow room watch on a big screen as Mr Buffett, left, and Mr Munger preside over the annual shareholders meeting. Photo: AP

Updated: May 13, 2019 12:09 AM

SHARE

SHARE