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Berkshire Hathaway CEO Warren Buffett is looking to shape the company after he’s gone. At a time when other well-known conglomerates like General Electric (ticker: GE) are splitting into several more focused businesses, Buffett has made it clear that he wants his vast empire to stick around for as long as possible.
“At Berkshire, there will be no finish line,” wrote Buffett, 92, in his annual shareholder letterReleased on Saturday.
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That means putting together businesses like railroads, insurance, utilities and even chocolate candies alongside Berkshire’s large stock portfolio. “As far as the future goes, Berkshire will always hold plenty of cash and a wide range of businesses in U.S. Treasury bills as well,” Buffett wrote.
Buffett’s longtime partner Charlie Munger answers questions about an article in This Month Baron’s This suggested that shares of Berkshire (BRK.A, BRK.B) could rise if Berkshire spun off the businesses. He said the company’s current structure rewards shareholders and he suspects it will break even for “a long, long time.” Buffett controls the company, and can help direct what happens after his death, as he owns shares with more voting power than most shareholders have.
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Buffett also wrote in the letter that the next CEO would have to keep a substantial portion of his net worth in Berkshire stock, in order to enrich shareholders as the CEO is motivated by Buffett himself. “Additionally, our future CEO will have a significant portion of his net worth in Berkshire shares that he purchased with his own money,” he wrote.
It’s probably no coincidence that Greg Abel, Berkshire’s vice chairman who is expected to eventually succeed Buffett, bought $68 million worth of shares in the company in September. Abel now oversees Berkshire’s non-insurance operations.
Buffett’s letter was full of musings on other topics as well, from investment strategy to his friendship with Munger.
He explained that his success can be attributed to about a dozen smart choices that have outweighed a few bad decisions. He wrote, “When flowers bloom, weeds lose importance.” “Over time, it only takes a few winners to do wonders. And, yes, it helps to start early and live into your 90s. Among their biggest successes are Coca-Cola (KO) and Investments in American Express (AXP) were included; they each spent $1.3 billion on the stake, and Berkshire’s holdings are now $25 billion and $22 billion, respectively.
On taxes, Buffett wrote that Berkshire has paid $32 billion in taxes over the past decade, or about one-tenth of 1% of the money collected by the US Treasury. He noted the discrepancy between federal tax receipts and spending, and appeared to blame high inflation rates at least partially on that discrepancy. “Berkshire also offers some modest protection from runaway inflation, but that characteristic is far from perfect,” he wrote. “There are huge and tangled fiscal deficit consequences.”
He also wrote an appreciative note about Munger, which is 99 years old. Buffett wrote, “I’ve never taken a call with Charlie without learning something.” He repeated a few nuggets of wisdom to his readers, including, “Don’t sink in a sinking boat, if you can swim to one that is seaworthy.”
Buffett concluded with his advice: “I would add a rule of my own to Charlie’s list: Find a very smart high-grade partner – preferably a little older than you – and then listen very carefully to what he says.”
Write to Avi Salzman at [email protected]