For some shareholders of Berkshire Hathaway (Berkshire Hathaway), a string of challenges in the wake of the epidemic is prompting them to reconsider Warren Buffett’s group, which includes looming inflation, scarcity of acquisitions, and more environmental and social disclosure requirements.
Buffett’s longtime business partner Munger (Charlie Munger) said Saturday at the annual shareholders meeting that it used to be easy to make money in Berkshire.
“But it’s getting harder and harder,” Munger said.
Investors have long been happy to bet on Buffett outperforming the broader market, and many still believe Berkshire’s growth will accelerate if the U.S. economy continues to recover from the epidemic-induced downturn.
But some worry that last year may have made it more difficult for Berkshire to achieve faster growth.
“We’ve been cutting our position in Berkshire for a couple of years because we’re obviously better at making money than he is,” Bill Smead said. The Berkshire position allocation in his firm Smead Capital Management’s $2.5 billion portfolio has fallen to about 2.2 percent from 5 percent a decade ago.
Smead said unprecedented government stimulus and low-to-no interest rates threaten to drive up inflation, and Berkshire is too big to be able to deftly shift investments to businesses that will benefit from higher consumer prices.
Several Berkshire shareholders also expressed frustration that Buffett missed an opportunity by not snapping up more corporate stocks early in the epidemic, as the S&P 500 has jumped nearly 90% from last year’s lows.
Historically ultra-low interest rates are another factor weighing on Berkshire’s ability to make money, with the Federal Reserve having pledged to keep interest rates near zero for several years.
Buffett said Berkshire can now earn about $20 million a year from its more than $100 billion in U.S. bonds, compared with about $1.5 billion before the epidemic.
Succession Plan
One of the most significant reasons for Berkshire Hathaway’s success is the relationship between Buffett and Munger and the corporate culture they have fostered.
Both have expressed confidence in Berkshire Hathaway’s ability to maintain its stated course without them. Greg Abel and Ajit Jain, the company’s vice chairmen, appeared on stage with them at the annual shareholder meeting.
“This decentralization won’t work unless there’s the right culture to go with it,” Buffett said of Berkshire Hathaway.
“Greg will continue that culture,” Munger said of Abel.
Buffett told CNBC that Greg Abel, head of the non-insurance business, would become chief executive if he stepped down, ending years of speculation about who Buffett’s successor would be.
Buffett said, “The directors have agreed that if something happens to me tonight, then Greg will succeed me tomorrow morning.” Buffett, now 90, has never disclosed a timetable for his departure.
Shareholder Robert Miles called the presence of Abel and Jain at the meeting “a real value-add.
Jain said he and Abel talk about the business they are responsible for every quarter.
Abel spoke about Berkshire’s efforts around environmental, social and governance (ESG) issues, and two shareholder proposals that would require the board to issue annual reports on how each subsidiary is addressing these issues.
Berkshire opposed the proposals, citing its decentralized business model.
Both proposals were defeated, but received about a quarter of the votes cast in favor, indicating that Berkshire shareholder dissatisfaction is stronger than ever.
“These are complex topics that require an ongoing dialogue,” said Caitlin McSherry, director of investment management at Neuberger Berman, a shareholder who supported the proposals.
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