Retiring Warren Buffett Pledges to Keep Betting on Berkshire Hathaway

“To my surprise, I generally feel good,” Berkshire Hathaway’s 95-year-old CEO, Warren Buffett, wrote on Monday. “Though I move slowly and read with increasing difficulty, I am at the office five days a week, where I work with wonderful people.”

At the end of the year, the legendary investor will hand the top job at the holdings giant he’s led for six decades to Greg Abel. “I will no longer be writing Berkshire’s annual report or talking endlessly at the annual meeting,” he joked, with typical self-deprecation, in his yearly Thanksgiving message. Modesty, however, has always been part of the strategy at Berkshire, Buffett noted as he laid out steps to support his chosen successor.

Nebraska Hold ’Em

The $1 trillion Berkshire owns almost 200 businesses, including Geico, BNSF railroad, Dairy Queen, Fruit of the Loom and a portfolio of energy and industrial firms. As of last month, it held $283 billion in stocks, including stakes in American Express and Apple, and a record $381.7 billion pile of cash. Because of its diverse holdings, investors and market watchers view Berkshire as an economic bellwether. For Abel, that means stepping into a job that comes with more pressure than a submarine in the Mariana Trench.

As of Monday’s close, Berkshire’s Class A shares have gained 9.7% this year, trailing the S&P 500’s 16.2% climb. Since Buffett announced his plans to step down on May 3, the gap has become even more dramatic: Berkshire has fallen 7.1%, and the index has risen 20%. Many attribute the pullback to the end of the “Buffett premium,” the extra price investors were willing to pay for their faith in Berkshire’s longtime leader. Last month, analysts at Keefe, Bruyette & Woods downgraded Berkshire to “underperform,” a rarity for the company, citing the Buffett premium among other factors. On Thursday, Buffett assured them he was placing his faith, and a chunk of his fortune, in the Abel premium:

• Buffett, who will remain chairman, said he will “keep a significant amount” of Berkshire shares “until shareholders develop the comfort with Greg that [late Berkshire vice chairman] Charlie [Munger] and I long enjoyed.” Meanwhile, he plans to “step up the pace” of giving away his $150 billion fortune through charitable trusts helmed by his children, who will have 10 years after his death to distribute his remaining wealth, starting with $1.3 billion in shares to the foundations on Thursday.
• Buffett was also careful to set out expectations for Abel. He wrote that Berkshire’s businesses have “moderately better-than-average prospects,” but that investors should expect steady, not astronomical, growth: “A decade or two from now, there will be many companies that have done better than Berkshire; our size takes its toll. Berkshire has less chance of a devastating disaster than any business I know.”

Never Change: Buffett said that, while he’s “going quiet,” he will still pen his Thanksgiving message in future years. And he couldn’t help but get in one last dig at the Wall Street decadence he has long avoided, writing that Berkshire “managers should grow quite wealthy … but do not have the desire for dynastic or look-at-me wealth.”