Do you plan to continue holding Berkshire once Buffett is gone?

[Milu]

I'm a Berkshire holder like a lot of members of this forum. I've learned more from Warren and Charlie than probably anybody in my life. The only reason I bought Berkshire was because I believed in their investment skills and their respect for shareholders capital. I've read and listened to about everything written by or about them so feel like I knew them even though we never met. When I buy my own stocks I would never buy insurance companies, railways, energy companies, yet these type of businesses are the main entities Berkshire owns. I don't really know much about Ajit Jain, other than the nice words Buffett and Munger have spoken about him, same for Greg Abel. While they might be great operators I have no insight into how good or not they will be at allocating capital. With Todd and Ted I also don't have much of a sense of how well they have performed or what their involvement will be once Buffett is gone. I suppose what I'm trying to say is that if Buffett's capital allocations skill was the main reason I invested in Berkshire, should the end of his time as a capital allocator be the time for me to sell.

 

Curious to see how others think about this?

[73 Reds]

3 minutes ago, Milu said:

I'm a Berkshire holder like a lot of members of this forum. I've learned more from Warren and Charlie than probably anybody in my life. The only reason I bought Berkshire was because I believed in their investment skills and their respect for shareholders capital. I've read and listened to about everything written by or about them so feel like I knew them even though we never met. When I buy my own stocks I would never buy insurance companies, railways, energy companies, yet these type of businesses are the main entities Berkshire owns. I don't really know much about Ajit Jain, other than the nice words Buffett and Munger have spoken about him, same for Greg Abel. While they might be great operators I have no insight into how good or not they will be at allocating capital. With Todd and Ted I also don't have much of a sense of how well they have performed or what their involvement will be once Buffett is gone. I suppose what I'm trying to say is that if Buffett's capital allocations skill was the main reason I invested in Berkshire, should the end of his time as a capital allocator be the time for me to sell.

 

Curious to see how others think about this?

Depends on many factors.  Certainly won't sell immediately and inclination is not to sell at all as a very long-time shareholder.  If new management gives us a reason to sell due to poor performance/decision-making, then perhaps.  But can't answer the question now or until it becomes a reality.

[boilermaker75]

I have a lot of BRK with a lot of capital gains. So I have no intention of selling, at least initially. I'll watch how things go with the new management. I am trusting that Buffett has selected the new management as well as he has selected companies to buy!

[Munger_Disciple]

I have been a long term BRK owner in a taxable account with significant unrealized gains so I am not inclined to sell it even if it is trading at the high end of its intrinsic value (as it is now) unless I need the money for expenses. If I owned it in tax deferred accounts and if I have a better alternative, I think it is easier to sell at these prices as forward returns for sure will be lower than they have been in the last 5 years. I think Ajit is a fantastic risk manager (better than Buffett) and is the best insurance CEO in the world. I defer to Warren & Charlie on Greg; they aren't likely to blow one of the most important business decisions of their lives. I think Ted is very good at what he does; not sure about Todd. I don't think Todd & Ted are likely to move the needle much at BRK regardless of their individual investment results. With Todd, I prefer he focuses 100% of his time on fixing GEICO. 

Edited Tuesday at 04:37 AM by Munger_Disciple

[Milu]

Thanks for the responses so far, interesting perspectives. I have mine in a tax deferred account so the cap gains isn't a consideration. Succession is always one of the most challenging things to pull off so no matter how much we have faith in Buffett to set up his legacy well the truth is nobody has any idea how it's gonna play out. So this leaves two choices.

1. Hold the stock, give the new mgmt time to settle in, if they start making bad decisions sell the stock, which could have possibly already dropped a lot due to these bad decisions

2. Sell the stock, give new mgmt time to settle in, if they continue to execute well, then buy the stock, which could have possibly already gone up a lot due to good decisions.

 

Gonna be interesting to see how it all plays out. Maybe it will just trundle along at a middling rate.

[73 Reds]

2 minutes ago, Milu said:

Thanks for the responses so far, interesting perspectives. I have mine in a tax deferred account so the cap gains isn't a consideration. Succession is always one of the most challenging things to pull off so no matter how much we have faith in Buffett to set up his legacy well the truth is nobody has any idea how it's gonna play out. So this leaves two choices.

1. Hold the stock, give the new mgmt time to settle in, if they start making bad decisions sell the stock, which could have possibly already dropped a lot due to these bad decisions

2. Sell the stock, give new mgmt time to settle in, if they continue to execute well, then buy the stock, which could have possibly already gone up a lot due to good decisions.

 

Gonna be interesting to see how it all plays out. Maybe it will just trundle along at a middling rate.

In a tax-deferred account you can nimbly exit and re-enter so your considerations are far easier than for those of us with substantial deferred cap. gains.  Were I considering investing new money in both namesakes of this forum today, I'd invest in Fairfax over Berkshire.

[coffeecaninvestor]

I am inclined to hold it. If you own it now it’s mostly because you like the collection of businesses and less because WB is going to make a needle moving investment. Structurally Berkshire has a lot of advantages, and so I think will do reasonably well relative to the S&P. Most of the BRK my family holds is in a taxable account and I’ll sell only if something radically changes for the worse. I’d actually be more concerned if Ajit leaves. 

[Munger_Disciple]

29 minutes ago, coffeecaninvestor said:

 I’d actually be more concerned if Ajit leaves. 

 

Agree 

[Viking]

This is a very interesting topic for me. Specifically the ‘sitting on a big capital gains’ angle. Given Fairfax’s run the past 4 years, my guess is many investors are sitting on significant capital gains in taxable accounts. Most of our assets were in tax deferred accounts. That changed when we sold our house in 2021 - now a growing portion are in taxable accounts. 
 

My strategy with Fairfax over the past 4 years has been to be pretty aggressive with realizing part of the growing capital gain each year. This works for me because:

1.) Both me and my spouse are ‘retired.’ So we decide which bucket to pull our income from each year (non-registered, LIF, RRSP, TFSA). Tax considerations play an important role in determining how much we pull from each bucket.

- In Canada today, capital gains are taxed at a pretty low level. 50% of capital gains are free. We are only taxed on 50% of the gain. I am not sure this will stay this way.

2.) I may want to use the funds sitting in my taxable accounts in the coming years to make a real estate purchase. Nothing imminent. As a result, i do not like the idea of sitting on a big (and growing) tax liability indefinitely. This leads me to prioritize selling some Fairfax in our taxable accounts each year and paying tax. 
3.) Selling Fairfax in my taxable account does not impact the number of shares of Fairfax i hold. This is because i have the ability to purchase an equal number of shares in my tax deferred accounts (TFSA, LIF and/or LIF). 
- When selling Fairfax in my taxable accounts I have been able to do it when Fairfax has hit new all time highs. Each time I have actually been able to re-buy the Fairfax shares in the same account, usually within a month or two later, at a slightly lower price. I have done this because i do want my best ideas in my taxable account (#2 priority after TFSA). 

4.) I greatly value simplicity. All things being equal, i don’t want to be sitting on a big tax liability with a big part of my non-registered accounts. I am ok paying a little tax now to lessen an issue - and give me more flexibility in the future. 

 

Anyways, everyone’s situation is different. Now that my non-registered accounts are growing in size, i am having to learn some new things - like how to think about and manage a big (and growing) tax liability. Bottom line, this is a great problem to have. But it certainly does have a lot of layers to it. The key has been to have a multi-year plan - and then to opportunistically execute the plan. And each year i modify the plan as needed (based on our evolving situation, new information and as my knowledge improves).

Edited Tuesday at 02:21 AM by Viking

[Buckeye]

4 hours ago, boilermaker75 said:

I have a lot of BRK with a lot of capital gains. So I have no intention of selling, at least initially. I'll watch how things go with the new management. I am trusting that Buffett has selected the new management as well as he has selected companies to buy!

 

[UK]

10 hours ago, Milu said:

I'm a Berkshire holder like a lot of members of this forum. I've learned more from Warren and Charlie than probably anybody in my life. The only reason I bought Berkshire was because I believed in their investment skills and their respect for shareholders capital. I've read and listened to about everything written by or about them so feel like I knew them even though we never met. When I buy my own stocks I would never buy insurance companies, railways, energy companies, yet these type of businesses are the main entities Berkshire owns. I don't really know much about Ajit Jain, other than the nice words Buffett and Munger have spoken about him, same for Greg Abel. While they might be great operators I have no insight into how good or not they will be at allocating capital. With Todd and Ted I also don't have much of a sense of how well they have performed or what their involvement will be once Buffett is gone. I suppose what I'm trying to say is that if Buffett's capital allocations skill was the main reason I invested in Berkshire, should the end of his time as a capital allocator be the time for me to sell.

 

Curious to see how others think about this?

 

My experience and thinking about WB and BRK is very simillar although I think I am starting to be more confortable and perhaps even exited about Greg. I own BRK since 2011 and had made it into very large position twice, when it traded near BV, and would gladly do this again, despite the inevitable transition uncertainty, so I do give valuation a biger consideration in the whole picture. As for the transition, I am in no way to give any advices, but personally would love to see Greg running the show, while WB is still alive and well and sharp. The communication from WB has come down to a minimum in the last few years, so it is harder to understand what is he up to these days. I reduced my BRK position to a minimum recently, but again, more so because I do not find valuation so exiting vs am very afraid of the managment transition. New way of operating and somewhat different, more operational focus from new managment could even be exactly what BRK could benefit at this stage? Oh and in 2022 I made a decision I will trust and invest big into another insurance company, which I was following and owned small position since 2012:)

 

Edited Tuesday at 05:27 AM by UK

[thowed]

@Milu Great topic.  Succession is so hard - there are a bunch of UK fund boutiques - exceptionally run by the founders.  They have put in careful, long-term succession plans, and the next generation seem perfectly smart.  But.... it just doesn't feel like they're working.  Maybe some of it is just perception, but some people just have 'it'.

 

I don't think Berkshire will fall apart just like that, and there are known unknowns e.g. will they break bits off and realise more than the SOTP?  But I certainly won't have the same confidence in Berkshire when he's gone.

[Jaygo]

Its a tough decision and cant be made simply because WB is gone. You have to watch the business and see how it evolves.

 

Dont forget JP Morgan died 10 years before Jamie Dimon was even born and many would be happy owners of JPM stock today. Everything changes, you just have to pay attention and sell when you feel the business is well ahead of itself or disintegrating ala General Electric.

 

Apple too has added the majority of its value since Jobs Died. Ya just never know.

[CassiusKing1]

I have a very substantial position in BRK, ~70%.  Entirely in tax deferred.  I'll monitor the situation closely and reevaluate. 

I think WEB's recent moves are setting up for a smooth transition to Greg.  I have faith in Greg managing the different subsidiaries, I'm less confident in who will be there to make the Japanese Yen/Trading Houses investments.  I envision a BRK future where there is a lot more focus on the subs and bolt-ons and then again it could be a dividend king.  Time will tell.

[Xerxes]

1 hour ago, Jaygo said:

 

 

Dont forget JP Morgan died 10 years before Jamie Dimon was even born and many would be happy owners of JPM stock today.

yeap.

 

Not to mention that there was also a spin-off to comply with then regulatory environment, which should also be in the post-JP Morgan (the person), IRR:

 

the spin-off of Morgan Stanley, the investment bank arm of JP Morgan. 
 

JP Morgan (the company) was no longer in the business of investment banking up until 1990s, decades later, and only after Clinton-growth era that saw the dismantling of the regulatory environment that saw JP Morgan re-grow its investment bank franchise organically. 

 

 

[coc]

2 hours ago, Jaygo said:

Its a tough decision and cant be made simply because WB is gone. You have to watch the business and see how it evolves.

 

Dont forget JP Morgan died 10 years before Jamie Dimon was even born and many would be happy owners of JPM stock today. Everything changes, you just have to pay attention and sell when you feel the business is well ahead of itself or disintegrating ala General Electric.

 

Apple too has added the majority of its value since Jobs Died. Ya just never know.

Yes agree and GE is a great example - worked under Welch, fell apart under Immelt and immediate successors, then a bargain again under Culp...etc. World keeps moving. 

[Milu]

2 hours ago, Jaygo said:

Its a tough decision and cant be made simply because WB is gone. You have to watch the business and see how it evolves.

 

Dont forget JP Morgan died 10 years before Jamie Dimon was even born and many would be happy owners of JPM stock today. Everything changes, you just have to pay attention and sell when you feel the business is well ahead of itself or disintegrating ala General Electric.

 

Apple too has added the majority of its value since Jobs Died. Ya just never know.

yes you make some good points, but there are probably more counter examples where the succession hasn't worked out, but we are less likely to hear of those due to survivorship bias.

 

If we take buffets whole investment philosophy as an example, he has typically avoided investing in situations where he doesn't feel comfortable predicting the dynamics of the business in 10 years and 20 years time, hence his historical avoidance of tech. It seems like most people can't confidently predict how Berkshire will play out post Buffett (pay large dividends, sell off certain subsidiaries, focus on operations vs acquisitions), basically the future is nowhere near as clear as it would be if Warren was in charge. I suppose the only thing we can almost say with some confidence is that things will not be the same as they are now. 

 

 

[Spooky]

Short answer to the question in the thread: Yes. Given the structure of the company it can continue to compound long after after WB is gone. The decentralized nature of the company means it can keep scaling. They still have an amazing insurance business generating more and more float to re-invest. They hold a collection of durable, high moat, above average businesses. Extremely strong balance sheet and a low cost of capital. Well positioned to benefit from the continued growth of the US economy over time. Making smart investments in Japan. Also, I trust Warren and Charlie to have identified the best person to take over once they are gone. Seems like an easy source of high risk adjusted returns compared to alternatives out there. I will continue to sleep soundly with a large percentage of my net worth in Berkshire.

[boilermaker75]

2 hours ago, Xerxes said:

yeap.

 

Not to mention that there was also a spin-off to comply with then regulatory environment, which should also be in the post-JP Morgan (the person), IRR:

 

the spin-off of Morgan Stanley, the investment bank arm of JP Morgan. 
 

JP Morgan (the company) was no longer in the business of investment banking up until 1990s, decades later, and only after Clinton-growth era that saw the dismantling of the regulatory environment that saw JP Morgan re-grow its investment bank franchise organically. 

 

 

 

I did not know that till a few years ago when I read The House of Morgan by Ron Chernow, a great book.

[Eldad]

I have decided to go from about 15% to about 5% over the next couple of years. 
 

I started to think about how Charlie and Warren kind of brag about being lazy and how it helped them (hands off approach to subs, only buy during bear markets etc.) But then you start to realize that all of the successors sort of fell into their lap.

 

1. Ted paid millions to eat lunch with Buffett

2. Todd cold called Charlie over and over

3. Greg worked at MidAmerican 

4. Jain, random introduction

 

If you notice almost everyone in Warren’s stories of past friends, family, etc. is “extraordinarily talented” at this that or the other. 
 

I just don’t know if he actually knows if these guys are the best or if these are just the best he knows. 

Edited Tuesday at 06:13 PM by Eldad

[Spooky]

2 hours ago, Milu said:

It seems like most people can't confidently predict how Berkshire will play out post Buffett (pay large dividends, sell off certain subsidiaries, focus on operations vs acquisitions)

 

These issues are not really business issues. Dividend policy can change but it does not fundamentally alter anything about the underlying businesses.

[Xerxes]

20 minutes ago, boilermaker75 said:

 

I did not know that till a few years ago when I read The House of Morgan by Ron Chernow, a great book.

That is my source as well. 
Great book. I read it about 10 years ago. 
 

Along with Cohen’ work on Goldman Sachs. 

[Xerxes]

18 hours ago, Viking said:

This is a very interesting topic for me. Specifically the ‘sitting on a big capital gains’ angle. Given Fairfax’s run the past 4 years, my guess is many investors are sitting on significant capital gains in taxable accounts. Most of our assets were in tax deferred accounts. That changed when we sold our house in 2021 - now a growing portion are in taxable accounts. 
 

My strategy with Fairfax over the past 4 years has been to be pretty aggressive with realizing part of the growing capital gain each year. This works for me because:

1.) Both me and my spouse are ‘retired.’ So we decide which bucket to pull our income from each year (non-registered, LIF, RRSP, TFSA). Tax considerations play an important role in determining how much we pull from each bucket.

- In Canada today, capital gains are taxed at a pretty low level. 50% of capital gains are free. We are only taxed on 50% of the gain. I am not sure this will stay this way.

2.) I may want to use the funds sitting in my taxable accounts in the coming years to make a real estate purchase. Nothing imminent. As a result, i do not like the idea of sitting on a big (and growing) tax liability indefinitely. This leads me to prioritize selling some Fairfax in our taxable accounts each year and paying tax. 
3.) Selling Fairfax in my taxable account does not impact the number of shares of Fairfax i hold. This is because i have the ability to purchase an equal number of shares in my tax deferred accounts (TFSA, LIF and/or LIF). 
- When selling Fairfax in my taxable accounts I have been able to do it when Fairfax has hit new all time highs. Each time I have actually been able to re-buy the Fairfax shares in the same account, usually within a month or two later, at a slightly lower price. I have done this because i do want my best ideas in my taxable account (#2 priority after TFSA). 

4.) I greatly value simplicity. All things being equal, i don’t want to be sitting on a big tax liability with a big part of my non-registered accounts. I am ok paying a little tax now to lessen an issue - and give me more flexibility in the future. 

 

Anyways, everyone’s situation is different. Now that my non-registered accounts are growing in size, i am having to learn some new things - like how to think about and manage a big (and growing) tax liability. Bottom line, this is a great problem to have. But it certainly does have a lot of layers to it. The key has been to have a multi-year plan - and then to opportunistically execute the plan. And each year i modify the plan as needed (based on our evolving situation, new information and as my knowledge improves).

There is also a period of time I think age 71 (I know you are far away from it) when government will force you to dismantle the RRSP. And will tax you accordingly. 
 

isnt more prudent to reduce your exposure to RRsP much earlier as oppose to adding to it, as you are doing by shifting from taxable to

non-taxable. 

[John Hjorth]

3 hours ago, Xerxes said:

yeap.

 

Not to mention that there was also a spin-off to comply with then regulatory environment, which should also be in the post-JP Morgan (the person), IRR:

 

the spin-off of Morgan Stanley, the investment bank arm of JP Morgan. 
 

JP Morgan (the company) was no longer in the business of investment banking up until 1990s, decades later, and only after Clinton-growth era that saw the dismantling of the regulatory environment that saw JP Morgan re-grow its investment bank franchise organically. 

 

 

 

1 hour ago, boilermaker75 said:

 

I did not know that till a few years ago when I read The House of Morgan by Ron Chernow, a great book.

 

Off topic:

 

Mike [ @boilermaker75 ] and @Xerxes,

 

Thank you for sharing your exchange here. Ordered 'The House of Morgan' today.

[John Hjorth]

On 10/14/2024 at 9:28 PM, 73 Reds said:

Depends on many factors.  Certainly won't sell immediately and inclination is not to sell at all as a very long-time shareholder.  If new management gives us a reason to sell due to poor performance/decision-making, then perhaps.  But can't answer the question now or until it becomes a reality.

 

On 10/14/2024 at 9:31 PM, boilermaker75 said:

I have a lot of BRK with a lot of capital gains. So I have no intention of selling, at least initially. I'll watch how things go with the new management. I am trusting that Buffett has selected the new management as well as he has selected companies to buy!

 

I'm in the same camp as @73 Reds and Mike [ @boilermaker75 ].

 

I seldom look at the stock [the B] in our investment banks user interface. I did sving by it today, based on this ongoing discussion. *Gulp*  with regards to records of unrealized gains thrown my/our households way, after starting buying the first shares at 86.64 back in September 2012.

 

Like mentioned by @Xerxes for Canadians today, so for Danes, one can only defer taxes on tax deferred accounts for so long, at some age you are subject to 'forced, controlled' liquidation of your account, generating taxation of the payments to you, withholding taxes on the payment.

 

As @Viking has already said, live with it, and get over it, because it's a luxury problem. Enjoy the 'deferred' party as long as it lasts, and be content to actually see and enjoy the token of all your work over many years getting a tax cut for the best of the society in which you live.

 

Edit :

 

It may require some mental exercise to get to that conclusion. It is pretty simple, actually : "Those who has the ability, has the obligation" [In Denmark, it's called 'skatteevne' : The ability to pay taxes, also meaning "It does not make any sense taxing those who cannot pay", simply because they can't  - and don't - pay.

 

Rule #1 in societal design. Don't cheat yourselves in the state budget by recording income there, that your state will never receive.

Edited Wednesday at 12:13 AM by John Hjorth