Oracle's Exit

Succession Without HBO Twists

Warren Buffett, 96, has stepped down as chairman of Berkshire Hathaway, the 1.1-trillion-dollar American conglomerate. This completes the succession plan that investors have been watching for years.

The 96-year-old will become chairman emeritus, a largely advisory role, while remaining on Berkshire's board. Greg Abel, 64, who became chief executive in January, already runs day-to-day operations. Howard Buffett, 71, takes over as chairman. He’s Warren's middle child and a Berkshire director since 1993.

“Father time always wins,” Warren Buffett wrote in his goodbye letter, likely referring to both his own mortality as well his philosophy. After all, “forever” is his favorite holding period.

Why Buffett Matters So Much

Since Buffett took over a struggling textile mill Berkshire Hathaway back in 1965, the company has delivered 19.7% annualized returns. That’s nearly a double of S&P 500 index, for example.

A lot of investors can beat the market for a year or two, but Buffett largely kept it up for six decades. He turned the mill into a conglomerate holding company, with stakes in private businesses like car insurer Geico, fast-food chain Dairy Queen, and Duracell batteries as well as shares in public companies like Apple, American Express, and Coca-Cola.

Buffett became a trusted celebrity investor. Every year, tens of thousands travelled to Omaha for Berkshire's shareholder meeting, nicknamed the "Woodstock for Capitalists." Investors studied his letters to shareholders with intense fandom.

The Secret Is the Moat

While Buffett is nicknamed the “Oracle of Omaha”, his philosophy of value investing has nothing esoteric about it: buy great businesses for less than they're worth, and then hold onto them.

The trick is to find those protected by an economic moat. A wide moat makes a castle harder to attack. In business, a moat makes it harder for competitors to steal customers and profits. A company might have a moat because:

• Its brand is incredibly strong, like Coca-Cola.
• Customers are reluctant to switch, like American Express.
• Its size gives it cost advantages others can't match.
• It owns valuable networks or infrastructure.

Can Berkshire Keep Winning?

As the new CEO, Greg Abel has already started putting his stamp on Berkshire, pouring some of its $365 billion of cash to the market:

• He invested $10 billion in Alphabet as part of a nearly $20 billion splurge in stocks in the second quarter.
• Berkshire agreed to buy homebuilder Taylor Morrison for $8.5 billion.

As the new chair, Howard Buffett is likely to focus more on keeping the philosophy of patience and long-term thinking alive. His father described the handover as: “Greg runs the company; Howard will guard its culture and values."

Warren Buffett’s Classic Quotes

 “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”

“Never invest in a business you cannot understand.”

“Diversification is protection against ignorance. It makes little sense if you know what you are doing.”

“Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”

“I try to invest in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will.”