EUR 850.00 For Business Accounts Only

Morningstar | Barring Major Stock Investments or Acquisitions, Berkshire's Cash Hoard Will Continue to Grow

We think two big concerns--first, that Berkshire Hathaway's size will prevent it from growing at a decent clip in the future and, second, that the company's shares will get pummeled once Warren Buffett no longer runs the show--have kept some investors on the sidelines. While we do not expect Berkshire to be able to consistently increase its book value per share at a double-digit rate going forward--a feat the firm achieved six times during 2009-18--we think the company is still capable of increasing book value per share at a high-single- to low-double-digit rate annually. This should leave returns solidly and consistently above Berkshire's cost of capital, which is what we expect from companies with wide economic moats.As for succession planning, Buffett's three main roles--chairman, CEO, and investment manager--are expected to be split once he departs. Our long-standing view has been that Buffett's son, Howard Buffett, will serve as nonexecutive chairman and that Ted Weschler and Todd Combs will serve as co-investment managers of Berkshire's investment portfolio. As for the CEO role, we think there are two fine candidates in Ajit Jain and Greg Abel, both of whom would bring unique insights to the role. Our preference, though, would be to have Jain take control of all of Berkshire's insurance operations, while Abel (who has experience with both operations and acquisitions) fills the role of chief executive.With investment opportunities few and far between these days, the company does face another near- to medium-term issue--bulging cash balances that (absent any sizable deals) will need to be returned to shareholders. While Buffett has been clear about share repurchases being his preferred option (relative to dividends) for reducing excess cash balances (not dedicated to acquisitions or stock investments) down the road, we expect him to be just as cost-conscious when buying back Berkshire's shares as he has been with other investments historically. As long as the company's shares trade closer to the firm's five-year average multiple of 1.48 times book value per share, we think share repurchases are less likely.