Warren Buffett Does the Work of 5 Men

07/29/2011 2:30 pm EST


Paul Larson

Editor, Morningstar StockInvestor

The Oracle’s succession plan will likely split his role among as many as five advisers, handing the leadership, day-to-day operations, and investments to different specialists, reports Paul Larson of Morningstar StockInvestor.

Paul, Berkshire Hathaway is a stock you’ve followed for a long time, and you were actually at the annual meeting in Omaha a few months ago, where the talk of the town was David Sokol and succession and things like that. What was your takeaway from this?

Well, I think they did spend a large amount of time on David Sokol and trying to put that controversy to bed, and I think they did a fairly good job of that by basically throwing David Sokol under the bus.

But Buffett basically admitted that he really kind of blew it, right?

Oh, absolutely. He said it was inexplicable what David Sokol did because…

Now, let’s very quickly, David Sokol was the one who had bought stock in Lubrizol (LZ) and took it to Warren Buffett, disclosed it sort of, but didn’t really say that he was so deeply involved in discussions with investment banks about the purchase.

And also the timing of the purchase, if this is a position that he had held for a number of years it would be one thing, but he bought it just ahead of pitching it to Buffett, hence the controversy.

Sokol was a lieutenant of Buffett and the one most likely to lead the firm in an operational role at the time that Buffett steps away. Obviously, a lot of controversy, but I think that’s all in the past and thankfully there were a lot of other investing nuggets at the meeting.

Can you give us one or two of them quickly?

Sure. I really like Buffett’s new take on gold. He said that gold is not the best investment as a way to hedge the high inflation that he and others like myself expect to be coming.

If you took all the gold in the world, you would make a cube roughly 67 feet on a side at this point in time, and you couldn’t really do much with it. You can look at this cube. You can admire it. You can stand on top of it and see far away, but that’s about it. This cube would cost you about $9 trillion.

Now, for $9 trillion, you can go out and buy all the farmland in the United States. You can buy Exxon Mobil (XOM) ten times over, and you’d still have $1 trillion in walking around money. I think that this just goes to show how expensive gold has been.

Yeah, but he wasn’t a fan of gold when it was $500 an ounce either.

Yeah, yeah. I mean gold has certainly gone up, but just because something has gone up in the past doesn’t mean it will in the future.

That’s true. Let’s talk about succession a little bit. Anything you’ve seen at that meeting or subsequently that gives you any thoughts about succession? Because as you know, Buffett’s 80 years old, and Charlie Munger, his partner, is in his mid-80s, and not apparently in the greatest of health from what you observed at the meeting either.

Yeah, Charlie Munger seemed slightly less fleet of foot than he has been in recent years, but you know he is in his mid-80s and still vice chairman of this very large company, and he still had a couple of good zingers in there.

When Buffett steps down, there’s likely to be three different people who are going to take the roles that he has as one person right now. One, his son is going to be the chairman most likely.

Which one…Howard?

Howard. He’s going to maintain the culture of the firm. The operational role is a bit of a question mark at this point in time, but my No. 1 pick for who that would be right now would be Matt Rose, who is currently the CEO of BNSF, the railway that they recently acquired.

He’s fairly young, and Buffett wants someone fairly young so that they can have a 20- or 30-year run. Rose is only about 50 or 51 years old right now and he’s also head of the operation that is twice as large as the next largest operation at Berkshire Hathaway. That’s how large BNSF is.

That’s Burlington Northern.

Burlington Northern Santa Fe, yep. The final role is the role of the investment manager, and they already have one person that they’ve already named and brought on board, Todd Combs. There’s likely to be two or three other people that they’re going to split the investment portfolio among.

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