By George Morgan
On Saturday, the Oracle of Omaha announced that he was stepping down as CEO of Berkshire Hathaway. It was an event everybody knew was going to happen, but no one dared say it out loud. We didn’t know when it would happen or how it would happen, but we knew the appointed hour was getting closer.
When the details of this year’s Berkshire annual meeting were revealed, I could smell change in the air. There would be no Charlie to banter with. The traditional format was a morning Q&A, a lunch break followed by an afternoon Q&A. This year, the afternoon Q&A was cancelled.
The real peek behind the curtain came when CNBC announced that they would carry the Q&A session LIVE! Back in the day, attendance at the Wood Stock of Capitalism was reserved for special people only. You had to be a Berkshire share holder to attend. Strap hangers need not apply.
At the Berkshire meetings of the early 1990s, Buffett began pontificating that Berkshire had attained such a mass that a $100 million stock purchase was not large enough to move the company needle, making the purchasing of whole companies his only option. This transformed Buffett from an investor to a business manager. A critical distinction the financial media failed to understand or choose to ignore.
In the late 1990’s, Buffett took action on his prognostications and began gobbling up whole companies search as Geico, General Re, and eventually, the BNSF Railroad. By the year 2000, Berkshire’s operating companies constituted two-thirds of its total net worth and were the major drivers of its growth and revenue.
Buffett quickly pointed out that a major portion of the cost of acquiring an operating company was its management. When you pay good money for something, you don’t throw it away. Thus, all the Berkshire companies operate as stand-alone entities, receiving little, if any, input from the parent company.
In the same time frame, Buffett turned the day-to-day management of Berkshire’s investment portfolio over to the two T’s – Ted Weschler and Todd Combs. This made Berkshire kindred to a freight train barreling down the track at warp speed. All the pieces were in place, and Buffett’s job is sit tight and enjoy the ride. And occasionally cash a pay check.
To the citizens of Omaha, all this makes Buffett’s retirement a non-event. The Berkshire headquarters will remain in Omaha, continuing Omaha’s connection to the Buffett/Berkshire mystique. When Warren passes to the big board room in the sky, son Howard will become the non-executive Chairman of the Board, charged with maintaining the Berkshire culture. And all the Omaha buildings and charities built with Berkshire money will continue as part of the Buffett legacy.
The author, George Morgan, is the founder of Morgan Investor Education of Omaha. He also writes the “Wall Street: Week in Review” column in the Grow Omaha Weekly Market report. Views and opinions expressed are solely those of the author.
