Motley Fool Hidden Gems Investing - Warren Buffett Passes the Torch

Episode Date: May 5, 2025

After 60 years at the helm of Berkshire Hathaway, the Oracle of Omaha is ready for retirement. (00:21) Jim Gillies and Dylan Lewis discuss: - Warren Buffett’s plan to step down as CEO of Berkshire Hathaway. - The parallels between Berkshire’s succession planning and Apple’s transition from Steve Jobs to Tim Cook. - The available cash, opportunities, and challenges ahead for Greg Abel and team. Companies discussed: BRK.A, BRK.B, AAPL, BAC Host: Dylan Lewis Guest: Jim Gillies Producer: Mary Long Engineers: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, "TMF") do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. Learn more about your ad choices. Visit megaphone.fm/adchoices

You gotta try breakfast at A&W. You gotta try breakfast at A&W. And what better way than with a delicious Pret Organic Coffee, starting at just $1 all day, every day, now until December 31st. You gotta try breakfast at A&W. At participating A&W locations in Ontario. After 60 years, Buffett passes the torch. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool Canada analyst Jim Gillies.

Jim, thanks for joining me on this momentous Monday. Indeed. Thanks, Dylan. We talk about the news very often. We don't always get something this good when something happens over the weekend. To quote the great Warren Buffett himself, the time has arrived. After 60 years as CEO of Berkshire Hathaway, Warren Buffett announced he will be stepping down at the end of 2025 for a well-deserved semi-retirement. He announced this, Jim, closing out the annual meeting in Omaha over the weekend, which was news to basically everybody except his kids. Correct, yes. I had a number of friends on the floor, and one of them texted me

literally as he was speaking, going, holy, insert golf word here, Buffett just announced his retirement. And I'm like, okay, I'm going to have to take a moment to process this. In typical Buffett fashion, it wasn't, I am leaving the CEO seat. It was him handing over the reins, but it was in an overview of board meetings and votes and recommendations. I think if it weren't for the standing ovation, if you had tuned out for a second, you actually might have missed it because it was right at the end of the meeting and discussion. Yeah. And look, I am a Berkshire shareholder for almost three decades. The entire way, Dylan, I've been told, aren't you worried? He's so old. He's going to die soon. And

thankfully, and a key lesson from Buffett reiterated many times over the years, including in this most recent annual meeting, is like, you know what, take your time, think through, you know, things are not that imperative in the moment. And so I'm very glad I've ignored all of the people saying, oh boy, he's really old. And I similarly think about it a little bit today. It's like Buffett has been kind of prepping people for this quite honestly, nearly two decades. I remember after his first wife passed away, Susie, you know, it was always the intent of the Buffetts to give away the vast wealth that he's created. And Susie was supposed to be the one because she was expected to outlive Warren. She was going to be the one handling the dispensation of that money.

Susie's been gone for almost two decades now, Dylan. We've seen him for, you know, I remember back at, it might be 15 or so years ago now, where they were first started talking about having the names of multiple people who could take over for him, step in whenever. The names in the envelope that could step in for him have changed. But, you know, a number of years ago, Charlie, who of course left us just over a year ago, Charlie kind of let slip at one meeting that the name, the only real name in the envelope that could take over for Buffett was Greg Abel, longtime CEO of Berkshire Hathaway Energy, MidAmerican Energy beforehand. And that, you know, and that he just kind of confirmed what everybody

largely knew. I don't think much is going to change, you know, first off, you know, in, And, you know, in a completely unsurprising development, the board did, in fact, vote unanimously along with Warren's suggestion. Hands up who thought that wouldn't happen. Yeah, zero surprise here, right? Exactly. Like, you know, well, also two board members, Warren's kids, who, as you said, knew about this. So they have, in fact, voted unanimously to pass the CEO's title to Greg Abel. This is the start of 2026.

So, you've got another almost eight months with Uncle Warren at the helm, at which point he will remain as non-executive chairman. He did allude to the idea that should markets behave in a certain way, and he didn't say it, but I will, plunge precipitously, they would be interested in deploying some of the massive cash hoard they've got now, which I think is playing with $350 billion, that he would be useful, perhaps reputation-wise, to help deploy some of that capital should circumstances require it. And again, he was too polite to say, if the markets blow up and people freak out. But that's what we're talking about here. Go back to 2008, and that's, you know. If you find my advice helpful during any times, just let me know, essentially, the Buffettism. Exactly. But I don't think a lot's going to change. And part of that is because they've

been gradually transitioning the day-to-day operating business into the hands of Greg Abel. They've long transitioned the decision-making at Geico, or is that Geico? Just in the insurance arms, so all of the insurance arms, into the hands of Ajit Jain. They have long been adding to the responsibilities of Ted and Todd, the investing lieutenants. And Buffett has long espoused that a ham sandwich should be able to run this business. In fact, I saw someone was quipping, another fool was quipping with us this morning. I hope Greg had a t-shirt at that board meeting that said ham sandwich on it. I see the stock. I think the stock fell as much as 6% or 7% today. Kind of wish it fell more. I mean, I hope it falls more in the next week or so,

because obviously, I'm talking about it now, so I'm kind of locked out. I would be a happy buyer of shares today without a concern, frankly. Yeah. I was going to say, this is the first time we've ever seen the market have to weigh what they think of a Berkshire without Buffett, maybe a 4% or 5% discount on shares today. I don't think anyone could find that unexpected. It's a surprise no matter when it happens. It's a surprise no matter how well they lay out the succession planning. We've known Greg Abel since 2021 formally would be taking over this seat. And I think you're right. I mean, I think they've done such a nice job telegraphing what's coming and also telegraphing. There are core Berkshire principles to the way that we

approach things. And that probably isn't going to change very much. I remember looking back on some of the content from the morning meetings and the Q and A's and stuff like that over the weekend, And someone had the foresight, not knowing what was coming, to ask, hey, Greg, what is something you've learned from Warren Buffett over the years? And, you know, incredibly prescient question, it turns out. And he talked about how when they were first meeting, talking through MidAmerican Energy Holdings and that acquisition, the first thing that Buffett did was zoom in on the balance sheet.

The first thing he did was zoom in on the derivative holdings for the company and start asking all these questions about risk, exposure, what was actually there. and Abel and Buffett both talked quite a bit at the annual meeting about the importance of being balance sheet oriented looking at the fundamentals of these businesses if you're a Berkshire shareholder none of that stuff's going to change that's going to continue to be the guide for how this management team is making decisions yes and I don't think it was a surprise to anyone who's been a long-term Buffett slash Berkshire follower like if you were not aware that Uncle Warren likes his balance sheets if you ask Greg what's one thing you learned I thought you were gonna say

how to keep a secret because it kind of did that a little bit. I'm guessing Greg maybe had a little heart palpitation there on stage, learning alongside all of the Berkshire shareholders that this was happening. What a vote of confidence, though, to have that. Even though he knows the job is going to be his. And again, look, Uncle Warren is 94. He'll be 95 at the end of the summer. If you don't expect someone approaching that anniversary of their existence to be maybe wanting to slow down a little bit, plan for retirement, it had to have been the subject. Well, as I said, I have heard variants of the, are you sure you want to be here for as long as I've held shares and my shares, my own personal shares, at least my earliest ones, can legally

rent a car in the U.S., right? Yes, they've matured. Exactly. One way to put it. They should hit the gym more. They're starting to have that middle-age precursor happening there. So, continue, anyway. As you noted, this is a business now sitting on an incredible amount of cash, $347 billion, I think, as of the most recent report and the updates over the weekend. I have to imagine that that was also some of the intentionality with this planning was Buffett unwinding some of the large positions that existed with Bank of America, with Apple over the years, and really putting Able and the management team

in a position to make decisions that they were excited about, that they were interested in, that followed the Berkshire playbook, and probably to be opportunistic as there's possibly some clouds out there on the horizon. Yeah. I mean, he kind of downplayed Some of the people say, oh, you're just trying to set up things for Greg Abel. It's like, no, you know, I'm not so charitable to make life easy for him. If an opportunity was here for me, I'd take it. Paraphrased. I mean, Apple is unquestionably the best investment, like a stock investment that Buffett has made.

You could argue others have done better percentage-wise or over a longer term. But in terms of the sheer amount of money, I mean, Buffett himself said, you know, Tim Cook, Apple CEO, you know, Tim Cook has made more money for Berkshire shareholders than I have. Point taken. Well, point taken. I will push back a little bit on Buffett and say, yeah, but you were the one that, you know, went into it, again, ignoring what other people were saying, which 2016-ish was that it's the biggest company in the world. How much growth is there left? turned out to do okay. I think it's going to be prescient for Berkshire because, of course,

Apple itself went through its own, shall we say, high-profile succession plan back in 2010 through 2011 because founder Steve Jobs, of course, famously, unfortunately, and I say this with all with all respect uh drew the short straw in life you know had had a health issue that tremendously shortened his life and that that was tragic but before he went of course and tim cook had stepped in uh for a lot of the day-to-day stuff with with apple before that but officially i think a few weeks before it's it's now it's back in 2011 so it's a it's a few weeks before Steve's ultimate departure, Tim Cook was the official CEO. On that day, the stock didn't have a great day. I've said for a number of years now on various forums, foolish forums, from a value

creation perspective, Tim Cook has been a far better CEO for Apple than Steve Jobs was. Now, Tim Cook doesn't get this opportunity without Steve Jobs and without the vision and the idea. I would say Tim Cook is an execution guy. Steve Jobs is an idea guy or was an idea guy. The execution guy doesn't get to work as magic without the idea guy to start. So you need both. But the sheer value that's been created at Apple in the Tim Cook era greatly outstrips what was created during the Steve Jobs era. but you got to give a job some credit for what, you know, he planted the seeds so that Tim Cook

could have the harvest. And I kind of think that's what's probably going to unfold with Berkshire, Buffett, Greg Abel, is that Buffett has put all kinds of seeds in play and has put the culture in play and has been, as we said before, slowly farming out bits and pieces of the business to the key players at Berkshire. He himself has said literally at this meeting that he thinks the Greg Abel era going forward will probably make more money for Berkshire shareholders than he would. Yeah, I think he said, I will remain a shareholder, and that is a financial decision. I trust the management team here. I'm glad you brought up the Apple example, because Buffett gave a nod to that, too. He had

a quote nobody but steve could have created apple nobody but tim could have developed it like he has and i think you could swap out the names there and he's essentially talking about his own business right he is now will greg abel overseeing ted and todd will they be able to create some of the magic that we've seen in stock picking. And I think, actually, that'll be a tough sell. But I also think it's a tough sell under Buffett because of the size of the company. Again, Apple has been the last real big home run. There's been a bunch of little things that haven't worked out, and that's fine. Or IBM didn't work out, or the airlines didn't work out. Now, I'm of the opinion that Buffett got out of the airlines because during COVID, because, you know,

when the facts change, I have, I changed my mind. What do you do, sir? Uh, you know, the fact the world changed, right. Uh, a worldwide pandemic that, that shuts down air traffic for a not insignificant period of time makes those airlines worth, uh, it changes the calculus about how you calculate the fair value of those airlines. He knew they were going to need government assistance. And he also knew that, uh, the optics of having Warren Buffett, you know, one of the richest people on earth through Berkshire Hathaway, it wasn't Warren Buffett owning them, but it was Berkshire. Uh, the fact that Berkshire Hathaway owned being the largest shareholder of all of these airlines that now all of a sudden need a bailout, the optics of that are going to be pretty

bad. And he also knew he didn't want to be the guy bailing out the airlines. So, oh, I'm going to sell my shares, that takes him off the board and takes Berkshire off the board. That way, they can qualify reasonably well for government funding. And whatever you think about airlines and their perpetual need to go hat in hand to the government at every crisis, I leave that as an exercise for the listener. I think it will be an interesting play from here. And I don't think, and I say this again. I know I've said I'm trying to remain respectful and giving. Warren Buffett and Berkshire Hathaway have been very, very good to me personally. As I've mentioned, it is my largest shareholding. It is my longest held shareholding. But let us be honest, the stock

picking over the past decade or so has not been spectacular aside from Apple. And I would argue that is not because Warren Buffett has, you know, faded in abilities or anything. That is because, you know, this is a $1.15 trillion company with a bazillion different irons in the fires. And there's not a lot, like they mentioned there was a $10 billion dollar acquisition as well that they passed on and my response to that all i could think of when i heard about that you know over the weekend was who cares 10 billion 10 billion dollars a 10 billion dollar acquisition for for a company with 348 or 350 billion in in in dry powder cat it's three percent of your cash it's not material yeah it's it's irrelevant so i mean like like

I don't want to hear about $10 billion acquisitions prospectively. I want to hear about minimum $100 billion prospective acquisitions. Bigger is better. How many of those companies are out there that will be available at a price that Berkshire and Buffett and Greg Abel and Ted Todd would think compelling. And I submit to you, there ain't many, which is why, you know, Buffett, one reason why I think Buffett is, you know, I'll go play. He's going to go day trade. It's a good time for him to step away. The house is relatively tidy. He's been able to put things in pretty good shape. And what better way than with a delicious Pret Organic Coffee,

starting at just $1 all day, every day, now until December 31st. At participating A&W locations in Ontario. What is kind of amazing to me, taking a step back on Berkshire, is sitting on record levels of cash, and we know what cash is earning right now. It's year-to-date up more than 10%. The market is in the opposite direction, down about 4% year-to-date. Investors haven't seemed to mind giving them a little bit of time to put that money to work. They've been rewarded for their patience so far. I don't think that will change. I think anyone who's expecting anything really large is going to be waiting quite a while. I think we're going to see a

capital allocation and deployment strategy that is very much like what we've seen in the past. And that might mean we're looking at three-figure billion dollars of cash on the balance sheet for a long period of time. Yeah. I mean, I think you can probably assume, because they've said this, expect that cash balance to never again drop below $50 billion. now when you have 350 billion okay there's room to go down we can we can yeah like you know we can we can just hold that and it's fine i am genuinely curious to see it i don't think you're going to see it anytime soon i think buffett probably needs to ultimately exit the board fully before you'll ever see anything here but i am curious to see because you know it took about

a minute and a half after the announcement, before, you know, various denizens of Twitter started saying, ah, break up Berkshire Hathaway now, it needs to be broken up, or when are they going to pay a dividend? I don't, you know, calm down, folks. I think really, truly, nothing is going to change. Nothing is going to change as long as Buffett is consuming oxygen. I think nothing changes when he ultimately leaves the scene. I think nothing's going to change really for a little while longer. I think they will continue in reinvesting in their existing businesses. It wouldn't shock me to see them deploying incremental capital in some of their already-existent areas. They famously talked over the past, let's say, 15 to 20 years about

how they like businesses where they can deploy significant capital at good expected returns, that would be the railroad, and that would be a few of their other businesses where they can, you know, again, the utilities. I would be shocked outside of a market dislocating event, I would be shocked to see them make any meaningful drawdown of that cash hoard. I don't think they're, you know, I don't think they're going out and buying Disney tomorrow. you know, I don't think they're going out to, you know, to, or to go out, take out Hershey or try to acquire Mars privately. They might, but you know, these are the types of businesses that would be fun to see him make a run at Coca-Cola. I will, I will, I will say that would be, that would tickle

me a little bit. You know, it, it would fit the profile and it would certainly fit Buffett's tastes. Yeah, I think you're right. And the market may give them that dislocating moment, right? We've talked at length on the show about how there is a bit of a precarious situation going on. I don't know what you're talking about. Buffett has provided some commentary on that. I can't think of a better position to be in, to have $350 billion in cash, if you expect there may be a lot of headwinds away and there may be some discounts available to the business. You mentioned railroads. You talked about energy a little bit. Any other sectors you think might fit the profile for a Berkshire acquisition if we start seeing some things on sale?

Coca-Cola would be funny, but it's also possible, right? I don't know how far they'd get. No, I think you want to look in a space where they already have an interest. It will not be technology-motivated. It's always going to be where we like to invest in places where we think we know. I mean, there's the famous story about what was the best-selling candy bar in the 80s? Well, it was Snickers. What was it in the 90s? Well, it was Snickers. You know, I don't know who's going to have the dominant operating system in 20 years. You can probably make a good guess. But people are going to still be eating Snickers. Well, you're probably going to be buying Snickers. And the pricing power of a Snickers or the pricing

power of a can of Coke is probably going to, or a bottle of ketchup, because he's famously got the Kraft Heinz Association, is probably going to be there. I would like to see them. It's always going to be a low technology possibility. The obvious things are more insurance, more energy, consumer products with a significant brand moat. So, a Coca-Cola. I joke a little bit, even at Disney, but even Disney, there are problems if Disney were to ever be something like that. I think it's going to be interesting to see where it goes. I am signing up for the ride. I mean, I've been signed up for the ride for a while. At the very least, I'd like to not vacate my shares while I'm still drawing a regular paycheck because I don't particularly

want to hand the government a large check. As you say, it's a great place to be. And yeah, it has been a great place to be. And the cornerstone of my philosophy or my investing philosophy has to have the ballast holdings in my portfolio, of which Berkshire is absolutely one. It's the largest one, as I've said. And those ballast holdings, that for me, Brookfield is another one. Some people really like Fairfax Financial. Have your ballast holdings so you can go out and do some more riskier plays. I'm not talking day trading or penny stocks or stuff like that, but still things that may or may not work out for you, but you've always got the ballast just to keep you calm. In days when you see those market dislocations, I would really

encourage people to go back and look at what Buffett was doing during the global financial crisis the 2008 crisis you know like wasn't panicking stock got hit along with everything else that's fine as buffett has said even this weekend we don't care about that kind of stuff berkshire's fallen i don't know how many times by 50 doesn't bother us in the slightest um focus on the business all that wonderful stuff but remember what he did back then you know goldman sachs came hat in hand. The vampire squid came hat in hand. Buffett said, sure, I'll help you. Here's your 15% anchor. Harley Davidson came hat in hand. Sure, we'll help you. Here's your 15% anchor. Bank of America, I think, gave penny warrants or dollar warrants as part of the investment.

Don't call it a bailout. As part of the investment that Buffett made in Bank of America. And there's others. And that's one thing I think I want people to remember about, you know, Buffett's got this kindly Midwestern old dude kind of persona. When it comes to allocating capital, dude's a killer. Like, you want my money, it's going to be 15%. My end is 15, precious, and that's how we're starting. And we're going to take a little bit of equity comp as well. I hope that Greg Abel and Ted and Todd can be similarly value extractive, shall we call it, during future market dislocations, which, as Buffett, again, said this weekend, are coming. We don't know when they are. They will come. It'll probably be a Tuesday. He seems to think that the business

is in good hands with Greg running it. Again, if we have trusted Buffett's process on the building of Berkshire. I suggest to you we should be similarly trusting of his transition planning for the business that he's building. Jim, it sounds like even though he won't be calling the shots for your largest holding, his tenants, his investing style will remain the pillars of your portfolio and how you expect Berkshire will continue to be run. Sounds about right to me, yes. Jim, thanks for talking through it to me. Thank you, Dylan. As always, people on the program may have interests in the stocks they talk about, and The Motley Fool may have formal recommendations for or against,

so don't buy or sell anything based only on what you hear. All personal finance content follows Motley Fool editorial standards and is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see our full advertising disclosure, check out our show notes. For The Motley Fool Money team, I'm Dylan Lewis. We'll be back tomorrow.