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Buffett says Berkshire stock to gain the day after he dies

May 08 2017 05:45
Sonali Basak, Noah Buhayar and Jordyn Holman, Bloomberg

New York - Warren Buffett, the billionaire chairperson and chief executive officer of Berkshire Hathaway, assured shareholders that they’ll be fine after he’s gone.

“If I die tonight, I think the stock would go up tomorrow,” Buffett (86) said on Saturday at Berkshire’s annual meeting in Omaha, Nebraska. “And there’d be speculation about breakups and all that sort of thing, so it would be a good Wall Street story.”

Buffett was answering an investor’s inquiry on whether Berkshire would repurchase stock if the shares fell after the billionaire and his 93-year-old vice chairperson, Charles Munger, were to move on. The idea underpinned a larger question of succession planning at Berkshire. Buffett over five decades has expanded the conglomerate into industries including insurance, energy and transportation, while assembling a $135bn stock portfolio.

He said the board would consider a buyback if it were in the best interest of shareholders, and that the next CEO would have to be a capital allocator.

The next leader of Berkshire is “going to have to allocate maybe $400bn or something like that, maybe more,” Buffett said. “Ten years from now Berkshire will be an aggregation of businesses where more money has been put in - in that decade - than everything that took place ahead of time.”

‘Very rich’

The billionaire investor said he hoped that the person who succeeds him will already be "very rich" - because the executive will have already worked for a long time and had success - and wouldn’t be motivated by having 10 times or 100 times as much money as they need.

“They might even wish to set an example by engaging for something far lower than what you could say their true market value is,” Buffett said.

Buffett said the company could offer a modest pay package, with the chance for compensation to climb with long-term improvements in results. Munger said it will be unnecessary to bring on pay consultants, a view echoed by Buffett, who has long criticised their work.

“If the board hires a compensation consultant after I go,” said Buffett, “I will come back.”

Investors have speculated for years about who might replace Buffett. At this year’s meeting, he again praised the work of his reinsurance lieutenant, Ajit Jain, as well as his stock pickers, Todd Combs and Ted Weschler. He also highlighted the leaders at the various insurance units.

WATCH: All about Warren Buffett

Buffett laments 'roadkill' who lose jobs

Buffett also likened unemployed workers to animals that are helpless to avoid car crashes, and said the US must do more to help those displaced by competition from overseas and technology. “Nobody should be roadkill,” Buffett said.

The billionaire faced several questions at the gathering about declining employment in the manufacturing sector - a key theme in the recent presidential race - and about job cuts at Kraft Heinz, the foodmaker backed by Buffett and 3G Capital. He reiterated his view that society at large benefits from both economic efficiency and free trade, often at the expense of individual workers who struggle to find new jobs.

He spoke of the plight of former employees at a Berkshire textile operation in New Bedford, Massachusetts, who lost their work to competition from cheaper locations decades ago. Buffett said such shifts help millions of people by providing necessities at a lower cost.

“Massive trade should be - and is actually - enormously beneficial to both the US and the world,” he said. “Greater productivity will benefit the world in a general way, but to be roadkill, to be the textile worker in New Bedford” is a painful experience, he added. “It would be no fun to go through life and say I’m doing this for the greater good, and so that shoes or underwear was all for 5% less.”

Trump’s view

Buffett said that gross domestic product per person in the US is six times higher now than when he was born, reiterating his optimism about the nation’s ability to generate wealth. That contrasts with the view of Donald Trump during his successful presidential campaign, when he said that the US was ripped off by free-trade agreements. The president spoke in his inaugural speech in January about “ American carnage” where “rusted-out factories” are “scattered like tombstones.”

The US unemployment rate fell to 4.4% in April, the lowest since before the financial crisis, according to Labor Department figures Friday. Still, Gary Cohn, director of the National Economic Council, said many jobs pay too little.

“We need to bring back the manufacturing jobs that pay a lot,” he said in a Bloomberg Television interview Friday. “We need to bring back the service jobs that pay a lot.”

Buffett often calls on the US to do more to help the working class and has said the tax system is tilted to benefit rich people like him, a point he pressed Saturday. He also said it is up to the president, whoever is in office, to serve as an “educator-in-chief” and explain how free trade helps the country in the long run.

“Beyond that, we have to have policies that take care of the people that become the roadkill in the process,” Buffett said. “We have got the resources.”

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berkshire hathaway  |  warren buffett

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