Berkshire Hathaway (NYSE:BRK.A) is releasing 2019 annual results and Warren Buffett’s yearly letter to shareholders this weekend. Even before the numbers come out, the investing conglomerate’s performance relative to the broader market is in the public domain.
In 2019, Berkshire Hathaway underperformed the market. Year-to-date the same has been repeated.
Speculation has been rising about Berkshire’s succession plans as Buffett will be turning 90 later this year. He is now the longest-serving CEO of an S&P 500 firm after Les Wexner quit as the chief executive of Victoria’s Secret-parent L Brands.
Meanwhile, vice-chairman and long-time Buffett sidekick Charlie Munger is 96. At any other firm, the two would be fully retired.
But don’t expect Buffett to announce his retirement in the forthcoming annual letter. Unfulfilled ambitions and perhaps a lack of confidence in would-be successors will ensure Buffett hangs around longer.
The Oracle of Omaha has said that his successor will preferably be picked from within the investing conglomerate. Various media reports have tipped Todd Combs to succeed Buffett. Barron’s called him a “rising star” .
While Combs’ responsibilities increased this year to include running Berkshire’s auto insurance unit Geico, the size of the portfolio he’s responsible for suggests Buffett is not about to let go of the reins. Combs currently only handles $14 billion . For a firm boasting a $242 billion equity portfolio, that’s just 6%.
Between 1965 when Buffett took control of Berkshire Hathaway and 2018, the compounded annual growth of the investing conglomerate was 20.5%. This was more than double the 9.7% return of the S&P 500 over the same period.
After years of continuously beating the market, Buffett seems to be losing his touch as growth stocks trounced value stocks.
In the last 12 months, the S&P 500 index is up over 20%. Berkshire Hathaway’s Class A stock has appreciated by around 10%. Year-to-date the S&P 500 is up 3.3% while BRK has virtually broken even.
Some critics have opined that the value-investing strategy employed by Buffett has failed. Would Buffett quit now when he could wait a little longer to prove critics wrong? Possible but unlikely.
In last year’s annual shareholder letter , Buffett announced he was still gunning for an “elephant-sized acquisition.” That is yet to come. Instead, Berkshire expanded its holdings of marketable securities as its cash hoard swelled.
Until Buffett makes another signature investment, his stay at the helm will continue. As he put it, “just writing about the possibility of a huge purchase has caused my pulse rate to soar.” This is what Buffett lives for. Walking away from one final adrenaline rush that will secure his legacy is unlikely.