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Stock Strategist

What's Berkshire Going to Do With All That Cash?

Acquisitions, investments, share repurchases, or dividends are some options.

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We think two big concerns about  Berkshire Hathaway (BRK.A)/(BRK.B)--first, that its size will prevent it from growing at a decent clip in the future, and second, that the shares will get pummeled once Warren Buffett no longer runs the show--have kept some investors on the sidelines. While we do not expect Berkshire to be able to consistently increase book value per share at a double-digit rate going forward--a feat the company achieved six times during 2009-18--we think it is still capable of achieving a high-single- to low-double-digit rate annually. This should leave returns solidly and consistently above Berkshire’s cost of capital, which is what we expect from companies with wide economic moats.

As for succession planning, Buffett’s three main roles--chairman, CEO, and investment manager--are expected to be split once he departs. Our long-standing view has been that Buffett’s son, Howard Buffett, will serve as nonexecutive chairman and that Ted Weschler and Todd Combs will serve as co-investment managers of Berkshire’s investment portfolio. For the CEO role, we think there are two fine candidates in Ajit Jain and Greg Abel, both of whom would bring unique insights. Our preference, though, would be to have Jain take control of all of Berkshire’s insurance operations while Abel (who has experience with both operations and acquisitions) fills the role of chief executive.

Greggory Warren does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.