Omaha: Billionaire Warren Buffett shocked an arena full of shareholders Saturday by announcing that he will retire at the end of the year, bringing the curtain down on a six-decade run leading Berkshire Hathaway that made him the most influential investor in the world.
Buffett said he will recommend to Berkshire Hathaway’s board on Sunday that Vice Chairman Greg Abel should replace him. “I think the time has arrived where Greg should become the chief executive officer of the company at year end,” Buffett said.
Abel has been Buffett’s designated successor for years, and he already manages all of Berkshire’s noninsurance businesses. But it was always assumed that he would not take over until after Buffett’s death. Previously the 94-year-old Buffett always said he had no plans to retire.
Buffett announced the news at the end of a five-hour question and answer period without taking any questions about it. He said the only board members who knew this was coming were his two children, Howard and Susie Buffett. Abel, who was sitting next to Buffett on stage, had no warning.
Abel returned an hour later without Buffett to conduct the company’s formal business meeting, and he responded to the news.
“I just want to say I couldn’t be more humbled and honored to be part of Berkshire as we go forward,” Abel said.
Many investors have said they believe Abel will do a good job running Berkshire, but it remains to be seen how good he will be at investing Berkshire’s cash. Buffett endorsed him Saturday by pledging to keep his fortune invested in the company.
“I have no intention — zero — of selling one share of Berkshire Hathaway. I will give it away eventually,” Buffett said. “The decision to keep every share is an economic decision because I think the prospects of Berkshire will be better under Greg’s management than mine.”
Thousands of investors in the Omaha arena gave Buffett a prolonged standing ovation after his announcement in recognition of his 60 years leading the company.
During that period Berkshire nearly doubled the returns of the S&P 500, with a 19.9% compounded annual growth rate compared with the index’s 10.4% gain.
Buffett had such a devoted following among investors that markets would move when his investments were disclosed because so many people copied him.
CFRA research analyst Cathy Seifert said it had to be hard for Buffett to decide to step down. “This was probably a very tough decision for him, but better to leave on your own terms,” Seifert said. “I think there will be an effort at maintaining a business as usual’ environment at Berkshire. That is still to be determined.”
Abel expected to do well
In many respects, Abel has already been running much of the company for years. But he hasn’t been managing Berkshire’s insurance operations or deciding where to invest all of its cash. He will now take those tasks on, but Vice Chairman Ajit Jain will remain to help oversee the insurance companies.
Investment manager Omar Malik of Hosking Partners in London said before Buffett’s announcement that he wasn’t worried about Berkshire’s future under Abel.
“Not really (worried). He’s had such a long time alongside Warren and a chance to know the businesses,” Malik said about Abel. “The question is will he allocate capital as dynamically as Warren? And the answer is no. But I think he’ll do a fine job with the support of the others.”
Cole Smead of Smead Capital Management said he wasn’t surprised Buffett is stepping down after watching him Saturday because the 94-year-old wasn’t as sharp as in past years. At one point, he made a basic math mistake in one of his answers. At other points, he got off track while telling stories about Berkshire and his investing without answering the question he was asked.
Abel is well regarded by Berkshire’s managers and Buffett has praised his business acumen for years. But he will have a hard time matching Buffett’s legendary performance, and since he doesn’t control 30% of Berkshire’s stock like Buffett does, he won’t have as much leeway.
“I think the challenge he’s going to have is if anyone is going to give him Buffett or (former Vice Chairman Charlie) Munger’s pass card? Not a chance in God’s name,” Smead said. Buffett always enjoyed a devoted following among shareholders.
Buffett has said that Abel might even be a more hands-on manager than he is and get more out of Berkshire’s companies. Managers within the company say they have to be well prepared before talking to Abel because they know he will ask tough questions.
Steven Check, president of Check Capital Management, said he never thought he would see Buffett retire.