Berkshire Hathaway shareholders were confronted with the potential future of the company as two possible successors to billionaire chief executive Warren Buffett took their turns in the public eye at the company’s annual meeting in Omaha.
Greg Abel and Ajit Jain, the two Berkshire vice-chairmen seen by investors as likely replacements for Mr Buffett, joined the Oracle of Omaha as he answered questions from shareholders, who want more insight over whether decisions such as the purchase of new technology stock Amazon mark a change in philosophy.
The move, which followed their elevation to the board in January 2018, put the spotlight on the two men as Berkshire plans for a day when Mr Buffett and his longtime partner Charlie Munger no longer sit atop the sprawling conglomerate and as some investors are questioning the company’s strategy, particularly over new technology stocks.
Mr Buffett had already caused a stir, speaking in front of a record crowd including Apple boss Tim Cook, with his criticism of private-equity firms over the way they calculate returns. He has promised not to leverage up the $739bn company.
Mr Munger also stated that Berkshire would get “a little more liberal in repurchasing shares” as Mr Buffett underlined his commitment to buy back stock from the company’s thousands of shareholders.
The Amazon decision, which was disclosed last week, and the signal that the company would buy back more shares after the steep increases in repurchases this year is a sign of how Berkshire is shifting its approach in the way it puts its $114bn of cash to work.
Although Mr Jain and Mr Abel did not reveal any big changes in approach, the fact they were answering questions from the floor is a break from the norm.
News that one of Mr Buffett’s two investment protégés — Todd Combs or Ted Weschler — had invested in ecommerce behemoth Amazon also marked a change. Some shareholders and analysts say this is the clearest indication yet of the company’s evolving investment philosophy.
Mr Buffett, known for an investment style that favours cheap companies with a sound financial core that for a long time kept Berkshire out of technology stocks, defended the Amazon purchase during roughly six hours of questioning from shareholders, journalists and analysts, who were trying to understand how Amazon fits into the Berkshire portfolio. The company only bought its first stake in iPhone maker Apple in 2016.
“Considerations are identical when you buy Amazon versus some, say, bank stock that looks cheap statistically against book value,” the 88-year old chief executive said.
However, some analysts think there is a new shift in approach.
“What you are seeing is an evolution of thinking,” Christopher Rossbach, managing partner of longtime Berkshire shareholder J Stern & Co, said of the investment in Amazon. “It is slow and it is extraordinary.”
He added: “On the fact the Amazon investment was done, it goes to the whole ethos [of Berkshire]. They hired good people to . . . manage the public portfolio. That is entirely in line and an affirmation that they practice what they preach in terms of giving people autonomy to make decisions.”
Despite the good start to the year with profits at Berkshire surging to nearly $22bn in the first quarter compared with a loss a year earlier, some investors are concerned about the Amazon purchase, the size of which Berkshire has yet to reveal.
Bill Smead, the chief executive of asset manager Smead Capital, said he wondered how it sat with one of Mr Buffett’s pieces of advice in years past: to be fearful when others are greedy and greedy when others are fearful.
“Amazon has 45 analysts that cover the stock: 45 buys, zero neutrals, zero sells,” he said. “How is buying the most popular stock on the planet being greedy when others are fearful?”
It is a good question for a company that counts an aerospace parts manufacturer, speciality chemicals maker, insurance operation and railroad among its dozens of business lines.
However, Mr Buffett left open the door to how the company could one day manage its mammoth $114bn cash pile, which now sits predominantly in short-term Treasuries, saying it was a decision for the inheritor of his office.
“In the end Berkshire should prove itself over time,” he said. “There are no perpetuities and it needs to deserve to be continued in its present form.”
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