Buffett wrote in his annual letter last year: “Ajit has created tens of billions of value for Berkshire shareholders. If there were ever to be another Ajit and you could swap me for him, don’t hesitate. Make the trade!”
But lately, Abel has been discussed as the most likely successor given his younger age and success in running the utility business.
“The most likely successor in our view, who Warren Buffett regularly praises, is Greg Abel,” J.P. Morgan analyst Sarah DeWitt wrote in a note about Berkshire in September. “Ajit Jain, who runs Berkshire Hathaway Reinsurance, is also believed by many to be a potential successor, although our sense is his age may preclude him.”
“We think Greg Abel would be a strong allocator of capital and the earning power of the underlying businesses would remain strong after Buffett,” DeWitt added.
Buffett has guided the sprawling conglomerate to a 20.8 percent compounded annual gain from 1965 through 2016, double the return of the S&P 500 over that period.
To achieve that market-beating return, Buffett has assembled a collection of cash-generating industrial and insurance businesses through acquisitions and in turn, invested that cash to make astute large bets on public stocks.
Whoever takes over for Buffett will likely not retain that full stock-picking role because Buffett brought in two hedge fund managers, Ted Weschler and Todd Combs, in the last decade to do more of the investing.
Berkshire’s B share class traded lower after the announcement as investors began to think again about the future of the company without the Oracle of Omaha in charge.
“The stock is likely to drop, perhaps substantially over an extended period when Warren Buffett steps down, although this could ultimately present a buying opportunity because the underlying fundamentals should continue to improve and the board could repurchase significant amounts of stock if the shares fell below 1.2x book value,” DeWitt’s note said.