(Bloomberg) – Here’s a theory from Charles Munger on why his friend Warren Buffett has been so successful building Berkshire Hathaway Inc. into one of the world’s most valuable companies:
“He has a lot of time to think,” Munger told investors in Los Angeles on Feb. 10. “Warren is sitting on top of an empire now, and you look at his schedule sometimes, and there’s a haircut. ‘Tuesday: Haircut Day.”’
Buffett fans have cleared their own schedules this weekend. On Saturday, Berkshire is set to release its annual report online. As in years past, it will include a lengthy letter written by the 85-year-old billionaire about the company, investing and whatever else he’s been thinking about. Here are some themes to watch:
It’s the big unanswered question at Berkshire: Who will follow Buffett as chief executive officer? Investors and the business press have speculated about the leading candidates for years. But Buffett has avoided divulging any names. While it’s unlikely that’ll change, there’s always a chance for a surprise.
There are some clues. In a letter last year, Buffett said the board had settled on the right candidate and that, in some respects, the person “will do a better job” than he’s doing. Future CEOs, he added, should come from the company’s ranks and be “relatively young” so they can average at least 10 years at the helm.
Munger, Berkshire’s vice chairman, dropped a bigger hint. In a separate letter to investors last year, he highlighted the accomplishments of two Berkshire managers: Ajit Jain and Greg Abel. Both men, Munger wrote, are examples of “world-leading” executives who are in some ways better than Buffett. Jain, 64, has run insurance operations at Berkshire since the mid-1980s. Abel, 53, is in charge of the company’s energy unit.
Short of naming a successor, Buffett could explain more about how the company will be organized after he’s gone. Already, he’s lined up some help for his successor. Todd Combs, 45, and Ted Weschler, 54, Berkshire’s two investment managers, are poised to take responsibility for the company’s stock portfolio and advise the next CEO on deals. Howard Buffett, the billionaire’s oldest son, will probably become non-executive chairman.
Buffett gained fame in the 1970s and 1980s as a stock picker. Using funds from Berkshire’s insurance subsidiaries, he made bets on companies like the Washington Post Co. and Coca-Cola Co. that soared in value over the following decades.
Recently, he’s had a rough go in the market. Two of his biggest investments — International Business Machines Corp. and American Express Co. — plunged over the last year as they’ve struggled to adapt to new technologies and competition. While AmEx has been a long-term winner for Berkshire, IBM trades for less than what Buffett paid. Another big investment, Wal-Mart Stores Inc., has also come under pressure.
Buffett could use the letter to explain why he likes the companies’ long-term prospects. He could also remind investors that Berkshire’s stock portfolio, while valued at more than $100 billion, has become less important to Berkshire’s growth. Over the past few decades, he’s built more value by acquiring dozens of companies. Berkshire has interests in insurance, energy, manufacturing, media, retail and transportation.
Buffett has long said that Berkshire’s “core” business is insurance. It owns Geico, the second-largest auto carrier in the U.S., and several other businesses that sell property and casualty coverage.