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On November 28, local time, Berkshire Hathaway announced that Charlie Munger, the company’s vice chairman of the board, passed away peacefully at a hospital in California that morning at the age of 99.

As Warren Buffett’s “best partner”, Munger’s investment philosophy has also deeply influenced Buffett and Berkshire for many years. Buffett said in a statement: “Without Charlie’s inspiration, wisdom and participation, Berkshire would not have achieved today’s brilliance.”

After Munger’s death, people’s attention shifted back to Berkshire’s future leaders and portfolio, and how Berkshire would start the “post-Munger” era.

Munger’s influence is everywhere

Although at Berkshire’s annual shareholder meeting every year, Munger always acted as Buffett’s “sidekick”, sitting quietly beside Buffett, letting him enjoy the spotlight and the microphone. But in fact, Munger’s investment ideas deeply influenced Buffett and Berkshire’s choices. 

For example, Munger’s ideas encouraged Buffett to invest in American Express, which Buffett first bought in the 1960s. Now, Berkshire is the company’s single largest shareholder.

In 1971, Munger persuaded him to buy See’s Candies for $25 million. The acquisition of See’s was a turning point for Buffett, who began to abandon his long-standing pursuit of troubled and cheap businesses. In the decades after being acquired by Berkshire, See’s generated more than $2 billion in profits, which was crucial for Berkshire’s rise.

Munger’s imprint can also be seen in some of Berkshire’s later deals, including the $6 billion acquisition of Israeli metal company Iscar, and investing in BYD. Christopher Bloomstran, president of Berkshire shareholder Semper Augustus Investments, said: “Although he basically no longer holds operational positions, he has always been a consultant.”

In 1978, Munger joined Berkshire as vice chairman. In the 45 years after Munger joined, Berkshire’s market value also expanded from about $10 million to $785 billion, soaring more than 78,500 times.

NBD checked Berkshire’s financial report and noticed that in recent years, despite the impact of the Fed’s interest rate hike to curb inflation on the stock market, Berkshire’s performance was still impressive, and the company’s revenue and operating profit showed an upward trend. It is worth mentioning that operating profit is a financial indicator that Buffett values ​​more than net profit, because net profit is often affected by the fluctuations of investment income.

Succession plan was made long ago

With the fall of this investment star, who will be the successor? Greg Abel and Ajit Jain, vice chairmen of Berkshire, once again came under the spotlight.

Abel is 61 years old, graduated from the University of Alberta in Canada in 1984, and worked at PricewaterhouseCoopers and energy company CalEnergy. He has been working at Berkshire Hathaway Energy for 25 years and is now in charge of non-insurance business.

Jain is 72 years old, born in Orissa, India, and specializes in risk pricing, especially major risks such as natural disasters. He joined Berkshire in 1986 and is now responsible for the management of Berkshire’s insurance business.

In fact, the two men began to consider succession matters many years ago. Berkshire has had a succession plan since at least 2006. According to foreign media, Berkshire confirmed in 2021 that Abel will serve as Berkshire’s CEO after Buffett steps down.

According to Reuters, Abel is willing to give business units full autonomy. This means that large subsidiaries such as BNSF Railway and Geico car insurance company with tens of thousands of employees, as well as small departments such as Borsheims jewelry with about 142 employees, can operate independently without interference from Berkshire’s headquarters. The change of candidates for Berkshire’s top leadership will not have much impact on the subordinate business units.

In addition to these two, Buffett’s eldest son Howard Buffett will serve as non-executive chairman, mainly responsible for maintaining Berkshire’s culture. Todd Combs and Ted Weschler, who manage Berkshire’s portfolio, are expected to take over the entire portfolio.

“However, the problem Buffett faces now is that can these trusted and long-term colleagues take Munger’s place?” said Rosbach, CEO of J Stern & Co, a long-term Berkshire shareholder. “Can they have an open, critical dialogue with (Buffett) and help make the right decisions?”

CFRA Research analyst Cathy Seifert said that Munger’s death was a huge loss, and Berkshire shareholders would not suffer direct negative effects, because they benefited from Munger’s wisdom for many years. But investors should pay attention to what this means for Berkshire’s future.

According to foreign media, Buffett told shareholders in 2014 that he regretted some of the investments he made without Munger’s participation, including buying $2 billion worth of bonds from power company Energy Future Holdings, which eventually filed for bankruptcy, resulting in a pre-tax loss of $837 million for Berkshire.

Berkshire’s portfolio changes in ten years: heavy on technology

Many people are more interested in whether Berkshire’s investment direction will change in the future.

According to reports, in 2009, Buffett and Munger began to discuss introducing other investment managers to manage the huge portfolio. In 2010, hedge fund manager Todd Combs joined Berkshire. Ted Weschler, the founder of hedge fund Peninsula Capital, won the “Buffett lunch” twice in 2010 and 2011, and then joined Berkshire in 2012.

According to foreign media, as of 2022, Combs and Weschler jointly managed about 10% of the investments in Berkshire’s portfolio. Although they rarely appeared in public, they actually handled most of the transactions in Berkshire’s portfolio.

Since Combs and Weschler took over, some changes in investment style and direction can be seen from Berkshire’s heavy holdings.NBD checked Berkshire’s holdings in the past ten years and found that the overall investment showed a trend of heavy technology stocks, and Apple jumped to its biggest bet. In addition to the top ten holdings, Berkshire also invested in technology stocks such as Amazon and Snowflake.

It is worth noting that the emphasis on Apple and the attention to technology stocks are very consistent with Munger’s investment philosophy. Munger once said, “I think that modern investors, if they want to succeed, almost have to buy a few stocks that perform far above average.

Not only that, Berkshire also rarely ventured into IPO and pre-IPO investments. Buffett publicly stated that buying “hyped IPO stocks” is not a reliable investment basis. But Berkshire subscribed for $250 million worth of Snowflake stock at the Snowflake IPO stage. It was reported that participating in new stock offerings was a rare investment behavior for Buffett, which might be a gamble by Combs and Weschler.

In addition, although Buffett and Munger are skeptical of AI and think it is hyped, foreign media analysis believes that as AI is not only changing the industry, Berkshire’s portfolio is also changing. In Berkshire’s holdings, Apple, Snowflake, and Amazon are all companies that are deploying AI on a large scale, American Express uses AI to eliminate credit card fraud and automate fraud risk decisions, and Coca-Cola uses AI to carry out marketing activities.

According to reports, Buffett had previously hinted that what stocks to buy in Berkshire’s portfolio had little to do with him. The outside world though that in the “post-Buffett and Munger era”, Combs and Weschler would take over all of Berkshire’s stocks. Technology and AI may be one of the main investment directions in the future.

The Financial Times analysis believes that Buffett and Munger have established the principles for training the next generation of leaders of the company, which is enough to reassure investors that Berkshire can survive without losing anyone. But Munger’s absence will still leave scars on Berkshire.

Smead, chief investment officer of Smead Capital Management, said: “Berkshire has talents who can help select stocks, but (with Munger) it will never be the same.”