Greg Abel’s biggest challenge — is Berkshire Hathaway stock worth the ‘Buffett’ premium without Warren Buffett?

When beloved billionaire investor Warren Buffett announced his retirement at Berkshire Hathaway’s 60th shareholder meeting on May 3, it caught many by surprise, including his designated-successor Greg Abel.

The 94-year-old, along with his longtime friend, late Charlie Munger, grew the company into a $1.2 trillion conglomerate, and over time his acument has bought the company a sort of “blind faith” from investors. Such is the legend, he has been dubbed the “Oracle of Omaha”.

It is this “Buffett premium” that may now be the biggest challenge for next CEO Greg Abel, 62. With the investor confidence that Berkshire Hathaway enjoys resting largely on Warren Buffett’s shoulders, his departure could cause a liitle shake-up.

What Challenges Does Greg Abel Face?

According to a Bloomberg report, the first of many questions that Greg Abel is likely to face is about the $350 billion cash pile that Warren Buffett has left him. The maverick investor sat on the money instead of investing it amid a volatile market and Abel is being keenly watched for what he will do.

Notably, under Warren Buffet — who is the longest serving CEO among S&P 500 companies, and co-founder Charlie Munger, Berkshire did not issue dividends (except once in 1967). The argument was that the company made more for shareholders in stock value than giving dividends — this will now be a pressure point.

Shareholders will also watch for Abel’s leadership style and whether he is risk averse, what industries he prefers, and whether future Berkshire annual general meetings would draw Wall Street experts and fans the way Warren Buffett and Charlie Munger did — for their wisdom, wit, and celebrity.

Some are also worried that the behemoth that is Berkshire, with its 180 businesses and close to 4,00,000 employees, could be broken down if Warren Buffett is no longer at the helm.

Notaby, Abel has said he will continue with the company’s traditions, and Warren Buffett remains a major shareholder of Berkshire.

Investors Wonder: Is Berkshire worth the ‘Buffet Premium’ Without Warren Buffet?

Alice Schroeder, author or Warren Buffett’s biography ‘The Snowball: Warren Buffett and the Business of Life’, told Bloomberg, “People love Warren because he has a certain magic. Recreating it is almost impossible.”

Cathy Seifert, an analyst for CFRA Research told the publication, “Investors are going to have to muddle over is the notion of: Does Berkshire Hathaway stock still deserve the Buffett premium when Buffett is no longer there? There could be a laundry list that some institutional investors have that include the payment of a cash dividend, and a more regular capital allocation program.”

Over time, Abel has proved his worth, believe watchers. He joined Berkshire by way of acquisition in 1998, when the company bought CalEnergy. In 2008, Abel showed his mettle, by gaining over $1 billion for Berkshire in negotiations for Constellation Energy. Then in 2013, he bought NV Energy and subsequent deals led to what is now Berkshire’s utility business (energy and gas).

The reputation gained him Warren Buffett’s trust and in 2018 he was promoted to vice-chairman of Berkshire’s non-insurance operations (which includes railroads to candies). Then in 2021, Charlie Munger announced him as the “successor-in-waiting”, in a slip at the company’s AGM.

But doubts around his investing acument remain. Author Alice Schroeder noted, “Greg (Abel) is the business leader, he is not in charge of investing. That is going to be one of his and the board’s biggest challenges.”

Cole Smead, a shareholder of Berkshire Hathaway also told Bloomberg that when asked what he would do with Warren Buffet’s $350 billion cash hoard and his capital allocation strategy during the lastest AGM, Greg Abel pledged continuity.

“He struggled on that question. I thought like Charlie and Warren, he would look back at a prior time in his life and tell a story about something he had experienced in investing. He didn’t,” Smead noted.

(With inputs from Bloomberg)