The death of Charlie Munger, Warren Buffett’s right-hand man at Berkshire Hathaway Inc (NYSE:BRK.B), has brought an outpouring of praise but also a sharper focus on the investment giant’s succession plans.
After Buffett took over what was a struggling textiles firm in 1965, he started the shift towards becoming an investment holdings company with the acquisition of insurance company National Indemnity Company and stakes in the Washington Post Company and first moves into the banking sector, with the strategy refined and developed after Munger joined in the late 1970s.
Munger was widely credited for helping steer the ship into more profitable waters by refocusing on companies which weren’t just cheap but offered longer-term value. His death raises questions about succession, and Buffett made an appointment in 1999 of someone who was seen as a potential successor, David Sokol.
$100 invested in Berkshire Hathaway when Charlie Munger officially joined the firm in 1978 would be worth nearly $400,000 today, via @bespokeinvest: pic.twitter.com/9BWfQjImWy
— Tracy Alloway (@tracyalloway) November 29, 2023
Sokol, who joined as part of the acquisition of MidAmerican Energy, where he was the chairman and CEO, went on to lead several key Berkshire Hathaway subsidiaries.
While never made vice president, Sokol was widely seen as the heir-apparent before his surprise resignation in March 2011 amid controversy around US chemical group Lubrizol, which Berkshire was looking to buy.
Although Sokol maintained that he did nothing wrong, legal action was considered after the company found Sokol had made “misleadingly incomplete” disclosures to Berkshire’s bosses over his dealings in US$10 million of Lubrizol shares shortly before recommending its acquisition.
The loss of Munger might bring a more direct clarification of succession plans from Buffett, who told investors last week, “at 93, I feel good but fully realize I am playing in extra innings”.
However, Buffett has two vice-chairs who have been in place for five years: Greg Abel and Ajit Jain, a sprightly 61 and 72 years old respectively.
Berkshire’s investments are also managed by Todd Combs and Ted Weschler, brought in back in 2012 to help with a role that had been solely handled by Buffett. In 2018, Buffett said directors were “in agreement that if something were to happen to me tonight, it would be Greg who'd take over tomorrow morning. If, heaven forbid, anything happened to Greg tonight then it would be Ajit."
Since then, he has highlighted the widening contributions of Combs and Weschler beyond portfolio management, saying in his 2021 letter that they have "added value to Berkshire in several ways beyond their portfolio-management duties. Each now oversees a large and important business in addition to his investment activities.”
Abel, who as the protégé of Sokol has headed the group’s energy businesses and led several acquisitions in the sector, seems to be the board consensus within the board as the heir apparent to Buffett, with the unique mix of personality and intellectual capacity to handle the role.
Munger himself said Abel “will keep the culture” of the company going, referring to the company’s decentralised nature, while another director Ron Olson said Abel “has the same kind of credibility and integrity that has come through for Warren” and “a hell of a work ethic”.
Externally, there seemed to be sanguinity that whatever happens the company appears to be on the right track, with the shares little moved in pre-market trading.
Bill Stone, chief investment officer at Glenview Trust Company, told Reuters that Berkshire has “so many operating companies that should do well without either” Buffett or Munger.
With a US$157 billion cash pile on the balance sheet, Stone said, “you shouldn’t expect a big decline in the stock, or if you do see one it will be only temporary because they would be big buyers of their own stock if it were to crater”.
Quotes about and from Charlie Munger
- Warren Buffett, November 2023: “Berkshire Hathaway could not have been built to its present status without Charlie’s inspiration, wisdom and participation.”
- Tim Cook, Apple CEO, November 2023: "A titan of business and keen observer of the world around him, Charlie Munger helped build an American institution, and through his wisdom and insights, inspired a generation of leaders. He will be sorely missed.”
- Whitney Tilson, investor who previously ran T2 Partners and Kase Capital, November 2023: "A generation of investment managers was drawn to Munger and Buffett's meetings and letters in order to try and become better stock pickers and make more money. But what really glued us to these men was their advice on living a full life by instructing people how to think clearly, to be honest with oneself, to learn from mistakes and to avoid calamities."
- Susannah Streeter, Hargreaves Lansdown, November 2023: “The unique relationship between Munger and Buffett, which lasted for six decades, won’t be replicated. However, the principles established are set to cascade down through the company for many years to come.”
- Charlie Huggins, Wealth Club November 2023: “Munger was hugely intelligent, but so are a lot of people. It wasn’t his intellect that set him apart. It was his common sense and rationality. Munger paid zero attention to conventional wisdom and was the dictionary definition of independent. He excelled at pouncing on investment opportunities, when everyone else was running for the hills. And he played a huge role in Buffett’s metamorphosis from an investor in cheap ‘cigar butts’ to embracing great businesses, like See’s Candies and Coca-Cola."
- Chris Dillow, investment writer, November 2023: "One of Charlie Munger's many pieces of wisdom was the importance of knowing the edge of one's competency. This is lacking in many of the talking heads on current affairs shows. But then, as Munger also said, 'show me the incentive and I'll show you the outcome'."
- Charlie Munger, 2005: “All I want to know is where I’m going to die, so I’ll never go there.”
- Charlie Munger, 2020: “I just try to avoid being stupid. I have a way of handling a lot of problems — I put them in what I call my ‘too hard pile,’ and just leave them there. I’m not trying to succeed in my ‘too hard pile’.”
- Charlie Munger, February 2023: "When you’re dealing with something as awful as crypto shit, it's just unspeakable. I’m ashamed of my country that so many people believe in this kind of crap and the government allows it to exist."
- Charlie Munger, ‘Poor Charlie's Almanack’ published 2005: “In my whole life, I have known no wise people (over a broad subject matter area) who didn’t read all the time — none, zero. You’d be amazed at how much Warren reads — and at how much I read. My children laugh at me. They think I’m a book with a couple of legs sticking out.”
- Charlie Munger, 1997 annual meeting: "I think life is a whole series of opportunity costs. You know, you got to marry the best person who is convenient to find who will have you. Investment is much the same sort of a process."