Warren Buffett, the billionaire chairman of Berkshire Hathaway, has announced his plans to retire as CEO by the end of the year. He will transition into the role of executive chairman. This significant change has sparked discussions about the future direction of the company.
Buffett’s investment philosophy involves looking for undervalued players in various industries and sticking with these investments for the long term. His strategy has resulted in Berkshire Hathaway delivering a compounded annual gain of nearly 20% over five decades. Recently, Buffett increased his position in POOL, the world’s top wholesale distributor of swimming pool supplies, by 145% in the first quarter of this year.
Despite challenges faced by POOL, including a dip in revenue due to lower discretionary spending and difficult weather in key markets, Buffett sees long-term potential in the company. POOL’s strong competitive advantage, often referred to as a “moat,” is one of the reasons Buffett is optimistic about the company. POOL’s solid distribution network, relationships with commercial clients, and proprietary products and water-testing software collectively create recurrent revenue streams and a challenging environment for new competitors to enter.
Buffett’s retirement shifts Berkshire’s future
Since the announcement of Buffett’s retirement plans, Berkshire Hathaway stock has fallen more than 10%, underperforming the S&P 500 by about 15 percentage points. The sell-off partially reflects the so-called Buffett premium, or the extra price investors are willing to pay because of Buffett’s unmatched record and exceptional capital allocation skills.
Part of the reason for the poor performance of the stock could be attributed to Berkshire’s first-quarter earnings decline. Operating earnings fell 14% to $9.64 billion during the first three months of the year. With Greg Abel set to take over as CEO, there is speculation about whether the company’s policies will change.
However, Abel is expected to maintain the corporate culture that has made Berkshire Hathaway successful. This includes not splitting the Class A shares or the Class B shares, continuing strategic stock buybacks when appropriate, and generally avoiding short-term measures that could alter the company’s long-term vision. While the official stance on stock splits seems unlikely to change with Abel’s leadership, the investment strategies may evolve to include more tech stocks or non-tech growth companies, reflecting a broader approach to capturing value in the market.
In summary, while Berkshire Hathaway will see leadership and strategic changes, a stock split remains off the table. The company will continue to focus on long-term value, maintaining its established practices under the new leadership of Greg Abel.
