Saturday, February 25, 2012

Berkshire has Identified Warren Buffett Successor

Berkshire Hathaway (BRK-A) has a successor for long-time manager Warren Buffett, but the company isn't saying yet who will replace the investing legend when he is no longer in charge.

In the company's annual letter to shareholders, released Saturday, Buffett noted some of the recent changes at Berkshire, including the fact that Todd Combs came on board as investment manager at the start of 2011 and that Ted Weschler had also joined the team.

"Each will be handling a few billion dollars in 2012, but they have the brains, judgment and character to manage our entire portfolio when Charlie and I are no longer running Berkshire," he wrote.

Then to the succession talk, which if read literally, suggests neither Combs nor Weschler is the pick. "Your Board is equally enthusiastic about my successor as CEO, an individual to whom they have had a great deal of exposure and whose managerial and human qualities they admire. (We have two superb back-up candidates as well.) When a transfer of responsibility is required, it will be seamless, and Berkshire’s prospects will remain bright.

"More than 98% of my net worth is in Berkshire stock, all of which will go to various philanthropies," the letter continued. "Being so heavily concentrated in one stock defies conventional wisdom. But I’m fine with this arrangement, knowing both the quality and diversity of the businesses we own and the caliber of the people who manage them. With these assets, my successor will enjoy a running start. Do not, however, infer from this discussion that Charlie and I are going anywhere; we continue to be in excellent health, and we love what we do."

The replacement for the 81-year-old Buffett is one of the most closely watched stories in the world of investing, and speculation has been continuing for years. One of the candidates seen as most likely to replace Buffett left the company in disgrace last year. That was David Sokol, who stepped down after questions emerged about his trading in Lubrizol, a company Omaha, Neb.-based Berkshire was acquiring. Now, executive Ajit Jain is one candidate many Berkshire observers believe could be the pick.

Among other highlights from the letter, Buffett wrote that:

"Last year, I told you that a housing recovery will probably begin within a year or so. I was dead wrong. We have five businesses whose results are significantly influenced by housing activity. The connection is direct at Clayton Homes, which is the largest producer of homes in the country, accounting for about 7% of those constructed during 2011. Housing will come back – you can be sure of that. Over time, the number of housing units necessarily matches the number of households (after allowing for a normal level of vacancies). For a period of years prior to 2008, however, America added more housing units than households. Inevitably, we ended up with far too many units and the bubble popped with a violence that shook the entire economy."

The entire letter can be viewed here:

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