The best way
to turn $1,000 in 1965 into $20 million today would have been to put it
all into Berkshire Hathaway stock. That
compares with the roughly $175,000 you'd have if you bought and held
the S&P 500 index. The returns have turned the 89-year-old
Warren Buffett into possibly
the world's most famous investor.
"With a
record like this, who wouldn’t want Buffett to live forever?" wrote Andrew
Bary in Barron's latest cover story.
Unfortunately
for Berkshire shareholders, counting on Buffett's immortality isn't exactly a
sound investment thesis. But that doesn't mean they should fear the day
when a successor eventually steps in as CEO.
Some of the
same values that made Buffett as successful as he has been over the
past-half century could also be holding the company back from realizing
its even greater full value—it has lagged behind the market over the past
year and decade. Andrew sees several shareholder-friendly ways the next
Berkshire CEO could shake things up:
Many investors think new leadership could
break up the conglomerate to unlock value—or at least be more amenable to an
idea that Buffett opposes. Given Berkshire’s $128 billion pile of cash, the
initiation of dividends and bigger stock buybacks also seem likely. Berkshire
also could take greater steps to improve the efficiency and profit margins in
some of its operating businesses, which are underperforming peers.
And Berkshire
is less-than fully transparent about the performance of the multitude of
businesses in its sprawling portfolio. That presumably keeps some potential
owners on the sidelines. Holding its first-ever investor day could help. So
might announcing who Buffett's potential successors are.
In any event,
Andrew believes that Berkshire stock is a buy today. Its recent underperformance
makes it attractively valued relative to the S&P 500, which sits near
all-time highs and close to 20 times forward earnings. Berkshire stock, on the
other hand, is currently at a discount to its valuation in recent years. That's
with all the various opportunities it has to boost its businesses and adopt new
shareholder-friendly moves.
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