As Berkshire Hathaway announced Wednesday that Warren Buffett is officially retiring, attention is turning to the unresolved part of the succession plan: the fate of the company’s $300 billion stock portfolio. For decades, Berkshire’s stock holdings have reflected Buffett’s long-term investment decisions and willingness to deploy capital during market turmoil. Without a clear successor with a comparable track record in public stocks, some analysts say Berkshire may eventually scale back on its aggressive stock picking, especially given the size and concentration of its portfolio. “At some point, those shoes become too big to fill,” said Deiya Pernas, an analyst at Pernas Research. “He made a very large, tactical decision, and I don’t think there will ever be another player who can make decisions like that.” Buffett said Berkshire’s new CEO, Greg Abel, who starts this week, will make capital allocation decisions, including the stock portfolio. Mr. Abel is a longtime executive who grew through Berkshire’s energy businesses and is widely respected within the company. But he has no public track record as a stock picker, and some shareholders are concerned about Berkshire’s ability to continue managing the world’s largest and most concentrated stock book without its legendary steward. Those concerns were exacerbated by the departure of Todd Combs, one of two longtime investment managers once considered potential successors to Buffett as an investor. Kathy Seifert of CFRA said short-term oversight will likely fall to Mr. Abel, backed by Ted Weschler, one of Berkshire’s remaining investment managers, but that structure could face increased scrutiny if the investment bench is further reduced. “If Ted decides to step down, my sense is that investors will likely seek additional investment management and oversight both internally and externally,” Berkshire analysts said. David Kass, a University of Maryland finance professor and Berkshire shareholder, raised the question of whether Berkshire would hire more managers to spread responsibilities. “Will Mr. Gregg hire one or more people to work with Ted Weschler? Will Mr. Gregg actually pick stocks? Will he make a decision to sell? I believe it is likely that Mr. Ted or anyone else hired will manage the portfolio,” he said. Berkshire has aggressively pared down its two largest holdings in Apple and Bank of America, eliminating positions that have defined its portfolio for years. While Apple alone accounted for about half of Berkshire’s stock book at its peak, Bank of America has long been one of Buffett’s most confident financial investments. The sale increased Berkshire’s cash position and reduced concentration risk. Some argue that Berkshire can maintain equity exposure while reducing the burden of active management. Meyer Shields, managing director at Keefe, Bruyette & Woods, said his firm is better off owning a broad market index, especially since Berkshire’s size makes it more difficult to outperform the benchmark. “Outperforming the broader index with a portfolio of Berkshire’s size is understandably very difficult and probably not worth the additional effort and expense,” Shields said. “I think Berkshire still wants to invest in stocks to take advantage of float. I think all of the reasons[Buffett has made in the past]for owning an index make sense for Berkshire as well.” Pernas said he expects any changes to unfold gradually. He sees Berkshire continuing to sell off portions of its portfolio over time and allowing public equity to fade as a hallmark of the company, rather than making wholesale changes. “I hope that maybe in 10 or 15 years people will forget about it,” he said.
