Hello and welcome to Berkshire Beyond Buffett. I am Jared Blickery and for the next half hour we're taking you inside the leadership transition at Berkshire Hathaway. The Oracle of Omaha, Warren Buffett is stepping away from the CEO role at the start of the year. And Buffett began his transformation of Berkshire into the conglomerate we know today way back in 1965. And over the decades, he has added dozens of businesses to the portfolio, including brands, you know, like Geico, G Dairy Queen, Brooks Running, and Benjamin Moore. We're going to hear from shareholders who will provide insight and analysis on what to expect when incoming CEO Greg Ael takes the reigns. So, let's dive right in. Before you hear stories from investors, I broke down the key business and growth drivers for Berkshire in an earlier edition of Stocks in Translation. >> >> In just a few weeks, Warren Buffett will no longer be CEO of Berkshire Hathaway, a job he's held for six decades. His number two, Greg Ael, will take the reigns. But this isn't a retirement story. Buffett is still chairman of the board. It is, however, a succession moment for one of the most unusual, most successful companies in history. And for anyone who's ever looked at this stock and wondered what it's all about, on today's stocks in translation, we are breaking down Berkshire basics. Bergkshire is not a normal meggaap. It's a holding company with three distinct engines. The first is its operating business. These are companies that Bergkshire owns outright. They throw off real cash flow year after year, good times and bad, a Buffett staple. Engine number two is the Berkshire stock portfolio, which probably gets the most attention. It holds big stakes in many many public companies with Apple as the largest. And despite Warren saying that his favorite holding period is forever, there's a decent amount of trading churn in the portfolio from quarter to quarter. And Buffett has slowly given up control over its stock picking decisions since 2010. Engine number three, and this is the quirky one, is Bergkshire's insurance business, including what's called the float. Insurance companies collect money from premiums first and they pay claims later. And that in between float money can be invested. That's a structural advantage that many companies do not have. And it helps explain why Bergkshire can afford to be patient when others cannot. Now, let's check out a Bergkshire stock chart. And here we're comparing Berkshire to the S&P 500 over the last 5 years, which includes several market cycles. And you can see Bergkshire's up 120% versus 80 for America's benchmark index. And you can credit the higher return to Bergkshire's ability to hold up better during both the 22 bare market and during the post liberation day selloff earlier this year. And while the rest of the market started soaring in midappril at the right of the chart, Bergkshire has lagged a bit and many credit the overhang of Buffett's departure which only means that 2026 could be a defining year for the conglomerate. Now, let's take a look inside at the many businesses that make up Berkshire's own mini real economy. Starting with Geico, their insurance business provides a real-time risk on risk pricing across the world. Though, and through its BNSF rail, exc BNSF railway, it gauges freight, shipping, and industrial demand. And Berkshire Hathaway Energy, not surprisingly, gives a read on the energy markets, including business investment spending and the power grid. In manufacturing, it has precision cast parts which provides a window into aerospace and industrial orders and demand. And Berkshire has a bunch of household brands from Dairy Queen to Fruit of the Loom to Brooks running shoes. Along with its MLAN supply chain services business, it has many eyes on the health of the consumer. Finally, from services like flight safety, it gets business travel and training insights. So, Bergkshire doesn't just track the economy, it lives inside it. And then it brings to us that next question. What happens next? As 2026 kicks off with the uh with Abel at the helm, we're going to want to pay attention to Berkshire's capital deployment as this is always the game. When do they move? When do they sit on their hands? Because investors have been wondering for the last decade when Bergkshire will shell out cash for a big buyout. Will Greg Ael be just as willing to wait for the fat pitch? Meanwhile, that cash pile sits north of $300 billion and it is growing. Next up is stock buybacks. Buffett has always been clear. He's only going to buy a stock, including his own, when the price is attractive or wonderful. So, watch that closely. Then there's insurance discipline, the quiet engine. If that stays tight, the whole machine stays healthy. And finally, watch the communication tone and listen to that. We might miss the marathon Q&A sessions and watching Buffett hold court for hours like a folksy oracle behind a co a can of Coca-Cola, but clarity is what matters. And now, a closer look at some of the key decisions Warren Buffett made to make Berkshire Hathaway what we know today. Portfolio Wealth Advisors President and CIO Lee Mson explained how the insurance business, especially GEICO, were crucial in the company's growth. It's the total engine behind be behind Birkshshire Hathaway. Now, a lot of us like the old Warren Buffett grandpa with his sweater, you know, telling stories by the the fireplace about Seas Candy. And most people have heard about he bought Seas Candy and he used all the cash flow from Seas Candy to buy other things. Not unlike a more uh you know what Philip Morris did uh during the last century of taking all the the money they made from cigarettes and buying cheese companies, right? But more profoundly, it was always really about Geico. I think that we talk about the seas candy story because it's easier to understand. But he bought Geico and then basically he made all of his policy holders investors because what he got with the float from Geico, you know, you take money in for for insurance and then what you don't pay out in claims, you can invest. Well, he was one of the greatest investors of all time. So, he had a source of uh capital that had very very low cost. uh it was it was liquidity that you know he didn't have a liquidity problem with investors saying hey we need to nav this cash. So his ability to look forward into the future and know how much cash flow he was going to get made it a lot easier to take over companies and to buy things and have a schedule. Um really it nobody had done this up until up until Buffett. Well, um, as you say, there's this sort of like image of him as this sort of grandfatherly figure, but that that's also calculated in some ways. It's it can be authentic and calculated at the same time, I suppose. But the way that he communicated with investors in addition to the shareholders meeting was through his annual shareholder level letter. Um, how did he use that as a tool? >> Uh, he used it for social engineering. He wanted to engineer his client base. He wanted to make sure that he was selling long-term value. He wanted to be sure that he was selling. He was the original Bitcoin tout, right? He wanted to make sure that people bought Birkshshire and held it forever and never sell your Birkshshire. And so, not only was the structure designed that way, not only did he have permanent capital, but through his letters, he would talk about um moving beyond volatility and not having to think about volatility, talking about a margin of safety. Everything he bought was, you know, a value. he was buying dollars for 50 cents. Um, and and on top of that, he was a salesman, right? He talked about underperforming during bubbles and that compounding was really the way. And I think he convinced people that the moes were really about competition. I think that was one of his greatest uh magic tricks because really what he invested in through the most part of his life were monopolies and places that didn't have competition and were not based necessarily on the innovation of America but was based on companies like an Apple computer that just had all the cards. And I think he made people comfortable with that type of you know monopolistic oligopy inside of America. Lee, how many of these things do you think will continue at a postbuffett Bergkshire Hathaway? Right? I mean, obviously the structures which were sort of original to Bergkshire and GEICO, they're already in place, but you know, the letter and and sort of how how do you think that all evolves? >> Well, I think it's going to stop, right? Um I always look at book value versus the price. You know, we've had times where the net ass value of Birkshshire has, you know, gone negative. Here's what the thing is. Buffett's legacy is the architecture of Birkshshire Hathaway. His legacy is how he did this. Greg Ael, I'm sure I mean he's a brilliant guy. He knows how to operate. He's been doing it for years. This transition has been signaled. It's nothing new. Everybody on Wall Street knows. But we're not going to have the magic duo of Warren Buffett and Charlie Munger telling these stories and keeping investors uh focused solid. And also those Birkshshire Hathaway shareholder meetings were also sales uh productions to get people to buy the products that Birkshshire had bought within its holding company. So do I think that the operations and the culture will stay the same? Absolutely. But how are we going to get that next generation of disciples of Buffett who just buy that stock and never ever sell it? That remains to be seen. Next, here directly from two Berkshire shareholders on what they want and expect to see from Greg Ael, Warren Buffett's chosen successor. Craig Ael is taking over for Warren Buffett in the new year. But with new leadership, many come new moves. Even though Abel has been at the company for 25 years, Jonathan Ber, president of Ber research, sat down with Yahoo Finance's Josh Lipton and spoke about what differences he expects to see. Warren Buffett is known to be a hands-off manager. He uh has a decentralized structure. Uh many businesses uh sold themselves to him because they wanted the autonomy to do whatever they want and that's obviously worked out extremely well for Birkshere over time. However, uh by having this decentralized structure and not having management oversight, there's been there's probably a lot of fat to cut. There's probably uh divisions that could be consolidated. There's many things that could they could do to enhance profitability that Buffett just hasn't wanted to do. He's Buffett is the greatest capital allocator and the greatest investor of all time. He's not known as the best manager of all time. Greg Ael might be um be able to do things that he wouldn't or couldn't do. >> What What could Greg Ael do with that giant cash horde? What would you like to see him do with it as a as a shareholder? >> As a shareholder, I mean, the the amount of cash they have is is excessive. Um I since Buffett is going to be gone, he's the greatest stock picker of all time. I'd like them to deemphasize the actual stock picking. I'd like them to start paying a dividend. Hopefully over time they do that. That might not happen right away, but it would be a nice thing. I would like them also to buy back shares. It'd be great if they could make acquisitions if they could find them. Unfortunately, a company that size, it's hard to find an acquisition that's cheap that also moves the needle. >> What What do you think, Jonathan, Greg Ael can do to try and as quickly as possible sort of earn the streets trust? Like if he came to you, Jonathan, and he was asking you for guidance on that topic, what would you tell him? Well, I would love for him to give me a call. Uh, but one thing I would like him to do is he owns a fair amount of Birksher stock, but all of that was bought when obviously Buffett um ran it. To me, a great sign for Wall Street would be for him to buy an extremely large amount of Birkshire stock personally and really put his money where his mouth is. >> As a shareholder, how much lease you want to give Greg Ael to prove his merit here? I mean, do you give him like what's the time frame, Jonathan, for you? Is it one year, three? Is it five? >> Listen, we're long-term patient investors. Uh Buffett has created a business that can basically run itself. I just, you know, you want him to be a great steward of these assets. You want him to go in and manage them better. And I think after a three or five year period, you would be able to see, you know, is he doing a good job or not. And um you know, I don't think you can judge anyone on a one-year period. You say here the days of extraordinary returns are behind Bergkshire. So what as a shareholder what would be a more realistic return profile do you think? >> I mean I think over a 3, five, 10 year period I think it should be able to beat the S&P 500. I think uh you know the returns have been massive historically. I mean it'll be impossible. You know the law of large numbers comes into play but I think it could be a very good long-term core holding for people. Uh that's a good diversification away from the tech heavy, you know, S&P 500 and NASDAQ. >> What have you been doing with your own position here, Jonathan? You've been staying holding steady, trimming, buying. >> I we basically been holding steady uh if for whatever reason shares dip because people are worried that Buffett is leaving. I would view that as an opportunity to buy more. >> What are the negatives, if you can try and quantify them or qualify them, of Buffett leaving? He is the oracle. M >> what do you think can't be replaced >> him? I mean he is the secret sauce. People love to do deals with Warren Buffett. He he got the great deals during the financial crisis but over the last couple of years with the exception of Alagany most of the deal they they haven't done much and the deals that they've done have not been good. Uh which is partially result of their size. Um, and also that PE is much more involved than ever before. So, I think he will obviously be missed. I wish he could stay CEO for another 10 or 15 years, but he he certainly earned uh, you know, his his retirement. >> In your opinion, Jonathan, I'll get you out of here on this. Greatest value investor of all time. >> Absolutely. Hands down. >> How so? Why so? Explain that for us. >> Because he's done this for a period starting in I believe that, you know, the 50s and 60s up until today. I mean the longevity that he has uh the discipline that he has he he did it as a hedge fund manager he's done it by uh investing in companies buying back his own share he he shares he's just a fantastic capital allocator >> meantime Julie Hyman spoke with long-term Berkshire Hathaway holder Bill Stone of Glen View Trust about what matters most in this transition >> don't try and be Warren Buffett um you know following the greatest of all time and certainly you know, throw Charlie Munger in the greatest duo of all time. Um, you know, trying to beat them at their game, so to speak, is probably not the right thing. It's also a different company that it was when it started. It was a failing textile company, uh, and they turned it into a massive successful conglomerate. We now have a massive successful conglomerate. though I think it leaves you with I'm just going to essentially take right from what Warren Buffett has laid out which is how he would really judge management if he was on the outside which is watch for them to grow operating earnings over time. Uh secondly decrease share count. Um and he's got a couple caveats on that. You want to do it when it's the right time to do it. Um you know buy shares when it's below intrinsic value so you're not diluting shareholder wealth. Um, also if you buy those shares in, you're growing operating earnings per share at an even faster rate. And last but not least is look out for big opportunities. Um, and that is really two things about that. One is Bergkshire Hathaway is so big now that you have to find bigger opportunities to move the needle. Two is they have the balance sheet and $380 billion in cash. So they're one of the few or you know amongst the few that especially when think times are tough can actually take advantage of those. And I think if you looked back at Buffett and Munger's track record a few very good decisions was the majority of the great performance. Now I will say they avoided making very many disastrous decisions. Certainly made no largecale disastrous decisions. So that's also an important part of it. Well, and I guess that that's then my next question about Greg Ael is is is it a matter of more of avoiding mistakes and sort of steering the ship than it is sort of finding those big investments and big bets to make? Yeah, I mean I think you're probably right that it's tilted a little bit toward the you know maybe I'd say toward managing it um more managing the conglomerate more certainly more than Buffett and Munger did which was frankly very little because they didn't enjoy doing that. Um and then secondly, yeah, you really can't force the opportunities. You have to, you know, h find them along the way. That certainly is a major part of it, uh to grow and and to find opportunities, but but you're probably right that that some things have maybe moved more to the forefront. >> You were a longtime sort of student of Buffett, um and and Berkshire shareholder. Um and I wonder kind of how his sort of lessons have filtered down into your investing. Yeah, I think so. Personally, so I was at Solomon Brothers when he became when he took over and saved the firm. So, it it meant a lot to me. So, I think one thing I always think of, my family didn't come from the business, but so I kind of got exposed to it through uh Gordon Gecko and uh and uh Liars Poker by Michael Lewis. Um and I would say, you know, one of the thing is you don't have to be like, you know, I'll say those villains or whatever. shouldn't maybe say that about my uh co-workers at Solomon Brothers, but not all of them. Um, but uh but at least I think you can act a bit differently. I think the next part is just really quite amazing that he viewed it as a you know, I guess a duty to, you know, to gather more wealth, but really just in the end to give it all away uh to society. And I think that's uh some really, I think, touching parts of it. uh when you go to the more investment side, I think he's been amazing in getting Benjamin Graham's ideas out there where you just say stocks aren't pieces of paper to to us or to me. They are really looking at a company and that's how I think about them. And you know, that was a big part of my change to to thinking it that way. Uh and lastly is kind of the thing we all as value investors think about is the margin of safety. can I buy this with enough margin of safety that if I made a mistake in my analysis I don't have a catastrophe on my hands. Um that's a big part of it and it really gets to my you know things he said which I certainly believe which is all investing is value investing. So while we in the industry kind of break things between value and growth the fact is what you pay for something whether it's a company that's growing earnings fast or not matters. >> Stick around for more perspective on Bergkshire Beyond Buffett. >> >> If you're thinking about investing in Berkshire Hathaway after Buffett steps back, Josh Lipton got a closer look at the bull and bear case on investing in the company with Bergkshire shareholder Mel Casey, FBB Capital Partners senior portfolio manager. I think I think if you look at the uh Berkshire Hathaway, it's primarily an insurance business, but really it's large enough that it's a conglomerate. It's involved in many different places. So there's kind of a a cyclicality and a counteryclicality within that portfolio. So you could almost even think of it as an alternative to a lower risk alternative to open o owning the broader market. and uh and you're going to find some of the businesses like the insurance are are counteryclical uh but then other other parts like the railroad are going to be more sensitive to the economy. >> How would you characterize valuation here Mel? >> So u in a in a year of pretty high valuations for US large cap stocks I think Bergkshire is still pretty reasonably valued. Um, if you look at the uh estimates for next year, it looks a little closer to the overall market on a price toearnings ratio. Uh, they prefer book value. I think that's fair because there's so many different businesses here. On book value, it's around about 1.5 times. That's historically a little bit higher than it had been before. H also shareholders who pay attention know that that Warren Buffett advocates repurchasing stock at 1.2. So, it's a little bit above his level. Uh but uh when you look at some of the other uh companies that make up the market, it's it's certainly reasonable uh if a little bit higher than than than it has been in recent past. >> And Mel post Buffett, how does the bench look at Bergkshire? Would you say that falls into the the bullish column? >> Uh cautiously bullish. We've had a couple of changes in that bench recently. That was a little surprising, I think, to to to investors at Todd Comb's departure in particular. Been there a couple of decades. you would have thought that this was the exact moment that he was waiting for, but there's been a change there and and and that's fine. The bench is still deep. Uh Greg and and AA, these are very very seasoned folk. U it's reasonable to think that a lot of the uh the values that have brought the company to this point will continue to be uh to be in place. We wouldn't expect major changes. I wouldn't be holding out for a dividend or I wouldn't be expecting major swings and and aggressive allocations of capital, but um you know there's there's there's a there's a definitely a culture in place that uh I think uh the the bench will probably continue to to keep in there. >> So we walked through the bull case. Let's talk about the bare case. Now let's outline that one. One concern you have the risk of losing the Buffett premium. Explain that. Yeah, there there's no question there's no investor out there. There's no CEO or investor spoken about as much uh quoted as often. There's so many books out there. I mean, there's an iconic investor. We lost Charlie not that long ago. Charlie Mer Warren Buffett is stepping down. And so there and anyone who's been to the annual event um in in Omaha will will testify it feels different. It's not a regular comp company meeting. So, is there some premium there? You could argue that some of that's been coming out over the course of the year. It's performed about twothirds of the overall market performance this year. Uh, some of that is related to some of the underlying business trends, which we can get into in a second. But, um, there's definitely a a a caution out there that some of the core investors are investors in Buffett rather than in the actual fundamentals of the company itself. >> That's going to do it for Berkshire Beyond Buffett. Thank you for watching Yahoo Finance.