Warren Buffett’s cash hoard is a blessing, not a curse, and Greg Abel must be careful with his more hands-on approach, veteran investor Tom Russo told Business Insider ahead of Berkshire Hathaway’s annual shareholder meeting.
Abel succeeded Buffett as Berkshire Hathaway’s CEO at the start of this year, taking charge of the conglomerate’s $373 billion of liquid assets as of December 31.
That reserve has ballooned in recent years as Buffett, perhaps the world’s foremost bargain hunter, has struggled to find stocks and businesses worth buying.
For the first time, Abel will play host to tens of thousands of Berkshire shareholders in Buffett’s hometown of Omaha this weekend.
Russo, a longtime Buffett disciple and the managing member of Gardner Russo & Quinn, said that one of the big questions on investors’ minds going into the meeting is: “Why can’t we get rid of that damn money?”
They need to remember that Berkshire’s cash and Treasury bills are assets, not liabilities, Russo said. “And that the value of that money actually isn’t fixed. It goes up when market mayhem drives prices down.”
The veteran investor, whose firm held a $1.7 billion stake in Berkshire as of December 31, said the war chest is “an asset that I personally think is custom-tailored for today’s uncertainties.”
Russo recalled how Buffett struck lucrative deals in the teeth of the financial crisis, when other lenders and investors balked at putting capital at risk.
If there’s another “market meltdown,” Russo said, there will once again be “only one place to go, and the terms will be rather demanding.”
Flying in vs. flying out
Russo also spoke to Business Insider about Abel’s more hands-on management style — a stark contrast to Buffett’s famous preference to “delegate almost to the point of abdication.”
Buffett and his late business partner, Charlie Munger, structured Berkshire as a web of decentralized, autonomous subsidiaries. But they were still on hand to help if needed.
“You have the world’s greatest consulting firm, which is Warren’s brain, available to you,” Russo said, recalling his conversations with Berkshire managers over the years.
When one had a thorny issue, “Warren would send down ‘The Indefensible’ and fly the CEO up to Omaha,” Russo said, using Buffett’s nickname for his private jet.
Buffett would ask three questions, and the manager would know the right answer “by the end of the second question,” Russo said.
“But the trick is they own that answer because they got there by this deductive process with Warren,” Russo said. He added that Buffett thus deserves some “credit” for how Berkshire subsidiaries have performed over the years.
Buffett also spared himself from constantly traveling to subsidiaries by drafting “bespoke employment contracts for performance-based compensation,” Russo said.
Brendan McDermid/REUTERS
Russo added that clearly directing and incentivizing his operators freed Warren to focus on what he does best: finding new investments.
As for acquisitions, Russo said that part of Berkshire’s “magic sauce” is that a founder can sell their business to the company and retain “massive standing in his hometown,” enjoy the “aura” of being a Berkshire manager, and gain access to Buffett’s guidance.
Abel should be “very careful” to ensure Berkshire’s next few deals go smoothly, to “not implicate or in any way disrupt the virtues that have long guided Berkshire,” Russo said. “It’s a balancing act.”
