One reason for Warren Buffett’s success may not outlive him

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On February 25, the day before an annual letter to shareholders of Berkshire Hathaway Inc. was sent out lamenting the company’s lack of “action” in 2021, Warren Buffett received an email from the CEO of Alleghany Corp., Joseph Brandon.

Brandon is a former CEO of Berkshire subsidiary General Re, which took over as head of insurer Alleghany last April. The company had just released the first annual report and shareholder letter of his tenure, and he wanted Buffett to take a look. Buffett replied that he would, and also that he would be in New York, where Alleghany is based, on March 7 (to see “The Music Man” on Broadway, among other things), and wondered if Brandon would have time to get together.

It did, and two weeks after Buffett and Brandon met, Berkshire and Alleghany announced that the former would acquire the latter for $11.6 billion, part of a major spend in February and March for Berkshire which has already assured that Buffett will not need to apologize. for lack of action in 2022.

The main point of this story, when Buffett told it at Berkshire’s annual meeting on Saturday (except for the part about “The Music Man,” which he mentioned in an earlier interview with Charlie Rose), seemed to be that serendipity really plays a big role in the life and fortunes of the seventh most valuable company in the world. “If he hadn’t sent me the note, I never would have thought to write to him,” Buffett said, and the acquisition wouldn’t have happened.

Then again, Buffett also mentioned that he had tracked Alleghany’s ups and downs for 60 years and had four filing drawers full of his annual reports. As he considered meeting his CEO, it didn’t take him long to develop a clear idea of ​​what the company was worth and what he would pay for it. As Berkshire board member Ron Olson later said on CNBC, “I’m not sure it was so accidental myself. »

This interaction of serendipity and readiness often surfaced during Saturday’s annual meeting in Omaha, the first held in person since 2019. With a question-and-answer session that lasted more than five hours, many other things were also raised. But as a first-time observer (via streaming), I’ve been struck by how often Buffett and Berkshire VP Charlie Munger has returned to express a business philosophy that I guess , can be summed up as follows:

• Don’t plan too far ahead.

• Be ready to act quickly when the opportunity arises.

The modern story of Berkshire Hathaway, in this narrative, has been one of “putting one foot in front of the other.” Many of those steps — including Buffett’s 1965 takeover of Berkshire, a struggling Massachusetts textile company — were likely mistakes, but that was okay.

Munger: Part of the trick is correcting your own mistakes.

Buffett: We did better with mistakes than with good ideas.

Munger: It’s so easy to overstate a good idea.

Correcting Berkshire’s mistake began with the 1967 acquisition of National Indemnity, an Omaha insurance company that gave Buffett the first “float” he could invest in the market. Having the opportunity to buy it “was pure luck,” Buffett said on Saturday. Its owner would get fed up with regulators once a year or so and decide to sell, only to change his mind. Buffett caught him in one of those moods and pounced. “The only thing is you have to be prepared,” he said. “When the opportunity arises, you really have to move. Luckily, I work in an environment where I can do that. In other words, “if the board established a committee to review every major acquisition,” Berkshire might have missed many opportunities. Then came this exchange:

Munger: The relative lack of bureaucracy at Berkshire has made the company a lot of money.

Buffett: We are extraordinarily well positioned to do exactly what we want to do with the float.

Amid this year’s market turmoil, this involved taking large stakes in Chevron Corp., Occidental Petroleum Corp. and HP Inc., as well as buying Alleghany outright and, as Buffett revealed at Saturday’s meeting, adding to Berkshire’s holdings of Activision Blizzard Inc. in a bet that its acquisition announced by Microsoft Corp. will materialize. There could be a lot more to come: Berkshire still had $103 billion in cash and U.S. Treasuries as of March 31, up from $144 billion at the end of last year, but still well above $30 billion, which Buffett has said is the minimum cash cushion he is comfortable with.

With Buffett now 91 and Munger 98, this could be the last big buying spree of their joint tenure. The gigantic society that they have, according to their own description, assembled somewhat haphazardly, will continue to move forward. On Saturday, the two expressed confidence that Berkshire’s “culture” would sustain him for decades. But an important part of that culture has been the ability to close deals quickly and without much interference from the board. When a shareholder asked if Buffett’s designated successor, Greg Abel, would have the same freedom of action, the honest answer was…probably no. “I assume the board will impose more restrictions and require more consultation than they do with me,” Buffett said. “They won’t need it, but they will feel they have to. »

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Justin Fox is a Bloomberg Opinion columnist covering business. He was editorial director of Harvard Business Review and has written for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market”.

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