The Guide to Investing in Stocks and Shares

The end for Buffett?

Dan Tebbutt - A Shareworld Contributor

Published - 3rd November 2010

I was on holiday last week, and on my return I was surprised (and slightly perturbed) to find that Berkshire Hathaway - the largest constituent of my portfolio by some distance - had dropped by 5%. That's some feat for such a gigantic company - $10bn of market capitalization disappearing into the ether over a mere 7 days.

The news that apparently precipitated this plunge looked pretty innocuous to the naïve observer - they have hired an investment manager, Todd Combs. If hiring one person can reduce the value of Berkshire by $10bn, lets hope they don't hire anyone else.

Of course the real reason behind the share price action is the concern that this is the first step in Warren Buffett's retirement plan. Undoubtedly Berkshire is worth more with Buffett at the helm than otherwise, so this is a natural worry for investors. But Buffett has repeatedly stated that he intends to lead Berkshire until his health prevents him from doing so. Hiring one or more investment managers is actually a good thing - we want someone to be ready to take up the reins when Warren finally does ascend to the big stockmarket in the sky.

Perhaps the market is reacting to the identity of the new recruit, rather than the fact of his recruitment. Possibly some shareholders were hoping for an investing superstar, instead of the rather anonymous hedge fund manager they have ended up with (I don't think anyone has yet even managed to unearth a picture of the man).

But why would an investing superstar want to work for Berkshire Hathaway? Taking over a massive pool of investments from the world's greatest investor is the ultimate poisoned chalice. Replicating Buffett's success is impossible - a 4000-fold increase over 45 years (which is what Buffett did from 1964-2009) from it’s present $200bn would leave Berkshire owning everything on planet Earth. And anything less would just leave you tagged as Warren's inadequate successor.

In my last article on Berkshire Hathaway I put the fair value of BRK-A at about $130,000 (well above its then price of $103,000). I haven't seen anything in the last 10 months to change my valuation - and that includes the hiring of Todd Combs.