Discover more from Kingswell
Should Greg Abel Buy More Berkshire Stock?
Investing some of that BHE cash could prove to be a wise PR move for Warren Buffett's hand-picked successor
Happy Tuesday and welcome to our new subscribers!
For many years, THE question surrounding Berkshire Hathaway was an especially morbid one:
What happens in the unfortunate event of Warren Buffett’s death?
Buffett, himself, has been facing this question for most of his adult life. In an early partnership letter (1961), he wryly admitted that investors were already peppering him with questions about his own demise — at the ripe old age of 31.
Through it all, Buffett demurred and deflected — never tipping his hand as to who would replace him atop the Berkshire throne.
That is, until last year, when Charlie Munger let the cat out of the bag and revealed Greg Abel, vice chair of Berkshire’s non-insurance operations, as the pick.
Munger’s inadvertent slip of the tongue thrust Abel into the very spotlight that he tries so hard to avoid. The reserved, family man rarely grants interviews and prefers to maneuver behind the scenes — far from the prying eyes of the media.
But, as Abel’s profile has risen over the last eighteen months, so have questions about his relatively paltry stake in Berkshire itself ($685,000 of Class B shares) and whether or not he should invest more into the company that he will one day lead.
Especially now that he’s got $870 million (less taxes) burning a hole in his pocket…
Subscribe to Kingswell for free!
Warren Buffett takes the whole idea of having “skin in the game” pretty seriously.
So much so that a hefty personal investment in Berkshire stock is a Buffett-mandated requirement for any prospective board member.
As The Rational Walk once pointed out:
No director of Berkshire has less than a seven-figure interest in the company (including subsidiary interests), and they have all used their own money to acquire their shares. Berkshire spells this requirement out clearly in the proxy when discussing the company’s criteria for considering new directors: “In particular, any recommended candidate should own Berkshire stock that has represented a substantial portion of the candidate’s investment portfolio for at least three years.”
Making this all the trickier is that Berkshire grants neither stock options nor stock-based compensation to its directors or high-ranking execs. Everyone must build a sizable investment position in the company with their own money.
Buffett only entrusts power to those who fully believe in the Berkshire ethos.
And, on that front, Greg Abel is beyond reproach.
But Abel’s decision to cash out his 1% stake in Berkshire Hathaway Energy for $870 million has set tongues wagging about his plans for the money. Many hope that he uses this windfall to buy more shares of Berkshire — and further demonstrate his loyalty and commitment to the Buffett way.
Here’s Why I’m Not Worried
This whole debate is something of a tempest in a teapot.
Greg Abel boasts a managerial — and personal — record second to none. For more than twenty years, he has delivered sizable (and sustainable) results in an honest, forthright manner that is downright Buffett-like.
And, while no one will ever be able to truly replace Buffett, Abel’s star has only grown brighter as he assumes more power in the Berkshire hierarchy.
MidAmerican Energy (which later became Berkshire Hathaway Energy) thrived under Abel’s stewardship — building one of the largest portfolios of wind and renewable power in the world.
Buffett sang the praises of BHE in his latest annual letter:
BHE, our final Giant, earned a record $4 billion in 2021. That’s up more than 30-fold from the $122 million earned in 2000, the year that Berkshire first purchased a BHE stake.
BHE’s record of societal accomplishment is as remarkable as its financial performance. The company had no wind or solar generation in 2000. It was then regarded as a relatively new and minor participant in the huge electric utility industry. Subsequently, under David Sokol’s and Greg Abel’s leadership, BHE has become a utility powerhouse (no groaning, please) and a leading force in wind, solar, and transmission throughout much of the United States.
Abel deserves the lion’s share (and then some) of the credit for BHE’s stunning growth.
During his tenure as CEO of Berkshire Hathaway Energy, Abel also got to flex his muscles in the acquisitions arena. In a Buffett-like move, he declined NV Energy’s invitation to come out to Las Vegas and tour its facilities in person — instead opting to make his (successful) $5.6 billion offer for Nevada’s largest electric utility by phone.
“What impressed me was the speed,” said NV Energy’s chief financial officer. “It was clear that there was no bureaucracy.”
Abel has been steeped in the Berkshire Hathaway culture for over two decades now — and it shows.
Sure, he only owns 2,363 shares of BRK.B. And serves as trustee of five pricier BRK.A shares (albeit with a non-beneficial interest).
That might sound like a king’s ransom to those of us in my tax bracket, but it’s actually pretty meager for a man of Abel’s means.
But the forthright results that he has produced — along with winning the trust of Warren Buffett and Charlie Munger — should count for something, too.
Salt to taste, but I don’t think Berkshire shareholders have anything to fear over Greg Abel’s lack of investment in the company.
He’s all in.
…But I Still Think He Should Buy More Stock
No, not because there’s any merit to the concerns about a lack of commitment or divided loyalties on Abel’s part. Or that owning more stock would ensure that he doesn’t operate in a way that runs counter to Berkshire’s best interests.
If a large stock position is the only thing holding a bad apple back from doing bad apple things, then he’s not the right guy to replace Warren Buffett in the first place.
So why do I think that Greg Abel should buy more shares of Berkshire Hathaway?
Because he is the right guy to replace Buffett — and that will not be an easy task.
Understatement of the century: Warren Buffett is going to be a tough act to follow.
Berkshire shareholders know and trust Buffett. Many have entrusted their life savings to him for more than fifty years. He’s made plenty of them rich beyond their wildest dreams and charmed countless others with his folksy aphorisms and homespun stories.
Abel, on the other hand, shuns the spotlight.
As a result, most Berkshire shareholders don’t know him very well. And the current “nontroversy” over his smallish investment in Berkshire stock isn’t likely to do him any favors on the PR front.
Up until a few months ago, Abel could credibly point to his 1% interest in BHE as a definitive counterpoint to any doubts over his commitment to Berkshire.
But that’s not the case anymore.
Abel would be wise to take easy wins wherever he can find them — and putting a chunk of his BHE proceeds into Class A shares definitely qualifies as an easy win.
In fact, it might turn out to be the best money that he ever spends.
In one fell swoop, Abel could both create a favorable first impression for himself with many wary Berkshire shareholders and park his cash in an excellent company at a very reasonable price.
Someday, Warren Buffett will shuffle off this mortal coil. And, when that happens, Greg Abel’s life is going to get really hard.
He will be inundated with requests and demands from activists and short-term thinkers — asking for everything from ESG disclosures to stock splits and dividends.
Buffett holds that tide of craziness at bay through decades’ worth of shareholder trust and the power of his personality. If Abel hopes to one day do the same, he needs to start building that same trust and loyalty with the Berkshire bunch.
And a great first step would be to back up the Brinks truck and buy more stock.
If you’ve enjoyed reading this issue of Kingswell, please hit the ❤️ below and share it with your friends (and enemies) so they don’t miss out. It only costs you a few clicks of the mouse, but means the world to me. Thank you!
Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.