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Some Thoughts on Greg Abel's $68 Million Berkshire Buy
Warren Buffett's successor never deserved the doubts over his loyalty or commitment to Berkshire Hathaway — but, once that narrative was out there, it needed to be dealt with. Mission accomplished.
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Greg Abel must be a keen reader of this newsletter.
Back in August, I wrote a bit about the relatively paltry amount of Berkshire Hathaway stock that Abel owned — and why, as Warren Buffett’s hand-picked successor, he might be wise to bulk up his stake as soon as possible.
Especially since Abel had just sold his 1% interest in Berkshire Hathaway Energy and had $870 million (less taxes) burning a hole in his pocket.
Why did I feel that way?
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 back a bad apple 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 easy.
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.
And, lo and behold, he did just that last week.
On Monday afternoon, we learned that Abel purchased 168 Class A shares the previous Thursday (September 29) at prices ranging from $405,800 to $408,514.
In all, Abel sunk over $68 million of his own money into the company that he will one day lead. He now owns 173 Class A shares and 2,363 Class B shares of Berkshire.
Some quick thoughts:
(1) This is great news for Berkshire…
Warren Buffett cares a lot about good publicity. He typically goes out of his way to stiff-arm drama and controversy — insisting on working only with people he trusts and who go about their business in a similar, forthright manner.
And Greg Abel perfectly fits that description.
As vice-chairman, Abel oversees all of Berkshire’s non-insurance operations in a decidedly Buffett-like way. He also shepherded BHE into one of the conglomerate’s crown jewels.
The man is a managerial marvel.
But you would have to have your head buried in the sand not to notice the handwringing and innuendo building up around Abel’s small stock position. It wasn’t doing him or the company any favors.
Abel doesn’t like the spotlight, so any Google search about Berkshire’s next CEO mostly turned up news stories that concern-trolled his commitment to Berkshire and openly wondered why he hadn’t bought more stock.
This $68 million move draws a line through all of that. Abel ponied up and put that line of questions to rest for good.
“Abel’s buy helps align him more closely with Berkshire shareholders as he prepares to, at some point, take the reins of the company,” said Ben Silverman of VerityData.
“It’s an important move by Abel because a nearly $70 million stock purchase signals his seriousness, and the timing of the buy — on weakness, as the quarter is closing — sends a positive valuation message.”
(2) … and for Abel, too.
Abel snagged these 168 Class A shares at a very good price. A price well below the level at which Buffett previously repurchased Berkshire stock.
Remember: Buffett bought back $3.2 billion worth of shares in Q1 2022 when $BRK.A traded north of $450,000. Meanwhile, Abel just got his shares 10% cheaper than that.
That’s pretty decent validation of Berkshire’s undervaluation at current prices.
But, while Abel made a savvy deal in a financial sense, the real payoff could be that it bolsters his image among the Berkshire shareholder base.
If you harbor any worries about whether or not the Berkshire culture can survive the eventual loss of Warren Buffett and Charlie Munger, then Monday’s news should come as a huge relief.
When Abel takes over — personally, I’m hoping not until the 2030s — institutions and activists seeking change will crawl out of the woodwork. If he hopes to withstand their demands for dividends or stock splits or ESG disclosures (or whatever The Current Thing is), then he will need to have the shareholders united behind him.
Abel never deserved any of these doubts over his loyalty or commitment — but, once that narrative was out there, it needed to be dealt with.
(3) Don’t be surprised if he buys more.
I know… I’m greedy.
But I would love to see Abel keep adding more Class A shares until his stake reaches the neighborhood of nine digits.
No word yet on whether or not this will be a one-time purchase or the start of something much bigger. Or how price sensitive Abel might be when $BRK.A rises.
Berkshire stock already jumped over 4% this week — on both the good news of Abel’s investment and the broader market rally — so time will tell how much the price impacts his plans.
$68 million isn’t exactly a huge amount for a man of Abel’s means — especially considering his $870 million windfall from the BHE sale and his tidy salary from Berkshire itself.
The dry powder is still there for a really big buy.
And my fingers are crossed that Greg Abel is just getting started.
In other Berkshire news…
A new SEC filing popped up on Tuesday, but it lacked the excitement of recent ones like Buffett buying the Oxy dip or Abel splashing $68 million on Berkshire stock.
The company stated that it intends to replace the late Sandy Gottesman with a new independent director “as soon as practicable”.
The New York Stock Exchange mandates that its members must fill their boards with more independent directors than non-independent ones. Gottesman’s death leaves Berkshire with an even split of 7-7 among the two types of directors, so the company needs to add an independent director to restore the majority “as soon as practicable”.
For the time being, though, Berkshire’s board is not compliant with NYSE regs.
Whenever Buffett names Gottesman’s successor, I’ll be sure to cover it here.
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Disclosure: This is not financial advice. I am not a financial advisor. Do your own research before making any investment decisions.