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Last year, Warren Buffett, who built Berkshire Hathaway (NYSE: BRKA) (NYSE: BRKB) into a $1.1 trillion behemoth, announced he was stepping down as CEO after 60-some years, remaining chairman of the board of directors. This year, he turned 96 and made another announcement -- he's remaining on the board as chairman emeritus, but handing the chairmanship to his son Howard.
Buffett has expressed no worries about the future of Berkshire Hathaway, which should encourage his fellow shareholders. Here's a look at why he's confident -- and whether you should be, too.
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Why would Buffett have long-term confidence in a company he's no longer going to be leading? Well, I can think of a bunch of reasons:
He built the company to last, and has likened it to a masterpiece he has painted painstakingly over many years.
He sought resilience in how he built it, and in a 2014 letter to shareholders, he said: "I believe that the chance of permanent capital loss for patient Berkshire shareholders is as low as can be found among single-company investments. That's because our per-share intrinsic business value is almost certain to advance over time." And he added:
"I believe the chance of any event causing Berkshire to experience financial problems is essentially zero. We will always be prepared for the thousand-year flood; in fact, if it occurs we will be selling life jackets to the unprepared. Berkshire played an important role as a "first responder" during the 2008-2009 meltdown, and we have since more than doubled the strength of our balance sheet and our earnings potential. Your company is the Gibraltar of American business and will remain so."
Over many years, Berkshire has built a reputation as a wonderful and trustworthy home for great businesses looking to be sold. This should help it to acquire additional solid subsidiaries.
He has planned for succession at Berkshire superbly, in my opinion. When he announced his retirement from the CEO post, shareholders and others had many months to digest the news and prepare. And he had long told shareholders that the board of directors was prepared, should anything happen to him, with the name of his successor.
That successor turned out to be Greg Abel, a longtime Berkshire manager (of its energy operations) who has been making decisions for Berkshire for a long time.
Buffett has full faith in Abel, saying, in his farewell letter, "My expectations for him were sky high from the start, and he has exceeded them." He also said, about Berkshire, "I have never felt better about what comes next."
In my opinion, Berkshire is a great portfolio candidate for most long-term investors. It happens to be my largest holding -- because I have faith that it will be a steady one in times of turbulence.
Its shares seem reasonably valued or a bit overvalued at recent levels, with the forward-looking price-to-earnings (P/E) ratio of 25.6 above the five-year average of 21.2. So perhaps add Berkshire to your watch list, waiting for a better price, or buy incrementally over time.
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Selena Maranjian has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.
Warren Buffett Says He Has "Never Felt Better" About Berkshire Hathaway's Future as He Steps Down as Chairman at 96 was originally published by The Motley Fool
