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Kyle Fishman
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I am a long time buy-and-hold investor from Cleveland, Ohio, with approximately 6 years investing experience. I primarily target Value stocks, but on occasion am open to "growth at a reasonable price." Ideally I prefer to invest in Mid-Cap stocks over large-cap or small-cap. I believe the two... More
  • Will Berkshire's Stock Suffer A Sell-Off Upon The Departure Of Warren Buffett? 0 comments
    Apr 21, 2014 2:33 PM | about stocks: BRK.A, AAPL, BRK.B

    I have seen a few bloggers suggest the idea that when Buffett departs from Berkshire Hathaway (NYSE:BRK.B), (NYSE:BRK.A), there will be a panic sell-off of Berkshire shares. I question this theory and have a lot of doubt if that is really true.

    Here are five solid reasons why there will not be a panic sell-off:

    1. Strong Succession Plan: Buffett has assured that there is an unnamed but ready-to-step-in operational replacement. While we do not know his or her identity just yet, we have seen the future of Berkshire's team in action through Buffett's hand-selected fund managers Todd Combs and Ted Weschler, who have each been responsible for managing over $7 billion. They have applied Berkshire's principles and philosophies to selecting stocks such as DirecTV and Davita Health Care, and they have outperformed Buffett's flagship holding company by 30%.

    2. Diversification: Berkshire Hathaway is extremely diversified with a conglomerate of companies that have wide-moats that take a conservative approach to investing. What may be even more significant is Berkshire's diversification in leadership; Buffett applies a hands-off management approach where he still allows the CEOs to continue running their business the way they want even after Berkshire aquires them. This shows that these companies are well-prepared to continue operating without Buffett's oversight. Berkshire is built in a way where the body has become more important than the head; the pieces and parts are more fundamental to the company's success.

    3. Attracting Long-term, Stable, Conservative Investors: The people who tend to invest in Berkshire Hathaway are long-term investors; they are not the kind of people who tend to have sharp reactions to breaking news. Berkshire has very low volatility and has created a high sense of stability, to the point where stock analysts who seek excitement and quick gains refuse to endorse Berkshire as a buy.

    4. Gradual vs. Sudden: Most transitions of leadership don't come suddenly without warning; they are expected and often announced ahead of time. This is also the case when people die; usually there is a period of declining health before death occurs. As Buffett's investing approach has always been gradual, it is likely that he will take a gradual approach to transition out. There may also be other options such as Buffett staying on board in a reduced or part-time fashion. While a sudden departure could happen without warning, it wouldn't be consistent with Buffett's character based on his safe and gradual investing approach.

    5. Prior Precedent with Apple (NASDAQ:AAPL): Apple's stock suffered slight dips during both the retirement and death of Steve Jobs, but they were only minor single-digit dips. During the months following his death, Apple's stock soared to new highs. To paint the contrast between Apple and Berkshire, Apple is a far riskier and more volatile stock, with more centric dependence on its leader for direction and guidance. If a volatile stock like Apple can withstand losing its iconic leader, then a conservative stock like Berkshire Hathaway should do just fine.

    Conclusion: While it is still possible that investors will over-react to the news of Buffett's departure, I believe a panic sell-off of Berkshire Hathaway shares is unlikely to happen.

    Disclosure: I am long BRK.B. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Stocks: BRK.A, AAPL, BRK.B
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