The last week of February always marks a special time for followers of Wall Street, as Warren Buffett publishes his must-read Shareholder Letter for Berkshire Hathaway Inc. (NYSE:BRK.B). Currently trading near all-time highs, Berkshire Hathaway Inc. (NYSE:BRK.B) is fast approaching a time of rapid transformation in leadership and corporate practice. The question, then, is whether Buffett can put in a place a framework to support the stock’s valuation once he is gone.
At 82 years young, Buffett (and his long-term vice chairmen, 89-year-old Charlie Munger) are fast approaching the end of their careers. Naturally, talk of succession has steadily increased over time, culminating most recently in Buffett’s 2011 Shareholder Letter, where he stated that he has chosen a successor (without naming the heir to the Berkshire empire).
Buffett is giving managers Todd Combs and Ted Weschler increasingly greater authority to manage Berkshire Hathaway Inc. (NYSE:BRK.B)’s $88 billion stock portfolio. This should come as no surprise, since any money manager will need some time behind the wheel of an $88 billion portfolio before being given the freedom to drive alone. But developing and then promoting skilled managers does not guarantee a successful transition, either for the company’s fundamentals or the stock’s performance.
Using Apple Inc. (NASDAQ:AAPL) as a recent example, the impact of losing a once-in-a-generation CEO or leader can be profound. After skyrocketing on the incredible success of the iPad in the months following Steve Jobs’ death on Oct. 5, 2011 , Apple Inc. (NASDAQ:AAPL) has since lost over 36% of its market cap. This volatility comes after two years of a near-linear appreciation from October 2009 to October 2011. Apple Inc. (NASDAQ:AAPL) is still currently trading slightly less than 18% higher than when Jobs passed away, but there are serious questions about the company’s future ability to bring innovative, premium products to market without Jobs’ leadership and vision.
Beyond the leadership succession plan, Buffett has begun a corporate transformation in preparation for his departure from the company. From the announced buybacks beginning in September 2011 and again in December 2012, to current speculation of a forthcoming dividend for Berkshire Hathaway Inc. (NYSE:BRK.B), Buffet is changing the expectation for what shape his company will take in the future.