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2023.11.29 01:15
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What does Charlie Munger's passing mean for Berkshire Hathaway?

On the morning of November 28th, local time, Charlie Munger peacefully passed away at a hospital in California at the age of 99. In 1978, Munger began serving as the Vice Chairman of Berkshire Hathaway. Over the next 45 years, the market value of Berkshire Hathaway skyrocketed from $10 million to nearly $750 billion (equivalent to over 5 trillion yuan), with a growth rate exceeding 7.

On the morning of November 28th, local time, Charlie Munger peacefully passed away at a hospital in California at the age of 99.

In 1978, Munger began serving as the Vice Chairman of Berkshire Hathaway. Over the next 45 years, Berkshire Hathaway's market value skyrocketed from $10 million to nearly $750 billion, an increase of over 75,000 times.

So, what does Munger's passing mean for Berkshire Hathaway?

Some media believe that it may not have a significant impact because Berkshire Hathaway has long been Warren Buffett's show. As one report states:

"At the age of 93, Buffett has been the leader of Berkshire Hathaway since taking over in 1965, and to this day, the sharp Buffett remains a dedicated CEO. Last year, in an interview with the media, Buffett said that he will 'always be there' for Berkshire Hathaway."

In comparison, Munger is more like Buffett's advisor and consultant, not directly involved in the company's day-to-day affairs.

Berkshire Hathaway Class B shares fell 0.4% to $360.05 overnight. The news of Munger's passing came out before the market closed at 4 p.m. Eastern Time, but the market did not react significantly.

Analysts believe that significant changes may occur in Berkshire Hathaway when Buffett steps down as CEO and passes away.

Greg Abel, a candidate to succeed Buffett, is currently responsible for Berkshire Hathaway's vast non-insurance businesses, while Ajit Jain is in charge of the insurance business. Abel and Jain have held their positions since 2018, and Abel's responsibilities have been expanding in recent years.

It is widely believed that Abel may become the CEO of Berkshire Hathaway after the Buffett era, with Jain continuing to oversee the insurance business. Ted Weschler and Todd Combs, who currently manage about 10% of Berkshire Hathaway's $350 billion stock investment portfolio, will be responsible for overseeing the entire investment business. Buffett's eldest son, Howard Graham Buffett, is expected to become the Chairman.

Buffett holds a 15% stake in Berkshire Hathaway, but because almost all of these shares are Class A shares with super voting rights, he effectively controls about 30% of the voting rights of Berkshire Hathaway.

Buffett's holdings in Berkshire Hathaway are worth about $118 billion, and after his passing, these shares will enter a trust fund managed by his three children.

In the initial years after Buffett's death, the trust fund's holdings will effectively protect Berkshire Hathaway from shareholder activism or external pressure. The trust fund will be gradually liquidated over a period of about 10 years after his death.Buffett once said that he believes Berkshire Hathaway's stock price will rise on the second day after his death, rather than fall as many people speculate. His view is that investors will immediately anticipate a company split because they believe the overall value after the split will be higher than before.

Given the protection of the trust, Berkshire Hathaway may be shielded from external pressures for a period of time after Buffett's death.

In addition, Chris Davis, a member of Berkshire Hathaway's board of directors and head of Davis Advisors, told the media earlier this year that the board's role in the post-Buffett era will be to protect the company from radical elements and others.

"As for the future, every activist and investment banker will think that Berkshire Hathaway's unorthodox structure should not continue in a world without Warren and Charlie. I believe that Berkshire Hathaway should be defended. Warren has assembled a portfolio of long-term assets that will generate cash flow for decades to come."