This is an audio transcript of the Unhedged podcast episode: ‘Berkshire after Buffett’
Katie Martin
He’s 94, he’s pretty much universally loved in American finance circles and he’s probably the most famous investor in the world. No, I’m not talking about Rob Armstrong (Robert laughs) — he’s nowhere near that nice — but about Warren Buffett. He’s announced his retirement from Berkshire Hathaway, which is a textiles company he bought way back in the day in 1965 and turned into an insurance and investment giant. He’s still gonna be chairman. He’s not going anywhere, really, but day-to-day management is passing along.
Now, he’s not just an investor, though. His annual shareholder meetings draw thousands of adoring fans from all over the world every year, all the way to Omaha. I can’t be the only person looking on that from this side of the Atlantic and wondering how on earth this whole mythology took hold. So today on the show we’re asking, will we ever see the likes of Warren Buffett again?
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This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I’m Katie Martin, a markets columnist at FT towers in London, and I’m joined down the line from New York City by Rob from the Unhedged newsletter. And Rob, you’re not quite 94 just yet, but do you think you’re still gonna keep . . .
Robert Armstrong
I don’t admit to 94.
Katie Martin
(Laughter) You don’t look 94, I will say.
Robert Armstrong
I don’t look a day over 84. Let me tell you this: I, along with your friends Oliver Ralph and Eric Platt, did about a four-hour interview with old Warren about five years ago, maybe a little more now. And we didn’t know it was gonna be four hours, but he was, like, 89 then.
And let me tell you, he wore us out. We thought we’d, like, had to rush to get our questions in because we don’t know, oh, you have to leave the great Mr Warren’s office now. You know, you got your half an hour, get out of there. We asked everything we could think of and he was, like, any more questions? You guys don’t wanna keep talking? You know, what’s going on? This has been great. He’s a tireless person, obviously.
And I think this is something, a general observation I make about people who are extremely successful in business broadly, CEO types or whatever, is they do tend to have in common this kind of bottomless well of physical energy. Basically the reason I am not a CEO is because I constantly need to have a nap, right? (Laughter)
Katie Martin
Yes. One of the reasons. (Laughter)
Robert Armstrong
(Laughter) I know. Like, I could go to the board meeting, but I’m a little sleepy.
Katie Martin
(Laughter) Let’s start at the beginning a little bit here, because I’m not saying Europeans have never heard of Warren Buffett, but I am saying we kind of don’t get it. Like there’s no equivalent. There’s like maybe George Soros, who obviously, you know, bet against the Bank of England and won back in 1992. I saw him speak in Davos, darling, a few years ago and he was tearing strips out of Facebook in the way that only a billionaire who is all out of flips to give can do. It was great.
Robert Armstrong
Yeah, indeed. Berkshire and Buffett are generally different from any other kind of animal we have.
Katie Martin
Totally weird.
Robert Armstrong
Totally weird. So here’s this business that started out when Warren was quite a young man in Omaha, Nebraska. He comes from a good family in Omaha. His dad was in politics. He gathers together some money and, you know, starts a little investment fund. And Berkshire Hathaway is actually the name of a company he bought that turned out to be a terrible failure and an awful investment, which I think is a nice irony.
Katie Martin
This is the textiles company, right?
Robert Armstrong
Yeah, it was like they made, like, rugs or something like this. And, you know, he loves to talk about how he never should have bought the business and his partner Charlie Munger tried to talk him out of it, but because, you know, it’s kind of part of his mystique. Like, for some corporate reason it was just easier for him to merge into Berkshire Hathaway. So the most successful financial conglomerate in the history of the world is named for the failed textile mill it used to be, which I kind of love.
Katie Martin
How bizarre.
Robert Armstrong
So now, you know, fast forward 60 years, and you have a very interesting animal, which is made up of a bunch of companies, mostly in two areas: on the one hand, insurance. So there’s the massive Berkshire insurance and reinsurance operations and car insurance and property casualty — the whole, you know, large range of insurance products. And then there’s a bunch of what you might term unfairly old-economy businesses — utilities, energy companies, railways. And then there’s loads of bits and bobs — a sneaker company, See’s Candies. I recommend to your British friends and neighbours, if you are ever in America and specifically San Francisco, See’s Candies. Delicious. Tiny business they’ve owned for a long time.
Katie Martin
Not like that horrible chocolate you guys eat.
Robert Armstrong
It is not like the horrible chocolate. They are delicious little box of variety of different things. Peanut brittle is a great speciality of theirs, which I like. In any case. So there, you know . . . And there’s so many little companies in there, they don’t even list them all in the annual report. But the big ones are a huge railroad that he bought 10 years ago or something, a bunch of utility companies, a bunch of energy companies, and a massive insurance operation. Then there’s a very large portfolio of publicly traded stocks. And this all sits together and generates a lot of money.
And the kind of first salient characteristic we should note about the business is he never pays dividends. This is the snowball metaphor people like to use for him. The money . . . These businesses all generate cash. They’re all very safe, steady businesses and he just ploughs the money back into the business and it grows and grows and grow and picks up momentum.
Katie Martin
Yeah, ’cause if you wanna buy, like, one share in this thing, it’s gonna cost you a lot. Like, it’s an enormous stock, isn’t it?
Robert Armstrong
They have issued sliced-up shares, but to get an A share is like in the hundreds of thousands.
Katie Martin
Mad.
Robert Armstrong
And it’s very good you mentioned that, Katie, because that actually is indicative of a key part of the magic. Like a couple of other people I could name who have built very unconventional but very successful businesses, Warren Buffett has cultivated a very special relationship with his shareholder base so that they are very loyal to him when the going gets rough — and like for any company, the going does get rough sometimes for Berkshire. You know, it does underperform sometimes. He doesn’t have to worry about the stock churning or any kind of rebellion of any kind because he’s built this almost personal relationship with the shareholder base, which you see at the Lollapalooza of capitalism in Omaha every year — the annual general.
Katie Martin
Yeah. It’s a bit like Elon Musk and Tesla, except a lot more wholesome. There is a kind of . . .
Robert Armstrong
(Laughter) A whole lot more wholesome.
Katie Martin
It’s a bit like it, except totally different. Like, but there’s . . .
Robert Armstrong
Less obscene tweets, but otherwise it’s basically the same thing.
Katie Martin
Buffett has cultivated this incredible, like, folksy image. So, like, if you think of high finance and you think of Wall Street, like, you think of, like, Gordon Gekko kind of, you know, fictional characters.
Robert Armstrong
Yes. A lot of hair product. Likes shiny suits.
Katie Martin
A lot of hair products, you know, lunches for wimps and it’s all about, you know, fast cars and piles of money and terrible behaviour. He, however, is this kind of quiet, modest guy with little wire-framed glasses and sort of, you know, snowy hair.
Robert Armstrong
So Eric and Oliver and I, every financial journalist, basically one thing that you do is you call Berkshire Hathaway and you ask for an interview with Warren, and they say no. And so, you know, we all, especially Eric, had asked for an interview a million times. And then, like, on this random Saturday in 2019, he gets the phone call. You know, would you boys like to come out to Omaha? Would we ever? Off we go.
I learned a lot about business from that interview. We talked for four hours, wore us out, as I said. But I came out thinking that this was the greatest master of public relations I had ever met and am ever likely to meet. And I say that not to degrade his other great achievements, but the way he spoke to us, the way that his kind of personal warmth, his directness, his ability to control our conversation without being seen to control it, I have never seen the likes. And I’ve interviewed a lot of CEOs and this was the most skilled communicator I’ve ever met in the business world.
Katie Martin
And did he have with him, like, a phalanx of really annoying PR people?
Robert Armstrong
None. The office is like a random office with, like, drop ceilings and he just walked us into his office. And there’s like eight people in the office. They let the businesses manage themselves. You know, they’re managing the stock portfolio and taking calls, but it’s like a modest office in an anonymous building in a small city in the middle of America. And there you are talking to old Warren.
Katie Martin
Isn’t he a big fan of Cherry Coke, which is a big minus against his name, for my money. But anyway.
Robert Armstrong
They did have a fountain soda machine in the office, which I had a lot of respect for.
Katie Martin
So he’s been very, got very old and been very healthy on this, you know, cocktail of fizzy pop that he’s been (inaudible).
Robert Armstrong
I find money is a great preservative in general, Katie. I don’t know about you.
Katie Martin
Money — very good at keeping you young. That’s why I look so old. (Laughter) But I digress. But old Father Time has caught up with him, right? He is 94 years old. Charlie Munger, who you mentioned earlier, was his kind of business partner. He passed away a couple of years ago, age of about 99 or something.
Robert Armstrong
Also a great man. Yeah. Really on in years.
Katie Martin
I had a real soft spot for Charlie Munger because he really hated crypto and he used to just issue, like, drive-bys on crypto every now and then in a way that I found really quite amusing.
Robert Armstrong
One of the annual meetings, he said it wasn’t even as valuable as cow dung. It was worse than a cow patty.
Katie Martin
Yes.
Robert Armstrong
That’s what he said about crypto.
Katie Martin
Yes, bruv. Go, Charlie Munger. RIP.
Robert Armstrong
But he’s not leaving because it’s not working any more. The stock has actually had a great run in the last five years. If there’s anything that shows to you that there’s a strain on this business is that it has never held a larger proportion of its assets in cash than it does right now. So . . . and the cash pile at Berkshire kind of fluctuates, you know, relative to the other assets.
Katie Martin
Does that mean that he’s nervous about the state of the world?
Robert Armstrong
I mean, he doesn’t talk about it that way so we are sort of left to speculate. But he’s always looking for opportunities, and they’re not easy to find. And he is very explicit that at Berkshire’s size, there is a very small number of opportunities to choose from.
I’ll give you the example. Like, so his biggest investment of recent years — which is now shrinking, by the way, and we can talk about that later — is a huge investment in Apple, which did very well for most of the time he held it.
But literally, you know, I’ve often thought about this question: of publicly traded stocks in the world, how many of them are large enough that he can take a position in them that will actually matter to Berkshire Hathaway’s results? And I think there might be like 10 in the entire world that literally the company is big enough that Berkshire can buy enough that it will move the needle on Berkshire’s result. Apple’s one of them. And of those 10, he picked a really good one, which was Apple.
Katie Martin
I mean, again, like, going back to his folksy image, you know, when you talk to a lot of people in finance about how to put money to work, they come out with a lot of, like, gobbledegook and long words and complicated formulas and all this sort of thing. And you think, wow, I’m nowhere near clever enough to be in finance. You listen to Buffett when he’s talking about the companies that he buys or buys stakes in, he’s like, well, I look for good companies at a good price. And you’re like . . .
Robert Armstrong
Yeah, with a good, with a management team that I trust. How about that? Yeah.
Katie Martin
(Laughter) Yes. That’s, like, that’s never gonna catch on. Surely you need a spreadsheet?
Robert Armstrong
There’s been a fair amount of academic work, as you might imagine, on what exactly is his secret formula. And there are some general points you can make, and this has been . . . this point was made most famously in a paper by a guy called Andrea Frazzini at AQR. That paper said, you know, the businesses that he has bought tend to have a couple of characteristics in common. They tend to be quite stable. As you say, they tend to have been bought at a reasonable-ish price and they tend to be highly profitable. So the point is you buy a kind of stable-ish business that has generally a high level of profitability, meaning it’s a high-quality business, and you pay an OK price. And then the most important part of the formula, more important than those first three, is you stick with it, right? So you just hold . . .
Katie Martin
Yeah. Compounding, baby. Yeah.
Robert Armstrong
Yeah. You just let the . . . You build a . . . So buying businesses with those characteristics, everybody knows you get a little edge in terms of returns from doing that, you know, measured in less than a percentage point a year, maybe. But you just let it go and you reinvest the money and it goes and it goes and goes. And because the businesses are kind of stable, you do a very important thing for any investor, which is to not go out of business. (Laughter)
Katie Martin
Right. Important.
Robert Armstrong
It doesn’t blow up on you. It is very important when you are trying to live to not die.
Katie Martin
(Laughter) Yes, it’s one of the more important maxims out there in the market. But so, you know, he’s used this sort of deceptively simple framework to become a multi-squasillionaire and one of the most important figures in American finance.
But, you know, Charlie Munger passed away. The guy himself is 94. It was clearly time for him to, like, hang up his boots. What has the sort of succession process been like? Because as I understand it, it was at his big annual meeting the other day that he just dropped it at the end of like a several-hour meeting that, oh, by the way, it’s time for me to step down. And the new guy is Greg Abel, who’s been a kind of a loyal lieutenant.
Robert Armstrong
He’s a loyal lieutenant. I think he ran the energy business, if I remember correctly, not the utility business. And he’s just you know, he’s a Buffetty kind of character in that he’s very steady, humble, discreet and all of that stuff.
I should say in terms of the longevity of this business, it’s very important to think about not just the asset side of the balance sheet. In other words, what Warren Buffett buys at the liability side, how he funds those purchases and, you know, famously, these insurance companies throw off premiums, which turn into a huge pile of money, which is perfect if you happen to have a genius around to invest it. So that’s low-cost capital. That’s a very famous point.
But in general, he has gotten a lot of different forms of very long-term, very stable capital at a low cost to finance the investment. And it’s the difference between the return on your investments and your cost of capital that matters in that business. And it’s not acknowledged enough that he may be a greater master on the funding side, the liability side, the cost of capital side, than he is on the asset side. He’s managed that part of the business brilliantly. That is an advantage that should persist, I would think.
Katie Martin
Is that, again, because he’s just seen as such a safe pair of hands and so, like, on a level? Like, does that sort of come from the top down?
Robert Armstrong
Well, he has massive imitators in that it has occurred to every investor in the world at one point or another that this owning an insurance company thing is actually a pretty clever idea for an investor to do because customers pay you these premiums that look a lot like free money until you have to pay the claims. But insurance, as it turns out, does not provide free money. It is a hard business to run. You have to really master it. And it takes a long time to build up a big business that people trust and will use and so forth.
And so he’s just been better at insurance and built a bigger insurance conglomerate over a longer time than any of the Young Turks who are trying to imitate him can do. It’s kind of like, oh, good idea, young man. See you in 60 years.
Katie Martin
(Laughter) Speaking of Young Turks, I mean, you know, this is a very kind of old-school conglomerate model, right? It’s very kind of ’80s. It’s just not a kind of . . .
Robert Armstrong
Even ’60s.
Katie Martin
Yeah, right? Like, this is pretty old-school. Now it seems to have been usurped by private equity, which is a little bit different because there they buy companies or stakes in companies with the specific aim of selling it again in a few years’ time for more money.
Robert Armstrong
The most famous Buffett on that point, I’m sorry to interrupt you, the most famous Buffett aphorism possibly of all is our preferred holding period is forever, right? And, you know, private equity’s preferred ownership period is five years. Those are very different amounts of time.
Katie Martin
Yeah. So, I mean, what’s your hunch? Do you sense that Warren Buffett is a one-off?
Robert Armstrong
Let me put it to you in slightly mystical terms. (Katie laughs) So in rational finance terms, conglomerates don’t make loads and loads of sense. The idea is, look, if you want to diversify your exposure as an investor, you can diversify it at the portfolio level. You can buy all the little things you want. You don’t need to hire someone to run an entity that diversifies for you, as it were, right? And sort of business school 101 says every company should just do the thing it’s very best at and leave all the other stuff to somebody else. And so if you broadly believe those kinds of thoughts from finance theory, what is the point of Berkshire Hathaway?
Katie Martin
It shouldn’t work.
Robert Armstrong
Yeah, it shouldn’t work. And I really think that there is a meaningful part of the point of Berkshire Hathaway, that it is a community of trust, right? There is something, like, people participate in it. They learn from it, they watch it closely, they respect its leaders, they feel like they’re part of a family in some broad sense. And that is a significant part of what it’s all about, right?
So, and without that, questions like: Wouldn’t this business be more efficient if it was broken into parts? Do you really need to own See’s Candy and a utilities company and an insurance company all in one place? Those questions get louder if the business doesn’t serve this kind of community or symbolic or almost spiritual purpose. Can you believe I just said all that mushy stuff?
Katie Martin
That was actually quite kind of woo-woo for you.
Robert Armstrong
Yeah, I know.
Katie Martin
But I think you’re right, and I can’t see anyone else achieving this sort of status in markets. And if they do it’ll take them . . .
Robert Armstrong
Exactly. Or it’ll be another great genius. Like, it won’t just be somebody who read about it and decided . . .
Katie Martin
To do the same thing.
Robert Armstrong
. . . to do the same thing. It’ll be somebody who has a very, very special talent.
Katie Martin
Maybe it’s you, Rob.
Robert Armstrong
(Laughter) I am certain it is not me.
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Katie Martin
(Laughter) I’ll second that. We’ll be back with your ideas about things that are good and bad in a second with Long/Short.
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Okie doke, it’s time for Long/Short, that part of the show where we go long a thing we love or short a thing we hate. Rob, what you got?
Robert Armstrong
I’m shortish something, and the reason I’m shortish is because I used to be long it. One of my stock picks in the FT stock picking contest was Google, a company that I love and admire. I think it’s a brilliant company run by brilliant people, that the structure of it is brilliant. But it’s running into troubles both with AI and its relationship with Apple. Like, what is Google in an AI world? Which didn’t seem to me to be that big a problem when I made the stock pick, but now I’m starting to get nervous. So I’m admitting for the first time, in front of you and God and everyone, that I am losing a tiny bit of faith in Google, one of my favourite companies.
Katie Martin
Are you moving to market-neutral? So you’re not exactly long or short.
Robert Armstrong
(Laughter) Exactly. What about you, Katie?
Katie Martin
I will just remind listeners this is not investment advice and that Rob and I are routinely wrong about everything.
Robert Armstrong
Yeah, we are terrible, so whatever we may be good at, we are not good at the FT stock picking contest.
Katie Martin
And it’s debatable what we’re good at as well. (Laughter)
Robert Armstrong
(Laughter) Period.
Katie Martin
I am long in the sense that I see a lot of it about. I’m long complacency. There’s a real, like, whiff of it in the air at the moment. Pimco, the massive bond investment firm, kind of laid this out quite well in an interview that we had in the FT today saying that people are not thinking enough about what happens when this pause on the, quote unquote, reciprocal tariffs is over. You know, people are not thinking carefully enough about the downsides and also like, you know, so the Federal Reserve this week gave quite a harum-scarum message about high inflation and low growth and the market’s like, oh, that sounds fine, I’m sure we can work with that. And I just think there’s a lot of, like, amber warning signs all over the place and people are just like, la la la, things in the ears, I am not listening and that makes me (inaudible).
Robert Armstrong
I couldn’t agree with you more. I mean, it’s an important reminder that the default mood status of markets is greedy. Given any excuse to think that money is gonna be made and everything is fine, that is where markets kind of fall back to.
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Katie Martin
Yeah. So I know I’m being a bit of a misery guts, but I do just think, careful now. So listeners, be careful between now and Tuesday, because that’s when we’re gonna be back in your ears. So listen up then.
Unhedged is produced by Jake Harper and edited by Bryant Urstadt. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhecz. Cheryl Brumley is the FT’s global head of audio. Special thanks to Laura Clarke, Alastair Mackie, Gretta Cohn and Natalie Sadler.
FT premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to FT.com/unhedgedoffer.
I’m Katie Martin. Thanks for listening.
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