Transcript
Host
The legendary investor Warren Buffett says he is going to retire as the head of Berkshire Hathaway and he has named Canadian Greg Abel as his successor. What does this mean for the investment world in general? Let's get more from Steven Check, President and Chief Investment Officer at Check Capital Management. Thanks very much indeed for joining us. Just remind us, why do we care so much about Buffett? Why is he so interesting?
Steven Check
Well, I think he's probably the most successful CEO ever and had a run of 60 years. That's just unparalleled. So he's just such a good guy, too. He's a guy that can relate that relates to a lot of people. So just a lot of reasons why he's just so iconic.
Host
It's interesting. He said things like, I think the most investors would be just as well off with an index fund. And that goes counter, of course, to what Wall Street would like you to believe. Oh, you need experts to pick your stocks.
Steven Check
Well, index funds have done very well. But also, if you look at what Warren Buffett has done and what Charlie Munger before that did, they didn't own index funds themselves. They owned Berkshire Hathaway stock predominantly.
Host
Yeah, that's right. I mean, it has generated, as Bloomberg puts it, his investing has generated massive fortunes for Buffett's investors over time. And he's got this old-fashioned approach, doesn't he? He owns things like furniture retailers, and he says, I'd like to hold stocks forever if I can.
Steven Check
Well, it's an old-fashioned approach, but there's always some obvious, there's always sophistication to it. And certainly what they do in the insurance world is just not easy, but they seem to do extremely well relative to the competition all the time. So it's just putting one step ahead of another and then just also just being very willing and able to take advantage of opportunities when a lot of people are maybe a little bit more fearful.
Host
Yeah, that's interesting. Remind us, so he's huge in insurance. So a lot of the value comes from investing the excess funds that these insurance companies hold?
Steven Check
Well, the insurance companies hold floats. So when people pay premiums, the claims are paid out somewhere down the road, maybe 90% of what's received in premiums is paid out or something of that sort. But in the meantime, Berkshire holds around $170 billion of, let's say, kind of unpaid claims. And that $170 billion is money that Berkshire can invest. And generally they've kept it in T-bills, but $170 billion at 4% is still a pretty significant number.
Host
Today, Bloomberg is looking at the returns from Berkshire versus prominent mutual funds from 1965 right through to 2024. Berkshire with an annual total return of 20%, almost 19.9%. Whereas the Fidelity Magellan Fund, not bad, but a return of just over 15%. And over decades, that adds up to a huge difference.
Steven Check
Yeah, when you compound that over decades, you're talking multiples of difference, I think, in Berkshire versus the next best choice, if you will. It's interesting to see. I wonder how many mutual funds have been around since 1965. That would be a good question.
Host
Yeah, that's the thing, isn't it? Sometimes when funds do badly, they are sent to an unmarked grave. They're merged with another fund. That's right. The fund industry does that.
Steven Check
And they certainly haven't been managed by one person for the whole 60 years.
Host
No, no. That's right, 94 years old. He's an example to us all, isn't he?
Steven Check
He's an example. He's set an example, a business example, just it seems like just almost every year. And even this kind of exit is just another nice example of doing it kind of just a little differently than you normally see done.
Host
What do you mean in what way?
Steven Check
Well, in the sense that he's announced that he's going to stay on through the end of the year, and then he's going to remain available, and he's going to remain chairman of the board here for a while. So it's kind of a nice, smooth transition, a transition that's been taking place, frankly, over the last five or six years, but just more formally now. It's kind of neat to do a bookend on exactly 60 years and the stock on Friday closing at an all-time high. Things just seem to work out like this for Warren Buffett, don't they?
Host
Yeah. And he is famous for doing what we all should do, but often don't. He sold during booms, built up cash. And then when stocks were cheap and the Great Recession and COVID, he started buying again.
Steven Check
Yeah, again, his general rule is to buy when people are fearful and sell when people are greedy. And he does it over a patient period of time, too. Selling maybe two-thirds of the Apple position last year, it took at least half a year to do that. So these are not things that people can't see being done. But again, he just seems to do them a little bit better than everybody else.
Host
It's hard to do what he does, though. Obviously, everybody would do it. But that kind of patience is hard for a lot of us.
Steven Check
Definitely. The patience is the key. And I've never seen between him and Charlie Munger, never seen such, let's say, elderly people still so patient, knowing that they got to do something or time might just run out. But that doesn't seem to bother him a bit.
Host
Do you think, I mean, this is hard to predict, but will there be continuity under Abel or do you think, I mean, the stock's down a bit today. I know, are people worried that Greg Abel will find it hard to maintain their returns?
Steven Check
Well, I think anyone would find it hard to certainly maintain, well, no one's gonna maintain 20% returns, but I think Greg Abel can continue with the kind of returns that we've seen over the last five or 10 years. And I don't think there's any better groomed successor, even close out there for Berkshire Hathaway. So we've seen Greg Abel here in the last several annual meetings, taken a bigger and bigger role. And every year you come away feeling more confident that Greg Abel is the right man for the next say 10 or 20 years.
Host
Steven, thank you very much for joining us.
Steven Check
I enjoyed it. Thank you.
Host
Steven Check, President and Chief Investment Officer at Check Capital Management. Coming up, we are...