Many Happy Returns to Warren Buffett on His 80th Birthday

This from the Wall Street Journal:

By SERENA NG

Warren Buffett turns 80 years old today, and he isn’t slowing down a bit. Instead, he is likely to take on more work in the coming year while the ball starts rolling on his closely guarded succession plan.

Back in February 2007, the chief executive officer of Berkshire Hathaway said in his annual shareholder letter that his expected life span was about 12 more years, suggesting he should be around at least until age 88. Followers of Mr. Buffett say he is only getting better with age, and a life expectancy calculator on the web currently estimates he will around for at least another dozen years, notes money manager Whitney Tilson.

“I plan to work past 100, but to do so I may have to learn to think outside the box,” Mr. Buffett tells Deal Journal.

Mr. Buffett has no intention of stepping down simply because he loves his work. But when the inevitable happens, Berkshire’s board is expected to name a new CEO to run the business and one or more executives to oversee its investments. There are three candidates to become CEO (the front-runner is widely seen as 53-year-old MidAmerican Energy Holdings chairman and NetJets CEO David Sokol) but less clear is who will handle Berkshire’s large investment portfolio or how it may be divvied up.

Management succession was recently cited by Goldman Sachs Group research analysts as a risk to Berkshire’s future value and its ability to continue identifying good investments and generating above-average returns. (Goldman has a “buy” rating on Berkshire.) From 1965 to 2009, Berkshire’s book value per share has increased at a compound annual rate of 20.3%, versus 9.3% for the S&P 500 stock index.

Charlie Munger, Mr. Buffett’s longtime business partner and Berkshire’s vice chairman, once was seen as a potential successor, but he is now 86. Mr. Buffett already has outlasted another potential successor: Louis Simpson, a veteran money manager who oversees auto insurer Geico’s multibillion-dollar investment portfolio, recently indicated he plans to retire at year-end.

Mr. Simpson, who has autonomy over Geico’s investments, is 73 and would have been able to step into Mr. Buffett’s shoes if needed. Mr. Buffett will include Geico’s $4 billion portfolio in the more than $50 billion of stock investments he oversees after Mr. Simpson retires. He also may have to move his succession plan further along.

“This retirement is a good opportunity to see how Berkshire adapts to change,” said Paul Howard, an independent analyst in Glastonbury, Conn. He adds that coming decisions by Mr. Buffett could telegraph how the company will deal will future management changes.

A candidate for one of the top investment jobs is Li Lu, a 44-year-old hedge-fund manager who led Berkshire to invest in Chinese battery and auto maker BYD. It remains unclear how Mr. Li may become involved with Berkshire’s portfolios.

Despite his well-known love of hamburgers and his habit of downing several Cherry Cokes a day, Mr. Buffett has shown no signs of ill health. But he has acknowledged there may come a time when his mental faculties begin to fade. He said he expects Bill Gates—a longtime friend, bridge partner and member of the Berkshire board—to tell him if it is time to step down.

Mr. Buffett noted in his annual letter to shareholders a few years ago that he was aware of the problems that could arise if he were to lose a step, saying it would be an issue “if this decay is accompanied by my delusionally thinking that I am reaching new peaks of managerial brilliance.” When a person’s abilities ebb, “so usually do their powers of self-assessment,” he wrote. “Someone else often needs to blow the whistle.”

Glenn Tongue, who together with Mr. Tilson runs investment firm T2 Partners LLC, says Mr. Buffett “really has never seemed sharper, and he’s on his game right now. We would be surprised if he’s not in his current role in five years.”

—Erik Holm
contributed to this article.

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