No. of Recommendations: 13
1. It’s hard to sell out of such large positions and get into new similar size positions
2. Deferred taxes are a very material reason to hold
3. A new manager can’t reasonably expect to have the conviction in a former manager’s picks. This is particularly pronounced with such extreme concentration and the issue grows over time. Conviction is extremely important in managing the portfolio
4. Full valuations make selling easier
5. Berkshire has too much cash already
6. Perhaps some of the Buffett picks are forever holdings for any manager
7. Maybe some picks like Occidental have strategic importance and would not be sold
I have been known to say that whoever follows the CEO, even a legendary one, won’t do the same things the last one did. Or as one person who saw several come and go said to me “Every new dog wants to pee on the bush to mark his territory.” [Worst one ever was the one who insisted on changing USAir to USAirways at a cost of tens of millions to repaint all the planes, gates, equipment, signage, etc. Seriously?]
That said, I don’t think there will be a lot of volatility once Warren leaves for a few reasons. Most of the biggest positions are “conviction” and “forever”, and the new guys aren’t really “traders” in the conventional sense. Just under 70% of the portfolio is in just five stocks: Apple, AmEx, Bank of America, Coke, and Chevron. I would think BoA, AmEx, and Coke are forever (absent malfeasance or gross ineptitude), Apple has already been trimmed but only because it became so outsized (with associated risk) not because of lack of confidence, and that leaves Chevron, which may or may not be played with as the industry waxes & wanes.
I would certainly think #1 is inapt: these guys can surely have conviction in those things which have existed for so long (again, excepting crazy outliers).
I’d surely agree with #5, and the rest are eh, maybe so, maybe not. Warren has mostly *not* sold at full valuations (although he has publicly regretted a few of them later).
I count 3 or 4 issues between 3% and 5%, the rest don’t really matter - if/until they grow and do. I mean yeah, selling or combining Kraft will be something and newsworthy, but who cares what happens with Chubb? So I don’t expect much volatility afterwards, especially considering the extra-close kind of scrutiny the newest picks are bound to get (yeah, sure get some press now, but nothing like those that will follow the headline: “Now that Buffett’s Gone….”
