We think two big concerns—a belief that Berkshire Hathaway's size will prevent it from growing at a decent clip in the future and that the company's shares will get pummeled once Warren Buffett no longer runs the show—have not only kept some investors on the sidelines, but have put a ceiling on the stock, which has rarely risen above 1.5 times book value in the seven and a half years that have passed since the markets bottomed out during the 2008–09 financial crisis.

While there continues to be plenty of focus on what Berkshire will look like once Buffett (and Charlie Munger) have departed, we think that the groundwork for a successful transition has already been in the works for the past 15 years, with Berkshire dedicating more and more Capital to companies that could absorb the cash flow thrown off by its disparate operations, either through capital expenditures or bolt-on acquisitions. The key to Berkshire's success over the years has been Buffett's ability to not only find fruitful ways to put the firm's excess capital to work but in paying close attention to culture and fit when acquiring companies. We expect this to continue even after Buffett no longer runs the show, believing that Berkshire's culture of management autonomy and entrepreneurship has to a large degree become institutionalized. 

Analysts: Greggory Warren, CFA & team

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