Berkshire set for next phase after 50 years of runaway growth

In his 50 years at the helm of Berkshire Hathaway, Warren Buffett has transformed a failing textile company into a sprawling conglomerate that has vastly outperformed most of corporate America.

But he now says: do not expect a repeat of that outperformance in the next 50 years.

In his annual shareholder letter released on Saturday, Buffett said Berkshire had grown so large - 751,000 times its original net worth per share - that the future pace of gains "will not come close" to those of the past.

"The numbers have become too big," Buffett wrote. "I think Berkshire will outperform the average American company, but our advantage, if any, won't be great."

Within 10 to 20 years, Buffett said, Berkshire's girth could require whoever then ran the company to consider steps he had resisted, such as paying dividends or conducting "massive" share repurchases.

Buffett, also addressing one of the more pressing topics at Berkshire, said he and his board of directors "believe we now have the right person to succeed me as [chief executive]", who in some respects "will do a better job than I am doing".

While Buffett did not name that person, Berkshire vice-chairman Charlie Munger said Greg Abel and Ajit Jain, two top Buffett lieutenants, would be prime candidates.

Abel, 52, runs Berkshire Hathaway Energy. Jain, 63, has been Buffett's top insurance executive for three decades.

A successor could also be female: Buffett said "gender should never decide who becomes [chief executive]".

And Todd Combs and Ted Weschler, who run some Berkshire investments, "can be of particular help to the [chief executive] in evaluating acquisitions", he added.

Thomas Russo, a principal at Gardner, Russo & Gardner, which invests 12 per cent of its US$10 billion of assets in Berkshire, said: "You've got such good candidates. I think they'll adopt a different capital structure approach, which will include a healthy, large dividend."

Buffett is preparing in May to celebrate 50 years of running Berkshire, whose market value is now US$363 billion.

On Saturday, Berkshire reported a 17 per cent drop in fourth-quarter profit to US$4.16 billion, or US$2,529 per Class A share, from US$4.99 billion, or US$3,035 a share, a year ago as investment gains and results from insurance underwriting fell.

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