Best as we know, he hasn't made material stock investments nor has he ever been engaged in taking over a large company. Other than the accident of birth, how is he the most qualified person to take this role? Why should someone who has spent so little time with the company's managers suddenly become eligible for the position? A: The response to this question, I felt, was the weakest of the six responses. Warren said that Howard would be the guardian of Berkshire's culture. "If a chief executive doesn't work out, having a chairman who cares deeply about the company's culture will make fixing the problem much easier." Below is a list of the six unasked questions. (Again, I have marked with an asterisk the six primary questions that I had planned to ask. Three of my top six questions were previously asked, so I used three of the alternate questions.) 1. Is Berkshire too big to outperform?* 2. Are some of Berkshire's bank moats damaged or disappearing?* 3. Is the stock market overvalued by your metrics?* 4. Missed deals? 5. Regrets? 6. Is your optimism justified?
Unasked Question No. 1-- Is Berkshire Too Big to Outperform?
Historically, Berkshire's outperformance over the past 40-plus years has been spectacular. However, sustaining that growth is becoming more difficult to achieve. You noted in your 2007 annual letter that, "Berkshire's past record can't be duplicated or even approached." And in almost every letter since that, you have uttered the same theme. In the sole year of the last four (in 2011) that Berkshire succeeded in outperforming the share price of the S&P 500, it did so by a mere 2.5%. Even five years ago (in 2008), when performance was strong on a relative basis, Berkshire still recorded a negative return of -9.6% (while the S&P dropped by a staggering -37%). Explain how Berkshire can persist in outperforming the markets while you continue to expand the size of your company. Note: This question (one of my top six initially) was somewhat close to Carol Loomis's first question, so I canned it.