Why Did Warren Buffett Retire?

To Investors,

Last week investors and fans gathered for another Berkshire Hathaway Annual General Meeting. Towards the end of the meeting Warren Buffett announced that he’s stepping down as Berkshire CEO and will remain only as Chairman.

This marked the end of an era and I’d be remiss to not note this in a letter to investors as we all ponder why he retired.

But before we get into why I think Buffett retired, a quick recap of Berkshire Hathaway’s performance over the years.

The Kobeissi Letter summarised Berkshire’s returns in a post on X, writing:

Since 1964, Berkshire Hathaway has returned over 5,500,000%. That's 5.5 MILLION percent. A $10,000 investment in 1964 would be worth $550 million today. This compares to a ~39,000% return in the S&P 500.

Extraordinary returns! Most capital allocators can only dream of being able to allocate capital at that level of play with those kinds of returns.

So why did Buffett retire?

I remember an old adage that said: “play ‘till you suck”. Some might say he was maybe too old (he’s 94!) and that maybe he’s not as sharp as he used to be. I don't think that’s the reason because the markets would have called that out a while ago – and they didn't because Berkshire’s stock is up 197% in the last 5 years.

If that’s not enough, here’s a video of Buffet talking about real estate investing vs investing in equities at this past AGM. Still sounds quite sharp to me.

In my view, I think he retired mainly because of two reasons…

The first is that his best friend, brother and confidant of 60+ years passed away in late 2023. The highs probably don’t feel as high and the lows probably feel like they last forever. I don’t wish that on anyone and I think that’s the first big reason Buffett is retiring now. It can’t feel the same up there on that stage, and on a day-to-day at work. This reminds me of a note Warren made about how Charlie lifted Warren’s spirits after Warren had bought a fledgling textiles company out of ego, called Berkshire Hathaway (before Berkshire was Berkshire as we know it today). According to Warren, Charlie said: “Warren, forget about ever buying another company like Berkshire. But now that you control Berkshire, add to it wonderful businesses purchased at fair prices and give up buying fair businesses at wonderful prices. In other words, abandon everything you learned from your hero, Ben Graham. It works but only when practiced at small scale.”

The second reason is Berkshire’s current cash pile which reached a record $348 billion this year as Buffett has been exiting many equity positions. In all honesty, a couple of years ago I saw the accelerated selling as him planning to hand over the reins to his successor – and that makes sense because how do you hand over a portfolio of holdings you’ve had for decades? Your successor is a completely different person with a different way of seeing things so it's best to rather hand him the cash and let him have a go at it, in his own way.

But that aside, when you’re moving hundreds of billions of dollars, there’s not much you can do to compound that amount of money, especially in the public markets. I remember a few years ago when I pitched a business idea to a successful operator of a business doing hundreds of millions of rands in revenue and he asked me: “how does it move the needle?” I can imagine that’s the same question Buffett has been asking himself for the past 3 years when he started accelerating his selling.

I learned a lot from Warren and I still have so much more to study about how he allocated capital.

Over the past year or so I wrote four investor letters about some of my learnings where I was trying to understand why Buffett loves Coca Cola and Apple; why