Warren Buffett was born on August 30, 1930, which means he will turn 90 years old in 2020. American men have average lifespans just over 76 years old. While wealthy Americans tend to live longer, Warren Buffett is still 14 years above the average.
Buffett’s age gives his investors cause for concern. Even if he lives another 10 years, his age puts him at a high risk for illnesses that could affect his ability to make smart investment decisions for his company Berkshire Hathaway.
Everyone close to Warren Buffett and his company understands the potential effects of aging. None of them want to risk massive financial loss after his inevitable death. This understanding leads to several questions. Some questions have better answers than others.
What to Expect When Warren Buffett Dies
Much of Berkshire Hathaway’s success comes from Warren Buffett’s ability to select companies that deserve his investment dollars.
Unlike many of today’s investors who want to make quick profits, Buffett commits to the long-term growth of companies. He not only invests in companies that he believes in. Some companies he acquires and in very rare situations he evens steps in to manage.
Since so much of Berkshire Hathaway’s success comes from Buffett’s talent for making smart, long-term decisions, there’s good reason to worry that Berkshire Hathaway’s value could plummet shortly after his death.
Some people who own stock in Berkshire Hathaway will likely have a knee-jerk reaction and immediately sell their shares to avoid falling values.
By selling their stocks, they will create a self-fulfilling prophecy that forces the value down. Fortunately for investors with enough money to buy Berkshire Hathaway stock, this will create an enormous opportunity.
Even with a single share priced in the hundreds of thousands of dollars, brave buyers – those who take Buffett’s advice to be greedy when others are fearful – could snap up the stock at a terrific price.
Hopefully, the high cost of Berkshire Hathaway cost means that the majority of investors understand how the market functions.
At the beginning of 2020, it took about $340,000 to buy one share in the company. That’s a significant financial commitment. From 2016 to 2020, the stock has never fallen below $190,000 per share. Even at its lowest, it still takes a tremendous amount of money to invest.
Regardless, some people will panic. That means you can expect the stock’s value to fall rather quickly. The fall will probably happen on the day that Buffett passes.
How Berkshire Hathaway Will Respond to Warren Buffett’s Death
Multiple sources say that Berkshire Hathaway has a plan for how to continue after Warren Buffett’s death.
Not surprisingly, the investment and acquisitions company freely shared its plans but has not specified who will take on Buffett’s role. (Remember that the company lets anyone read its annual letter to investors, which contains copious investment advice.)
For starters, Buffett’s will includes orders not to sell any shares in Berkshire Hathaway. It’s unclear who will receive his shares. Regardless, his order shows that his commitment to the company extends after his death. He won’t let anyone “cut-and-run” by selling his shares.
The plan formulated by Buffett and other stakeholders in Berkshire Hathaway include:
- Instructions to slowly convert a portion of Buffett’s A shares into B shares before distributing them to a variety of foundations or moving them into the market. The plan should take between 12 and 15 years.
- Liquidating some real estate assets to help offset market risk during the transition period.
- Letting executives hold on to Berkshire Hathaway stock owned by Buffett if they deem it helpful for investors.
There are still plenty of things that investors don’t know. Who, for example, will assume Buffett’s leadership role? Will a change in leadership influence how the company invests in and helps direct companies?
Even though there are unanswered questions, Buffett has been much more transparent than most billionaire investors.
Remember that Buffett doesn’t operate in a vacuum. He has a board of trusted advisors who help him make investment decisions. Those people won’t disappear will Buffett passes away. Their strategies, however, may change without his oversight.
What Will Happen to Berkshire Hathaway Stock After Buffett?
When Buffett dies, Berkshire Hathaway will lose a brilliant investor. No one knows precisely what will happen. It’s very likely that some investors will panic and sell their shares. If this happens, then the stock’s price will become volatile for somewhere between a few weeks and a few months.
Volatility could last even longer depending on the economy’s overall performance and how much trust investors have in the new leadership.
With most companies, short-term volatility attracts day traders and swing traders. That probably will not happen with Berkshire Hathaway because the stock has such a high price. Even at its lowest value, investors still need to spend over $100,000 for one share. Very few people will make such a risky short-term investment.
After a few months, Berkshire Hathaway’s stock value will probably bounce back. Buffett has built a reliable company with excellent core values. It certainly helps that the company has billions in cash. Even if some investments don’t perform as well as expected, the company has ample reserves.
If you’re lucky enough to have about $300,000 to invest, you could deploy it elsewhere until Warren Buffett passes.
Soon thereafter, the stock’s value will almost certainly fall quickly. It’s not a kind thing to think about, but the market doesn’t have feelings. It’s completely amoral.
It will not set aside time to grieve for one of its most influential traders. Instead, it will likely respond by dropping Berkshire Hathaway stock’s value.
Those with enough money to buy Berkshire Hathaway stock will get an opportunity to purchase ownership in one of the world’s most reliable, consistent investment companies.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.