It was also full of surprises. But, before we get to that, and what comes next, I want to go back to Warren Buffett's most recent annual letter, for 2024, published February 22, 2025. Warren Buffett begins with an apology. That's maybe to be expected for someone who, at nearly 95, may be tallying up his wins and losses, reflecting on his life and is, perhaps, finally embarrassed by some of the unequivocal praise he receives.
During the 2019-23 period, I have used the words “mistake” or “error” 16 times in my letters to you. Many other huge companies have never used either word over that span. Amazon, I should acknowledge, made some brutally candid observations in its 2021 letter. Elsewhere, it has generally been happy talk and pictures.
I have also been a director of large public companies at which “mistake” or “wrong” were forbidden words at board meetings or analyst calls. That taboo, implying managerial perfection, always made me nervous (though, at times, there could be legal issues that make limited discussion advisable. We live in a very litigious society.)
Buffett opens the body of the letter with a remembrance of Pete Liegl, who founded and managed Berkshire portfolio company Forest River, a manufacturer of recreational vehicles, utility cargo trailers, buses and pontoon boats headquartered in the boat and RV manufacturing center Elkhart, Indiana.
Elkhart’s dominance in the RV industry is not a coincidence, but a result of several unique factors. Its strategic geographical location, with easy access to major transportation routes, makes it an ideal hub for distributing RVs across the country. The region's rich history of craftsmanship, with generations of families honing their skills in manufacturing, further enhances its position in the industry.
Buffett features someone that no one — not even most Berkshire Hathaway shareholders — will have heard of because I think he wants to show those who will write his own obituary someday how he would like to be remembered.
I first heard of Forest River – the Indiana company Pete founded and managed – on June 21, 2005. On that day I received a letter from an intermediary detailing relevant data about the company, a recreational vehicle (“RV”) manufacturer. The writer said that Pete, the 100% owner of Forest River, specifically wanted to sell to Berkshire. He also told me the price that Pete expected to receive. I liked this no-nonsense approach.
I did some checking with RV dealers, liked what I learned and arranged a June 28th meeting in Omaha. Pete brought along his wife, Sharon, and daughter, Lisa. When we met, Pete assured me that he wanted to keep running the business but would feel more comfortable if he could assure financial security for his family.
Pete next mentioned that he owned some real estate that was leased to Forest River and had not been covered in the June 21 letter. Within a few minutes, we arrived at a price for those assets as I expressed no need for appraisal by Berkshire but would simply accept his valuation.
Then we arrived at the other point that needed clarity. I asked Pete what his compensation should be, adding that whatever he said, I would accept. (This, I should add, is not an approach I recommend for general use.) Pete paused as his wife, daughter and I leaned forward. Then he surprised us: “Well, I looked at Berkshire’s proxy statement and I wouldn’t want to make more than my boss, so pay me $100,000 per year.” After I picked myself off the floor, Pete added: “But we will earn X (he named a number) this year, and I would like an annual bonus of 10% of any earnings above what the company is now delivering.” I replied: “OK Pete, but if Forest River makes any significant acquisitions we will make an appropriate adjustment for the additional capital thus employed.” I didn’t define “appropriate” or “significant,” but those vague terms never caused a problem.
The four of us then went to dinner at Omaha’s Happy Hollow Club and lived happily ever after. During the next 19 years, Pete shot the lights out. No competitor came close to his performance.
In doing the deal with Liegl, Buffett takes his usual back of the cocktail napkin "do as I say, not as I do" due diligence lite approach. He admits he did no formal valuations, for the company or the land that Andrews personally leased to his company. Buffett never shies away from buying out owners and burying their related party transactions! Buffett was comfortable with having someone who would no longer have a financial stake in whether the company succeeded or failed continue to run the company. Liegl would achieve "financial security for his family" through the sale and asked for only a modest salary and performance bonus.
And he really didn’t know that he was dealing with “the George Washington on the Mount Rushmore of the RV industry,” as one friend described Liegl.
But the world’s most famous investor liked what he read and especially liked that Liegl came to him with a price in mind: $800 million. So he did some basic diligence. The next day, Buffett made an offer. The next week, Liegl came to Omaha. They met for 20 minutes and shook hands on a deal.
“It was easier to sell my business than to renew my driver’s license,” Liegl said at the time.
Forest River has been, more or less, a winner for Buffett and Berkshire over the last nineteen years, based on Berkshire’s disclosures. It experienced down years in 2008 and then beginning in the second half of 2018 continuing through 2019. The 2018-2019 issues included steel tariffs. (We have steel tariffs again creating headwinds.)
It had a good year in the midst of the pandemic, maybe because lots of people escaped cities and their homes and headed out to live remotely. It was also down in 2023. Revenue was up in 2024 but Berkshire disclosed no specific earnings information for Forest River, which has made an appearance in every 10-K since it was acquired in 2006.
Also interesting is the competitive information Berkshire started providing for Forest River in 2017. Buffett is quite proud of finding those companies with moats! Moats are also known as monopolistic market characteristics.
Competition is based primarily on price, design, quality and service. The industry has consolidated over the past several years with Forest River and its largest competitor possessing about 83% aggregate market share, with Forest River holding a 35% market share.
Data analysis by author based on Berkshire Hathaway SEC filings.
The competitive landscape has only changed slightly since but suffice to say that Forest River remains a solid #2 or #3 in most of its product categories whether business is up or down. Forest River's down years have come since 2017, (other than 2008 during the financial crisis).
Maybe Mr. Liegl exited stage left at the right time.
Buffett continues to mention former sidekick Charlie Munger often. His 2023 letter, published in February 2024, has a full page dedication, remembrance of Munger.
I've written before about Buffett's mention, and lack of mention, of other colleagues who have passed away. He also wrote about mistakes in his 2021 letter, published in early 2022, and the late Paul Andrews, founder and CEO of Berkshire Hathaway portfolio company TTI, acquired in 2007.
Buffett mentioned attending Andrews’ funeral with at that time heir apparent Greg Abel. TTI got a few mentions in the 10-Ks and letters over the years but had been most recently lumped in with five other companies, with no break out for its performance or for Paul Andrews, until he died in March of 2021.
However, Buffett saw no reason to mention in his annual letter two Berkshire directors that had died during 2021.
There was no mention in his letter of the death last September of longtime director Walter Scott or any mention of the resignation of longtime director Tom Murphy, as a result of a serious bout with Covid-19.
Warren Buffett’s most recent letter to his shareholders has a nostalgic tone and melancholy vibe, perhaps befitting a man of his age and years of business experience.
Soft-spoken, erudite and strategic, Mr. Denham had a knack for being calm under pressure, listening before talking and not necessarily taking the lawyerly path to a resolution. Those traits led Warren E. Buffett to ask Mr. Denham to help him save the Wall Street firm Salomon Brothers in August 1991, when a bid-rigging scandal threatened to push it into insolvency.
Mr. Buffett was the bank’s largest shareholder and had taken the extraordinary step of joining it, as its interim chairman, for a $1 salary. Despite meeting resistance internally, he wanted to come clean with prosecutors and regulators to save the bank, whose traders were accused of rigging the auction market for Treasury securities. Mr. Buffett believed that if the government filed criminal charges, customers would pull their money and the firm would collapse.
Mr. Buffett knew Mr. Denham, who worked at Munger, Tolles & Olson, a law firm started by Buffett’s business partner and longtime friend Charles T. Munger. Mr. Denham, then living in Los Angeles, had a full plate of clients and little need for the high-wire act of trying to bail out a bank. But he quickly said yes.
Mr. Denham moved to New York and helped Mr. Buffett persuade prosecutors not to pursue criminal charges against the bank. Instead, the two men were forthright with regulators and reached a $290 million settlement.
“I’m not sure Salomon would have turned out the same way without Bob,” Mr. Buffett said.
After nine months, Mr. Buffett returned to Omaha, where his company, Berkshire Hathaway, is based, and Mr. Denham stayed on as chief executive and chairman of Salomon Inc. until 1998, after Travelers Group had bought the company for $9 billion in a sale he helped engineer.
Bob Denham, one of the unsung heroes in Buffett’s rescue operation at Salomon Brothers, passed away on March 15.
Berkshire director (for the moment) Ron Olson called Denham a “generational talent” whose “legacy will continue to inspire us all”. Buffett personally recruited Denham to steer Salomon through numerous legal and regulatory hurdles during the bond-trading scandal. He remained at Salomon as chairman until Travelers acquired the investment firm in 1998.
According to his Munger, Tolles & Olson obituary, Denham also represented Berkshire on many major deals like the $37.2 billion acquisition of Precision Castparts, the $28 billion acquisition of H.J. Heinz (with 3G), the $9.7 billion acquisition of Lubrizol, the $44 billion acquisition of BNSF, and its investment in Bank of America.
Precision Castparts, H.J. Heinz, Lubrizol? Yikes! That's a rogues gallery of mistakes for Warren Buffett and Berkshire Hathaway in multiple ways. Lubrizol, for example, is a painful reminder of the David Sokol saga. The Salomon saga was certainly a wart on Buffett's nose.
BNSF was a big acquisition but is it a winner? BNSF gets one mention in the 2024 letter: That its earnings were $5.031 billion in 2024 vs. $5.087 in 2023.
Most railroads’ earnings shrank last year because of a freight recession. BNSF’s operating earnings fell 14% in 2023. Union Pacific, its direct competitor, reported an 8% decline in operating income over the same period.
BNSF also scores poorly on a closely watched measure of how much of a railroad’s operating revenue is consumed by operating expenses. BNSF’s operating ratio in the second quarter was 68.2%, unchanged from a year ago, and the worst performance of the major railroads.
What about Bank of America? That had to be a winner, right?
Yahoo, March 2025: Berkshire originally acquired Bank of America stock through warrants it received when it acquired $5 billion worth of preferred stock in 2011. Buffett exercised those warrants in 2017 to buy 700 million shares, when Bank of America increased its dividend such that owning the common stock paid more than holding the preferred shares. Berkshire Hathaway added to the position through 2020, but as of the end of 2024, it now holds less than the 700 million shares originally purchased in 2017.
Some have speculated that Berkshire continued selling Bank of America at the start of 2025. The company's name was noticeably absent in a short list of "profitable businesses with household names" Buffett laid out in his letter to shareholders.
So, it's not surprising Buffett did not mention Denham in the letter. He led Buffett to some of his biggest losers. As I wrote:
Buffett’s letters are a master course in using the right personal stories and colorful anecdotes that, in the end, serve primarily to enhance the myth and legacy of Warren Buffett.
Buffett's big surprise at the annual meeting: He's stepping down from the CEO role and handing the reins over to Greg Abel.
The announcement begins at 5:27:00 in the tape.
There's been lots written about this announcement this week. I'd say some are going overboard with the tributes. Save it for when Buffett really exits stage left.
One of the best, most succinct summaries of the practical aspects of this transition came as an email from Lawrence A. (“Larry”) Cunningham, the Director of the John L. Weinberg Center for Corporate Governance at the University of Delaware. Cunningham has published more than 20 books, 50 scholarly research articles and hundreds of columns including the international best seller, The Essays of Warren Buffett: Lessons for Corporate America. (I've edited it to the headlines.)
This succession plan is not a single move. It’s a multi-step transition of leadership and trust—carefully constructed over decades—to ensure the survival of a distinctive business model. The announcement of Abel’s ascension is only step one.
Step One: Chief Executive Officer — Greg Abel
As CEO, Abel will oversee Berkshire’s sprawling operations, deploy capital, and serve as its public face. He’s already doing much of that.
Buffett will no longer serve as Berkshire’s chief investment officer. In his later years, he increasingly relied on others, including Ted Weschler, who is likely to manage the equity portfolio along with additional like-minded investors. Abel will be accountable for overall results but will rely heavily on on the stock-picking expertise of those Berkshire teammates.
Step Three: Insurance — Ajit Jain and Successors
Abel is not an insurance man—and he knows it. Berkshire’s insurance operations remain under the leadership of Ajit Jain, who serves as vice chairman and head of insurance operations.
Step Four: Board Chair — Warren, Then Howard Buffett
For the first time in Berkshire’s history, the roles of chairman and CEO will be split. Warren Buffett will remain chairman of the board, retaining significant influence while Greg runs the company day to day. Upon Warren’s death, the longstanding plan remains for his son, Howard Buffett, to succeed him as chairman.
Step Five: Controlling Shareholder — Warren Buffett, Then the Shareholder Base
Buffett emphasized Saturday that he will not sell a share of Berkshire stock. His continued ownership gives Abel formidable protection from shareholder activism for as long as Buffett lives. When he dies, his estate plan calls for a gradual transition: his Class A shares—with their high voting power—will be converted into Class B shares and sold into the market over a ten-year period.
After the paywall I share some additional insight of my own and of some Berkshire investors I polled. I also share some interesting background on Greg Abel. Are you a PwC aspirant or current employee worried about the latest announcement of 1,500 layoffs of audit and tax professionals (gift link) and that:
Those laid off included many who had only recently joined PwC. One person who started in September told the Financial Times they were “devastated”. “Everyone was completely blindsided by the lay-offs today,” the person said. Another person affected said: “Some of us were up for promotion, but instead of a promotion and a pay bump we’re now getting cut off.” The firm was also curtailing campus hiring owing to lower staff turnover, but would stand by offers it had already made to last year’s interns who were scheduled to join later this year, the person said.
Well, rest assured, maybe you can get a job now that leads to becoming the heir apparent of one of the most famous companies ever!
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