 Good day fellow investor. Last week I released a video that explained how I think that Berkshire Headway is a better long-term buy-and-forget investment than the SAP 500. The video was pretty popular and there were many comments and I found one recurring theme among all the comments and that was fear about what will happen to Berkshire after Buffett. Of course, nobody knows what will happen after Buffett, so this is an uncertainty and investors hate uncertainties. Be it of any kind positive negative, if it's an uncertainty, investors hate it and are a bit wary about investing. I looked a bit around online and I haven't found a concise analysis about what will happen to Berkshire when Buffett leaves. To keep our karma positive, I'm not gonna talk about Buffett dying, I'm going to talk about Buffett moving to another job. Let's imagine that Bill Gates offered him the chief executive position on the project where he will have to develop the new virtual reality bridge game for senior US citizens. That's a job I think Buffett would love and might leave Berkshire for such a position. I think we all wish many decades of a healthy life to Warren Buffett. I'll do a concise analysis about what will happen. First we'll look at the businesses Berkshire owns, what's the current impact Buffett has on those businesses by comparing Berkshire's business margins with the competition. I look a bit at the ownership of Berkshire, what can change and whether Berkshire will pay a dividend in the future or everything will stay as is. So let's start with Berlington, Berkshire's railway business. If we take a look at Berlington's revenue and compare it to Union Pacific we can see that over the last eight years since Berkshire took over the company there isn't any significant difference. They almost match. This means that Buffett's impact didn't make miracles on Berlington. We can also check the CapEx spend also similar Berlington and Union Pacific. So the cash spending investment is similar. So Buffett's contribution to current operations are minimal. His main contribution to Berkshire was that he was ready to buy Berlington in 2010 when the stock price and other valuations were cheap in comparison to its long-term value in relation to the US economy. Thus Buffett's impact on business operations is minimal. His added value to Berkshire is as a capital allocator. This is the first important thing to understand. Apart from railways, the second largest part of Berkshire's earnings comes from utilities. So to see whether there is some kind of Buffett's direct guru magic touch on earnings, the best way is to compare Berkshire Hathaway's energy earnings with those other similar operators. A look at revenues will show us that net after-tax margins for Berkshire energy have been 10.6% in 2014, 11.6% in 2015 and 12.8% in 2016. A quick look at random competitors shows that Consolidated Edison had a net margin of 10.8% in 2016. DTE Energy had a net margin of 9%. Duke Energy had a net profit margin of 9.4%. So Berkshire Energy has a higher margin, but that is just due to the fact that Berkshire Energy does not pay out dividend, they reinvest the cash, thus have much lower interest costs than competitors. As you can see in this table retained earnings are 100% at Berkshire Hathaway Energy. All other competitors pay out more than 50% of their earnings, thus their debt levels is also higher. Of the previously mentioned Edison, DTE Energy, Duke Energy, 70% of their assets is financed by debt and just 32% of Berkshire Hathaway Energy is financed by debt. That's a huge difference. So the strength in Berkshire's utility business is the same as with the whole of Berkshire. They keep the cash, reinvest as we have seen net margins are 12% on capital, so very good reinvestment returns and thus it's just about capital and location. Going on to the insurance business Buffett always is very complimentary when we talk about Ajit Jain, the head of Berkshire reinsurance. And Buffett says that he has probably made more money for Berkshire Hathaway than Buffett himself. So with insurance also everything is set in place, Berkshire has huge capital that allows it to do deals that other reinsurance can't. Thus the power of Berkshire is not so much related to Buffett but to the capital and AAA ratings it has. On top of the previously discussed there are many many subsidiaries at Berkshire, stocks, stock positions and it's simply impossible for Buffett to have an impact on those companies. All these companies are good, wonderful businesses as Buffett would call them and they operate as a single unit, thus not affected by Buffett. So all the companies under Berkshire's umbrella have been working pretty well before they got owned by Berkshire, are currently operating well and will probably do so in the future. So the only issue related to Berkshire is future capital and location. And that's not so difficult to do because Berkshire Hathaway has clear criteria that a person that will succeed Buffett has to follow. So Berkshire is interested in large purchases, at least 75 million of pre-tax earnings, consistent earning power, so they need stable long-term businesses, good returns on equity with little or no depth, management in place, this is the main focus, good management that knows what's in doing and is coherent to Berkshire's policies. A simple business and an offering price that is a good price for Berkshire to pay. And the offering price is something that makes the job for Buffett's successor even easier. Buffett has achieved returns of 20%, but due to Berkshire's size, even Buffett and Munger have been saying how their target returns are not 20% now, but 10%. If you look at the latest acquisition, store capital, the adjusted funds yield is about 8% on Buffett's purchase with the expected growth of 5%, the long-term return on that investment will be around 10%. So the successor doesn't need to do 20%. Everybody will be happy with 10%. The difference is huge and much easier to achieve. So the test for new management isn't as difficult as it has been for Buffett in the previous 53 years. Thus, since present management took over. What's also very important to see is who will make the decisions after Buffett, that therefore we have to look at ownership and at whether Berkshire will pay dividends and do more buybacks in the future. So let's start with Berkshire's stock. There are two classes of shares. One Berkshire, A stock equals 1500 Berkshire, B stocks. However, the only difference is in the voting power. You need 10,000 Berkshire, B stocks to get one Berkshire, A vote. This structure allows Buffett to have 32% of voting rights, even if he owns just 18% of the company. Buffett's successors will have 42% of votes and they need just 18% of voting rights to reach 50%. So to control the company. So it's very unlikely that there will be any significant changes in Berkshire because I think 50% of the voting rights are owned by people who want to see shareholder creation by reinvestment and the growth of Berkshire. However, just for the sake of this video, let's imagine that Berkshire pays a dividend and spends its money on buybacks. So the average SAP 500 company distributes about 100% of earnings to shareholders and it's therefore valued at a price earnings ratio of around 25 alongside the dividend yield of 2%. So Berkshire's net trailing income is 22 billion with the 1.6 million shares outstanding adjusted for A and B. The market capitalization is 422 billion. So Berkshire would need just 8.4 billion to pay out a dividend equal to the SAP 500. Just the cash on Berkshire's balance sheet would be enough for 11 years of dividends. In addition, if Berkshire would spend the remaining available earnings on buybacks, it would have 14.1 billion to do so. So it could buy 3.3% of the company. So we have 11 years of dividends already there plus another 2% dividend coming from earnings and the possibility that Berkshire buys back 3.3% of its own stock per year thus lowers the amount of stock available for 33% in the next 10 years. If the company's management would decide to do so, Berkshire's stock price would go to the moon because the buybacks, dividends and cash amounts plus the potential debt like Apple is doing to pay dividends would simply make Berkshire a cash cow for shareholders. Thus, the share price would probably go much higher than current levels. So the conclusion is pretty simple. Yes, there is uncertainty about Berkshire Hathaway's future and future management, but the uncertainty is divided on two positives. Either Berkshire continues as is, thus creating shareholder value over the long term by reinvesting earnings or Berkshire decides to stop being Berkshire and pay out huge dividends and do huge buybacks. Both scenarios would reward current shareholders. This one for the long term and in this case the stock price would shoot up and long term shareholders could get out at a premium. So I will finish by quoting Buffett. His karma is a bit negative on this, but he's perhaps more realistic. If I die tonight, I think the stock would go up tomorrow. This is what he said after the last shareholder meeting. Just a quick note, other comments have been worried about what will happen to Berkshire if an autonomous driving takes over in GEICO's policies and insurance business. A look at what's going on in Berkshire Insurance will show you that the just 21% of Berkshire's insurance profits comes from GEICO or just 2% of total Berkshire profits and GEICO is just 18% of the float. Thus also there are no worries about the impact of autonomous driving on Berkshire's insurance business. I know this will create an extreme debate, so I'm looking forward to your comments. I'm learning a lot from your comments, so please leave them below and I'll see you in the next video.