What’s the most powerful thing you can do to establish yourself when you’re the new CEO of a company? Not just any company, a trillion-dollar company that has existed for 187 years. The CEO you’re replacing is so beloved, his nickname is “the Oracle of Omaha.” And everyone, including the news media and the company’s shareholders, is watching you closely for any sign of failure. They’re all certain you can’t possibly live up to the genius of Warren Buffett.
There’s one very strong move you can make in that situation. Prove your own confidence by making very public bet on yourself. It’s gutsy. But it can be a very smart move if you’re facing skepticism in a new leadership position.
Berkshire Hathaway CEO Greg Abel just did that. Abel took over from Buffett in January, although Buffett said Abel had been making some of Berkshire’s investment decisions for years. Abel started his tenure as CEO with lots of money to spend, about $380 billion in cash and short-term Treasuries.
Buffett accumulated these funds over the past few years. He likens investing to being a batter at home plate who can wait out an unlimited number of pitches until the perfect one comes along. He famously doesn’t buy equities when he thinks the market is overpriced. So he finished out his role as Berkshire CEO by selling some shares, but not buying much.
Berkshire’s Q2 filing contains surprises.
The world just learned that in the past three months, Abel has charted a different course. A Q2 filing last week revealed that Abel spent a big chunk of the cash Buffett piled up. He added $10 billion to Berkshire’s stake in Alphabet, Google’s parent company. He acquired Taylor Morrison Home for $6.8 billion, although that deal closed in Q3 and was not part of this filing. Most significantly, he spent $4.5 billion to repurchase Berkshire Hathaway’s own shares.
That is one very powerful move. Abel made a simple one-time announcement shortly after he became CEO to notify the public that Berkshire would soon resume repurchasing shares. Beyond that, Abel hasn’t spoken publicly about any of his recent spending. But the company’s quarterly filing contains this passage in three different places: Berkshire’s common stock repurchase program currently permits Berkshire to repurchase shares any time that Berkshire’s Chief Executive Officer, after consultation with the Chairman of the Board [i.e. Buffett], believes that the repurchase price is below Berkshire’s intrinsic value, conservatively determined.
Berkshire’s share price reaches all-time high.
That’s a pretty bold statement to make even once, let alone three times. Berkshire’s Class B shares reached their all-time high at market close of just under $540 during those three months. And although they’ve come down off that peak a bit, they are up more than 4 percent in the past quarter. Yet Abel, with Buffett’s backing, is telling the world that Berkshire is worth even more than its current market value.
The company has never shared details about how it makes these calculations. It only reveals what it’s bought and sold when legally required to do so. Back in March, CNBC reporters asked Abel why he thought Berkshire shares were undervalued. He would only say it was based on the economic prospects of the companies Berkshire owns some or all of.
Most of those companies are doing well, the filing revealed. So that logic makes a lot of sense. But by buying back huge chunks of Berkshire stock, Abel is also saying something else. He’s saying that the company will continue to grow its profits and its value, because he knows how to make that happen.
If you don’t like it, we’ll buy it back.
It’s a silly comparison, but it reminds me of when I bought a garden hose a few weeks ago. The hose I was replacing was lightweight but proved to be flimsy. At my local hardware store, as I stood staring at a huge range of options, the clerk pointed to one and said it was the best. I hesitated, though. For one thing, it was pretty pricey for a hose. Worse, it was a blinding shade of chartreuse.
But then the clerk told me that Sharon, who runs the garden department and whose judgment I’ve come to trust, recommends that hose to all her customers. “I’ve heard her say that if they don’t like it, she will personally buy it back,” he added. That was good enough for me and I bought the hose.
We trust those who risk their own funds.
When people express confidence in their own abilities by putting their own money on the line–which Abel is also doing by taking his salary in stock–we tend to trust them. We believe they’re right. And that’s exactly what’s happening for Abel. Several analysts have switched their recommendation from “hold” to “buy” for Berkshire. And while you might have expected the share price to drop after Buffett stepped down, it’s up for the year so far.
Next time you’re facing a skeptical crowd, follow Abel’s example and put your own skin in the game. Your willingness to take that risk will show people that you’re confident and certain about the future. Do it right, and they’ll feel that way too.
There’s a growing audience of Inc.com readers who receive a daily text from me with a self-care or motivational micro-challenge or tip. Often, they text me back and we wind up in a conversation. (Want to know more? Here’s some information about the texts and a special invitation to a two-month free trial.) Most are entrepreneurs or business leaders who know how important it is to gain the confidence of those they lead, and of the marketplace. Putting your own money in the game is an effective way to make that happen.
—Minda Zetlin
This article originally appeared on Fast Company’s sister website, Inc.com.
Inc. is the voice of the American entrepreneur. We inspire, inform, and document the most fascinating people in business: the risk-takers, the innovators, and the ultra-driven go-getters that represent the most dynamic force in the American economy.
