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With Warren Buffett announcing his succession plans at the annual shareholder meeting, the question top of mind for Berkshire investors is what Greg Abel will do with its almost $350 billion in dry powder. Joining us now, investor Whitney Tilson, who currently serves as the lead analyst for Stansberry Research and is the author of several books including The Art of Playing Defense: How to Get Ahead by Not Falling Behind. He's also currently a candidate in New York City race for mayor. Whitney, great to speak with you. I want to talk about that cash pile. To what extent do you feel like you have any idea how Greg Abel is going to deploy all that cash?

Well, keep in mind, um, Greg Abel isn't the one deploying it at this point. Buffett is staying on as, uh, CEO through the end of this year. That's another eight months. Uh, and then he's still chairman of the board. So I'm a little surprised the stock is down 6% today on this news because Buffett isn't going anywhere. And, uh, probably will be around for another few years. And I think the answer under Buffett and Abel, um, they've been working together for many years is they're not going to do much with it at this point. Uh, they are waiting for attractive opportunities. And, uh, the market's rallied in the past few weeks. And you know, sort of looking like there might be some opportunity. Buffett mentioned a possible $10 billion investment, uh, that he was going to make recently, uh, but somehow that fell through, maybe because the market's rallied.

Yeah, and I just want to get your take on the market reaction here. The stock is, you mentioned down nearly 6%. How should investors think about buying Berkshire stock without necessarily getting access to Warren Buffett long term? I understand what you're saying that the resignation comes at the end of the year and of course he'll still be involved, but what if the market action is signaling to us that investors really wanted to make sure they have that side of Buffett?

Well, I think the main reason for this reaction is is the buff, uh, the stock had gotten a bit ahead of itself. Um, this year, the stock was up as much as 19% when the market was down big. It's still, even with today's pullback, still up, uh, 11, 12%. Market's down three to 4% for the year. So Berkshire's been a fabulous performer. I think perceived as a, you know, a flight to safety with that big cash pile. So that big cash pile has actually, you know, been a tailwind for Berkshire stock this year. Um, but, you know, based on Q1 earnings, I think intrinsic value is roughly flat this year, but Berkshire's, you know, uh, 15 to 20 points ahead of the market this year. And that means it's gone from maybe, you know, 5% undervalued to 10% overvalued. With today's pullback, maybe it's back to, you know, 3 to 5% overvalued. So I think it's, um, a bit of a correction based on valuation. Uh, but that doesn't mean Berkshire's a sell. It means I think it performs in line with the S&P 500 at today's price. And so anyone who's holding it for the long term should keep holding it. Uh, but I don't think, you know, a 6% pullback today makes it a great buy because it started from a point of overvaluation.

And Whitney, my guest host Adam has a question for you.

Whitney, I remember back in 2009, actually March 9th, the day of the low, I got a call from an old options trading client who said, "You know Adam, it could really get ugly." And usually, right? And usually when you get calls like that, that's the bottom. So, you know, we talk about this big stash of cash at Berkshire and small caps went down 32% at the low. That was the drawdown that we saw on the April low. And yet, they're still sitting on it. Um, why sit on that kind of cash and not deploy it with markets down 25 or 30%?

Well, a couple reasons. One, um, things rallied pretty quickly. Um, two, Berkshire can, is so big. It's a trillion one market cap. Um, it's not going to be out there picking around, you know, small to mid-cap stocks. There are only a handful, you know, maybe a hundred or so publicly traded stocks that Berkshire could buy. And Berkshire and Buffett and Abel have long made it clear they want to buy wholly owned businesses. And that involves a negotiation with a very rational and knowledgeable seller. And so I suspect that may have been what happened with the $10 billion deal that fell through. That probably wasn't a stock. It was a wholly owned business. Um, so, you know, it's, uh, it's not as easy as it is when Berkshire was smaller to take advantages, take advantage of quick market dislocations.

So Whitney, if they don't find value to deploy the cash, then why not return the cash to shareholders? Do you think that there's any increased likelihood in Greg Abel potentially starting up a dividend at Berkshire?

Um, yes, I think it is possible. I don't think it's likely at this point. Um, Buffett and everyone at Berkshire is very, very patient. And cash has built up in the past. And markets generally cooperate every so often and provide a lot of opportunities to put money to work like back in 08-09, when Buffett did put a lot of money to work. But there are only two ways they can return, uh, that capital. They were buying back stock fairly aggressively a few years ago, but again, as Berkshire stock has risen to be, I calculated it. It was maybe at a 10 to 20% discount. They were buying it back, but today, here at intrinsic value or even a 10% premium, Buffett hasn't bought back a single share in the last three quarters, I believe. So that leaves dividends. And again, Berkshire could pay a 25% one-time dividend tomorrow and still have a hundred billion of cash left over. So that wouldn't, that's possible, but I don't think it's likely. I don't think you should buy the stock anticipating a big one-time dividend. But it wouldn't surprise me in the next five or 10 years, particularly when Buffett's passed, if Berkshire does some combination, like Costco does where Munger was on the board many years, where there's the occasional big special dividend and then an ongoing dividend as well.

All right. Really great overview there. I do want to end by just getting a sense because I know that you know Warren Buffett personally. You're also one of the contributors to the book about Charlie Munger, the Poor Charlie's Almanac book. And I'm curious as someone who is obviously an investor yourself and an analyst, what are some of the, and what is maybe the single biggest investing framework that Buffett talks about and prophesizes that you personally have utilized in your investments and have found the most success with?

Um, I think it's, I think it's the importance of being patient and being rational and not letting your emotions get involved. Most human beings are hardwired to be very irrational when it comes to financial decisions. And being able to step back and not let market turmoil, not let a bunch of cash piling up affect your long-term investment decision-making.