Wanted: A Young Warren Buffett

Berkshire Hathaway Inc.'s help wanted ad might read: Fortune 500 company seeks brilliant young investor with nerves of steel who can think independently and avoid big mistakes.

Job responsibilities include helping invest the $38.3 billion in cash and $57.9 billion in "float" — money that Berkshire temporarily holds from its insurance businesses, such as Geico.

What's the catch? The successful candidate must be willing to follow legendary investor Warren Buffett.

The "Oracle of Omaha" devoted nearly a page of his annual shareholder letter, which was released Thursday, to an extended version of that ad.

The Omaha-based company also reported a 29.2 percent jump in net income in 2006, as its insurance companies were helped by a lack of hurricanes. Berkshire reported making $11.02 billion in 2006, or $7,144 per share, up from $8.53 billion, or $5,538 per share, in 2005.

Berkshire has decided outside talent will be needed to help replace Buffett when the 76-year-old chairman and chief executive can no longer work.

To replace Buffett, Berkshire plans to split his job into two parts — chief executive officer and chief investment officer. The company's board of directors approved a plan in October to hire one or more candidates for the job of CIO, so Berkshire will be ready.

Buffett said last year that Berkshire's board had three outstanding internal candidates for chief executive, and the board knows "who should take over if I should die tonight." Each of those candidates is significantly younger than the 76-year-old Buffett.

But Buffett said this year that Berkshire is not as well-prepared for a successor on the investment side of the business. He said those who might replace him on the investment side are too close to his own age to do it for very long.

Lou Simpson, 70, who manages Geico's investment portfolio, would "fill in magnificently for a short period," Buffett said.

Morningstar analyst Justin Fuller said shareholders should be glad Buffett is thinking about a successor at the company with total assets of $248.4 billion that Buffett built from a 1956 partnership of four relatives and three close friends.

"I think the fact that he's thinking about it and he's doing something about it should certainly be comforting to investors," Fuller said.

Picking the right person won't be easy, Buffett said, because he or she will need to have the right qualities, and also because Berkshire needs to be able to retain its choice.

"It's not hard, of course, to find smart people, among them individuals who have impressive investment records," Buffett said. "But there is far more to successful longterm investing than brains and performance that has recently been good."

He said the right person must be able to think independently and recognize and avoid serious risks. Emotional stability and a keen understanding of human and institutional behavior are also important.

Despite the talk of succession, Buffett tried to reassure shareholders about his health.

"The good news: At 76, I feel terrific and, according to all measurable indicators, am in excellent health," Buffett said. "It's amazing what Cherry Coke and hamburgers will do for a fellow."

Buffett had good news to report about Berkshire's performance in 2006, and last year looks good when compared with the company's hurricane-ravaged 2005 balance sheet.

Berkshire has said that it lost about $3.4 billion to hurricanes Katrina, Rita and Wilma during 2005. And last year Buffett said that Berkshire's insurance companies would charge more for megacatastrophe policies after the hurricane losses.

"Our most important business, insurance, benefited from a large dose of luck: Mother Nature, bless her heart, went on vacation," Buffett said in his annual letter to shareholders. "After hammering us with hurricanes in 2004 and 2005 — storms that caused us to lose a bundle on super-cat insurance — she just vanished. Last year, the red ink from this activity turned black, very black."

During the fourth quarter, which ended Dec. 31, Berkshire made $3.58 billion, or $2,323 per share. That is down 30.2 percent from the year-ago period when Berkshire made $5.13 billion, or $3,330 per share.

Berkshire's fourth-quarter 2005 results were helped by a one-time $3.25 billion after-tax gain when its Gillette Co. stock was exchanged for Proctor & Gamble Co. stock.

The three analysts surveyed by Thomson Financial expected fourth-quarter earnings per share of $1,452.36 on average and annual earnings per share of $5,667.03 on average.

Berkshire's Class A shares are the most expensive U.S. stock, and they have traded above $100,000 a share since last fall. The stock gained $410 Thursday to close at $106,600 before Berkshire's earnings report was released

Buffett said Berkshire gained $16.9 billion in net worth during 2006, which represents an 18.4 percent jump in the per-share book value of the company. That's better than the S&P 500's 15.8 percent increase in value during 2006.

In his letter, Buffett also revealed two new international investments Berkshire made in 2006.

Berkshire bought 229.7 million shares, or 2.9 percent, of Tesco PLC, Britain's largest supermarket chain. Berkshire spent $1.34 billion on the investment, which Buffett estimates was worth $1.82 billion at the end of the year.

Tesco, one of the world's largest retailers, plans to expand into the American grocery market this year with stores in California, Nevada and Arizona.

Berkshire also bought 3.49 million shares, or 4 percent, of South Korea-based Posco, which is the world's third-largest steelmaker. Berkshire spent $572 million on the Posco shares, which were worth $1.16 billion at the end of 2006.

Berkshire owns more than 60 companies, including insurance, clothing, furniture, jewelry and candy companies, restaurants, natural gas and corporate jet firms and has major investments in such companies as Coca-Cola Co., Anheuser-Busch Cos. and Wells Fargo & Co.

In the shareholder letter, Buffett, the world's second-richest man, also outlined an expedited schedule to give away most of his fortune of $48.4 billion.

Most of Buffett's Berkshire Hathaway shares will go to five charitable foundations over time, but he plans to eventually give all of his shares away.

Buffett said that he stipulated in his will that the proceeds from all Berkshire shares he owns at death must be used for "philanthropic purposes within 10 years after my estate is closed." He estimated his estate should be settled within three years of his death.

Buffett has earmarked ten million B shares for the Bill & Melinda Gates Foundation, 1 million B shares for the Susan Thompson Buffett Foundation, named in honor of his wife, and 350,000 shares for each of the three foundations run by each of his children.