Lessons To Build On From Warren Buffett And His Stock-Picking Lieutenants

Since being elevated to their jobs as billion-dollar-plus stock pickers at Berkshire Hathaway, investment managers Ted Weschler and Todd Combs have grown increasingly important to the future of Warren Buffett’s empire.

As the 91-year-old Buffett and his 97-year-old partner, Charlie Munger, advance in years, Weschler and Combs are expected to take over the giant company’s investment portfolio, valued at more than $150 billion in common stocks, according to CNBC’s Berkshire Hathaway Portfolio Tracker.

But the way they were hired and the way their roles have evolved show some key lessons about how wealth and knowledge — and business empires, like $655 billion Berkshire Hathaway — are transferred and built to last.

Here’s what you need to know about the two men who are being passed the torch by arguably the best investor in world history.

Their role was initially described as helping with the company’s investment portfolio, which observers assumed meant plowing profits from Berkshire’s operating companies into stocks of outside companies, as Buffett and Munger have done to great effect for decades. Berkshire has more than $90 billion in cash currently.

But the former hedge fund managers’ responsibilities have proved to be much more than just finding new stock bets for Berkshire.

More than a third of the billions they manage is money from pension funds at Berkshire subsidiaries, a job that was outsourced before. Berkshire has more than 60 operating subsidiaries. They also apparently supervise some operating companies, the core of Berkshire Hathaway’s conglomerate business model. Combs said in an April 2017 interview with Yahoo Finance that both he and Weschler have operating companies reporting up to them.

The two managers will occasionally sound out Buffett about investments, and they all have a regular lunch together on Mondays. But Buffett says that as often as not, he learns about their buys and their sells from monthly position reports.

“They don’t have to check in before they buy or sell anything,” Buffett told Yahoo. “It’s entirely their decision.″

Both are also hedge fund veterans, hired despite the boss’ tweaking of hedge funds over fees, and for a long time. Weschler’s fund reportedly rose 1,236 percent before he closed it over an 11-year period, trouncing Buffett’s 146 percent gain over the same time frame.

Weschler in particular is credited with convincing Buffett to look at industries, notably technology, that he has previously left to other investors. He’s reportedly the godfather of Berkshire’s investment in Apple, which began with a $1 billion purchase disclosed last May at an average price of just under $100 a share. Apple’s up nearly 50 percent since, and Berkshire now owns roughly 2.4 percent of Apple shares at a value of roughly $20 billion.

Over the years, Buffett never liked to dabble in tech himself, and the divergence between the Apple bet and Buffett’s bet on IBM may show the value of new perspectives. Buffett made his IBM mea culpa to CNBC on Thursday, saying he had lowered his valuation of the company and sold one-third of his stake when it hit $180 — but he stills owns a ton.

But even in old-school economy areas where Buffett is a master — consumer stocks and industrials — the new managers brought new ways of thinking. For his part, Combs is credited with convincing Buffett and Munger to buy battery-maker Duracell — and sell long-time stock-holding and Duracell parent Procter & Gamble. He also convinced Berkshire to spend $37.2 billion in 2015 to buy Precision Castparts, a maker of equipment for the aerospace and energy industries.

Buffett’s genius ultimately is about reading more and knowing more than most people, and the protégés are a lot like him, or so they told Yahoo Finance.

Both are data nerds who put in the hours: Combs describes his average day as reading documents from about 7 a.m. to 7 p.m., with more reading at home later.

“These were the only two guys we (meaning himself and Munger) could find who read as much as we did,” Buffett said to Yahoo.

Combs said Buffett’s advice is to read hundreds of pages a week about business.

Weschler was a two-time winner of a charity auction for the right to have lunch with Buffett, spending more than $5 million for the privilege. Combs says he first saw Buffett during an appearance at Columbia Business School, were Combs was a student and Buffett an alumnus.

The $21 billion the two managers run is still a pretty small slice of the $150-billion-plus in outside stock investments. The company’s four biggest stock positions as of Dec. 31 — Wells Fargo, IBM, American Express and Coca-Cola — are all the boss’ picks. But the surging value of Apple — and Berkshire’s decision to rapidly expand its position — place it among Berkshire’s top bets now that Buffett has put capital he runs alongside money first committed by Weschler.

Buffett told CNBC on Thursday that owning Apple is about the long term: “I don’t own [Apple] because of what I think the earnings are going to be in the next three months or six months.”

He also talked about Apple as a “consumer product” play, rather than tech-industry play, showing where the younger minds, more nimble in tech, have built a bridge to Buffett’s large legacy investment in consumer stocks.










SOURCE: CNBC
IMAGE SOURCE: PIXABAY