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  • 3/25/2015 Buffett's stock pickers are beating the market - Fortune

    http://fortune.com/2014/10/14/buffett-proteges-ted-weschler-todd-combs/ 1/11

    FINANCE INVESTING

    Buffett's stock pickers arebeating the marketby Stephen Gandel @stephengandel OCTOBER 14, 2014, 5:00 AM EDT

    Ted Weschler (left) and Todd Combs (right)

    Photos by Daniel Acker/Bloomberg via Getty Images

    Berkshires Ted Weschler and Todd Combs are delivering,

    according to Fortunes analysis.

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  • 3/25/2015 Buffett's stock pickers are beating the market - Fortune

    http://fortune.com/2014/10/14/buffett-proteges-ted-weschler-todd-combs/ 2/11

    A year ago Ted Weschler, one half of the duo likely to someday take over the massive Berkshire

    Hathaway stock portfolio and the even more titanic investing legacy of Warren Buffett, was in a

    footrace with the S&P 500. Weschler was leading by a nose with a 20% gain, vs. 18% for the S&P,

    in the first nine months of 2013, according to estimates compiled by Fortune.

    Then, in November, one of Weschlers largest holdings, satellite television provider DirecTV,

    announced it had signed up an additional 139,000 subscribers. Another Weschler choice, dialysis-

    center operator DaVita Health, reported better-than-expected earnings. Both stocks shot up. By

    the end of the year, Weschlers portfolio had risen another 11%.

    Interactive: How Berkshires Combs and Weschler are beating the market

    In his annual letter to shareholders in April, Buffett revealed that both Weschler and his partner

    Todd Combs once again handily beat the market. They have made Berkshire billions already

    that we wouldnt have otherwise made, the Oracle of Omaha told CNBC that month. They both

    have a fundamental combination of soundness and brilliance.

    What will happen to Berkshire after Buffett, 84, is perhaps the most closely watched succession

    story in corporate American history. If investors are nervous, they arent showing it. This summer

    the price of Berkshires A shares floated above $200,000. The conglomerate, which owns dozens

    of companies, ranging from insurer Geico to railway Burlington Northern Santa Fe to ice cream

    chain Dairy Queen, has a market cap of $331 billion. The question is whether Berkshire will be able

    to continue its stellar success after Buffett.

    http://fortune.com/2014/10/16/berkshire-hathaway-investments/

  • 3/25/2015 Buffett's stock pickers are beating the market - Fortune

    http://fortune.com/2014/10/14/buffett-proteges-ted-weschler-todd-combs/ 3/11

    to continue its stellar success after Buffett.

    How Combs and Weschler do will comprise a large part of the answer. As of the middle of this year,

    the two managed a total of just over $14 billion (their allocation has been increasing) of Berkshires

    $115 billion stock portfolio. This month marks four years since Buffett hired Combs. Weschler

    joined the company a little less than a year later. A third, yet-to-be-named person will run

    Berkshires operating businesses, which have become a much larger proportion of the companys

    assets in the past decade. (Buffett says the person has been picked.) None of the plans are final,

    and Buffett says he has no intention to retire anytime soon.

    Berkshires CEO has offered few details on the performance of his handpicked successors. The

    company is required to reveal its holdings once a quarter, but it has no obligation to explain which

    manager chose a particular stock or at what price. As a result, just how well the duo have done has

    remained a mystery.

    They have made Berkshire billionsalready that we wouldnt have

    otherwise made.Warren Buffett

    Fortune set out to solve that mystery. We scrutinized public fillings, sounded out investing pros

    who know Buffett, Combs, and Weschler, and made some educated guesses. (More on our

    methodology later.) We ended up with what are most likely the current portfolios of Combs and

    Weschler, as well as a list of all the shares they have bought and sold for Berkshire in the past four

    years, and at roughly what price. The returns calculated from those portfolios largely jibe with

    what Buffett has said about Combs and Weschler, and got the thumbs-up from the close Berkshire

    watchers we showed them to.

    Combs and Weschler declined to comment. Buffett says Weschlers performance exceeds

    Fortunes estimates of his results, but he declined to comment further.

    So how have the Oracles disciples done? Quite impressively, according to our estimates. Both

    have outpaced the S&P 500 in their time at Berkshire (their compensation is determined by how

    much they beat that index over three years). Combs has done the better of the two, generating a

    cumulative return of 116% over the past nearly four yearsmore than double the S&Ps 55% over

    the same period. Weschlers portfolio is up 81%, but hes had only three years to prove himself.

  • 3/25/2015 Buffett's stock pickers are beating the market - Fortune

    http://fortune.com/2014/10/14/buffett-proteges-ted-weschler-todd-combs/ 4/11

    the same period. Weschlers portfolio is up 81%, but hes had only three years to prove himself.

    Combs picks increased an incredible 51% last year alone. And Weschler is well ahead of the

    market this year.

    Combs tends to get in and out ofstocks much faster than Buffett.

    Weschler prefers to buy and hold afew stocks for a long time.

    Combs and Weschler took unlikely paths to Berkshire. Combs was 39 and ran a fund, Castle Point

    Advisors, which managed just $400 million, when he was hired by Buffett. Weschler, the founder

    of a successful hedge fund, Peninsula Capital, wasnt on Buffetts radar until he won a lunch with

    Buffett, for which he paid $2.6 million in a charity auction. Buffett has been critical of hedge funds,

    but the two hit it off. At the next years lunch (Weschler paid another $2.6 million), Buffett

    recruited him.

    A look at the stocks Combs and Weschler have picked since joining Berkshire shows that their

    investing philosophies have a lot in common with Buffetts (no surprise there). Both Combs and

    Weschler have bought into cable-TV providers, including DirecTV, Dish, and most recently

    Charter Communications, which generate a lot of cash flow and have a so-called business moat

    its hard to get into the business of providing cable television. Those are two traits that Buffett has

    said he seeks. And just as Buffett loves iconic American brands like Coke and, more recently,

    Heinz, Combs has purchased shares of tractor company Deere. Buffett is a longtime holder of

    American Express shares; Combs has opted for Visa and MasterCard.

    In other ways the protgs strategies diverge from Buffetts. A good example: Liberty Media and

    its CEO, John Malone. Both Combs and Weschler have bought shares of various Malone entities,

    which tend to have complicated corporate structures. Buffett has tended to be wary of the sort of

    complexity that, in his view, makes it hard to grasp the workings of a business.

    Combs and Weschler run their portfolios autonomously, though for compliance reasons they do

    have to inform Buffett of their selections in advance. Combs tends to get in and out of stocks much

    faster than Buffett. For instance, Combs prescribed himself $200 million worth of shares in

    drugstore chain CVS in late 2011, only to dispense with the stake at an estimated 28% profit a

    year later. Weschler prefers to buy and hold a few stocks for a long time. His $7.5 billion portfolio

    at Berkshire is spread among just seven stocks.

  • 3/25/2015 Buffett's stock pickers are beating the market - Fortune

    http://fortune.com/2014/10/14/buffett-proteges-ted-weschler-todd-combs/ 5/11

    at Berkshire is spread among just seven stocks.

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    The requested URL /interactives/buffet-portfolio/ was not found on this server.

    To crunch their performance numbers, Fortune enlisted the help of hedge fund tracker Insider

    Monkey for a list, based on public filings, of all the shares that Berkshire has bought and sold over

    the past four years. Fortune also examined holdings at the funds Combs and Weschler ran bef