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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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MARCH 24, 2015

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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/



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.



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.



at Berkshire is spread among just seven stocks.

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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 before

they joined Berkshire. Weschlers former hedge fund, for instance, owned shares of DaVita. So

when DaVita popped up in Berkshires portfolio, we inferred that it was a Weschler pick.

Next we talked to some longtime Buffett watchers, some of whom have known Combs and

Weschler since before they joined Berkshire. Once we had our best guesses, we went back and

double-checked our work with the investment pros. There were some close calls. Lee Enterprise,

for instance, owns newspapers, as well as other local publications. Buffett has said that he is

interested in buying up smaller newspapers. But others argued the Lee investment is Weschlers

and we included it in his group.

To calculate returns, we used the average price of the stocks that Combs and Weschler were

buying in the quarter. That approach may artificially depress our calculation of the mens returns

since its entirely possible that skilled traders bought at prices below the average. We did not

include dividends in calculating their returns or those of the S&P 500 because Combs and

Weschler do not appear to be reinvesting their dividends. Berkshire has yet to file its holdings for

the third quarter, so we were able to calculate performance only through the middle of the year.

Combs and Weschler have made some very good investments at Berkshire. Both seem to have a

knack for catching stocks near their lows. Weschler bought shares of Canadian oil company Suncor

in mid-2013 for around $30 a share; the stock now trades for $36. Shares of credit card company



in mid-2013 for around $30 a share; the stock now trades for $36. Shares of credit card company

MasterCard have been a big winner for Combs. The shares, then worth $25, were his first

investment at Berkshire. Today they trade for $74.

Click to enlarge. Graphic by Nicolas Rapp

Of course, Combs and Weschler have endured a few bumps. Recently Combs has struggled. Shares

of Chicago Bridge & Iron, which was an $800 million position in his portfolio coming into the year,

have tumbled 30% because of weak construction activity. Overall, Combs portfolio inched down

https://fortunedotcom.files.wordpress.com/2014/10/inv_chart_web.jpg?quality=80



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have tumbled 30% because of weak construction activity. Overall, Combs portfolio inched down

an estimated 1% in the first half of the year while the S&P increased by 7%. Combs bought shares

of Intel in late 2011 for just over $21. He sold his remaining stake nine months later for under $20

a share.

And shares of General Motorsone of Weschlers biggest holdingshave fallen 21% this year in

the wake of the scandal surrounding the companys faulty ignition switches. Weschler acquired the

shares at about $22, sold some at $36, and is still holding the rest at $32. Other investors might

rue not selling more when the stock was above $40 before the recall scandal ignited, but Weschler

is a believer: He added $100 million worth of shares in the second quarter.

Its decades too early to discern whether Combs and Weschler will ever be able to live up to

Buffetts legacy, and, in fairness, thats far too high a standard. Its hard to follow a legend. Still,

every now and then a Joe DiMaggio is succeeded by a Mickey Mantle.

This story is from the October 27, 2014 issue of Fortune.

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TECH KLEINER PERKINS

Closing arguments inKleiner Perkins sexism

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trial: Two wildly differentviewsby Kia Kokalitcheva @imkialikethecar MARCH 24, 2015, 8:57 PM EDT

Ellen Pao

Photograph by Eric Risberg AP

Attorneys for both sides of the case, filed by Ellen Paoagainst her former venture capital employer, had their

chance to sway the jury one last time.

Attorneys in the sexism case against venture capital firm Kleiner Perkins painted vastly different

pictures of the prestigious investment partnership in their closing arguments Tuesday.

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Paos lawyer portrayed his client as victim of sexist partners, retaliation and a web of lies.

Kleiner Perkins discriminated against Ellen Pao because shes a woman, Alan Exelrod, Paos

attorney, told the jury. Kleiner Perkins, however powerful or successful it may be, cannot be

above the law.

Lynne Hermle, Kleiner Perkins attorney, responded with an impassioned defense of the firm,

saying that it gave Pao more opportunities than others in similar positions at the firm. Moreover,

the attorney accused Pao of inventing all the slights against her as a way to make money.

Ellen Paos version of these events turned up when, and only when she hired Brendan Dolan, her

lawyer, and she wrote her complaint, Hermle said.

The start of closing arguments, following four weeks of testimony, gave both sides a last chance to

make their case in the high-profile trial in San Francisco Superior Court. The closing arguments

are expected to end Wednesday, at which point it will be up to the six man, six woman jury to

reach a verdict.

The case has cast a harsh light on the inner workings of Kleiner Perkins, an early investor in

companies like Google and Genentech. Emails, performance reviews and testimony have shown a

firm filled with bickering, egos and disorganization. The trial has also focused attention on the

wildly skewed demographics in the venture capital industry. Although venture capitalists espouse

innovation, their ranks include few women as if they are a relic of 19th century.

During his three hours of closing arguments, Exelrod, Paos attorney accused Kleiner Perkins of

turning a blind eye to mistreatment of women and denied Pao the promotions she deserved. He

started his presentation with a tinge of reticence, but then eventually found a more confident

rhythm. Exelrod described Paos qualifications and operating experience that he said exceeded

that of male partners who were hired around the same time. He also described her

accomplishments at the firm, year by year, and what he called her sharp investment instincts

including early meetings with Twitter, which Kleiner Perkins initially passed on but invested in a

few years later.

Although Paos claims of discrimination are against Kleiner as a whole, Exelrod singled out senior



Although Paos claims of discrimination are against Kleiner as a whole, Exelrod singled out senior

partners Matt Murphy and Ted Schlein in particular for helping to push Pao from the firm.

He wanted her gone because of her gender, Exelrod said in reference to Schleins testimony

earlier in the trial in which he said she was unable to see the grey areas inherent in venture capital.

In a moment of revelation, we heard what Mr. Schlein really thought. Ted Schlein said it was

Ellen Paos genetic makeup that prevented her from being a good venture capitalist.

Exelrod also accused Schlein of fabricating fraudulent performance reviews about Pao to derail

her Paos career at Kleiner. The attorney compared summaries of comments left by partners

about Pao with those of male partners. Both focused on personality traits and whether they

aligned with the firms expectations for successful investors. But when it came to promotions, only

Pao and a fellow female partner seemed to be penalized for negative feedback.

Are there different standards for men and women? Exelrod said. The comments are similar, the

result is different.

Exelrod also called out the testimony of Stephen Hirshfeld, the workplace investigator Kleiner

hired in early 2012 following a harassment complaint from a second female partner, Trae Vassallo,

and whose investigation Pao has called biased. Exelrod warned the jurors against taking

Hirschfelds conclusions too seriously as they were presented with far more evidence during this

trial than he had.

Hes there to defend companies. Hes not there to represent employees, Exelrod said.

Kleiner Perkins attorney rebutted Paos allegations. Speaking in a loud, steady, and confident

voice, Hermle reminded the jury that while Pao testified that she wanted to change Kleiners

culture and help other women at the firm, no other female partner, include the several who

testified during the trial, joined her in this lawsuit. And that was because Kleiner did not in fact

mistreat women, Hermle said.

All of the emphasis about other women, the finger-pointing, was designed to distract you from

one thing only: The clear lack of evidence supporting the claims of Ellen Pao, she said.

Hermle also countered the argument that Ellens weaknesses were held against her while male

partners with similar challenges were promoted. She showed the jury several slides that compared



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partners with similar challenges were promoted. She showed the jury several slides that compared

and contrasted Paos attributes and skills with other junior partners, concluding that she was

simply less qualified than them and unwilling to improve.

Unlike these men and women, Ellen Pao would not accept that outcome whether because of her

success from 10 years in academia, she rejected criticism of her not being promoted, Hemle said.

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