Tags: warren buffett | berkshire hathaway | investments | stock pickers

Buffett's Backup Stock Pickers Stumble as GM, Energy Bets Fall

Friday, 19 December 2014 10:28 AM

Warren Buffett’s deputy investment managers are giving their boss less to brag about this year.

At least half a dozen stocks that Ted Weschler and Todd Combs probably picked for Berkshire Hathaway Inc.’s portfolio are poised to end the year lower than where they started. They include energy companies that have slumped with oil prices; automaker General Motors Co., which has struggled with recalls; and Chicago Bridge & Iron Co., an engineering and construction firm that’s down more than 50 percent since Dec. 31.

“It appears, on first glance, that Todd and Ted have underperformed the S&P 500 this year,” said David Kass, a professor at the University of Maryland’s Robert H. Smith School of Business who has studied Berkshire’s portfolio.

Hiring Combs in 2010 and Weschler in 2011 was a cornerstone of Buffett’s succession plan. In his last two annual letters, the 84-year-old Berkshire chairman and chief executive officer highlighted how they outperformed the Standard & Poor’s 500 Index — and even his own picks. They’ll eventually oversee all of the Omaha, Nebraska-based company’s investments, which included almost $120 billion in stocks at the end of September.

Tallying the deputies’ returns from outside the company is more art than science. Berkshire doesn’t say who is responsible for each pick in its quarterly filings to the U.S. Securities and Exchange Commission. Nor does it list when shares were acquired or when they were sold. Buffett didn’t respond to a request for comment left with an assistant.

DaVita, DirecTV

Still, it’s possible to make some inferences based on the his remarks and regulatory filings. The CEO has said the largest holdings are his. He has linked others, including GM and DirecTV, to one or both deputies. And there are a handful of picks, such as MasterCard Inc. and DaVita Healthcare Partners Inc., that Combs or Weschler invested in before joining Berkshire.

Two of their biggest investments — DaVita and DirecTV, which are both valued at more than $2.4 billion — have outperformed the S&P 500’s 8.9 percent rise this year. Visa Inc. and vehicle-part manufacturer Wabco Holdings Inc. have also lifted returns.

The laggards were more numerous, based on disclosures about the portfolio through the end of September. In addition to GM and Chicago Bridge, Viacom Inc. and Liberty Media Corp. have fallen by more than 10 percent this year. The global rout in oil prices erased gains at Suncor Energy Inc. and National Oilwell Varco Inc., the largest U.S. maker of oilfield equipment.

Paulson, Perry

Fund managers including John Paulson and Richard Perry have also struggled to keep pace with the S&P 500 in 2014 as the index heads for its sixth straight year of positive returns. Even Buffett has fallen short on some of Berkshire’s biggest holdings. Coca-Cola Co. is almost flat for the year, and International Business Machines Corp. has sunk 19 percent.

“The volatility in the markets has created some problems for a lot of managers,” said Gregg Warren, an analyst at Morningstar Inc. It’s hard to criticize Weschler and Combs when some of Buffett’s picks “have struggled this year, as well,” he said.

A lackluster 2014 for the investment managers could provide Buffett a chance to focus investors on long-term results in his next annual letter, which is due in February, said David Rolfe, who oversees about $10.5 billion including Berkshire shares at Wedgewood Partners Inc.

The billionaire has amassed one of the best records in investing by holding a small number of stocks for years, and even decades. Combs, 43, and Weschler, 53, have taken a similar approach. They’ve also helped their boss by working on acquisitions.

Both are being compensated on how they do over longer stretches. In 2012, Buffett said they receive bonuses based on the amount they beat the S&P 500 on a three-year rolling basis.

Highlighting returns over a period like that would be a “great opportunity for Buffett to set some expectations,” said Rolfe. “Any 12-month period is immaterial. We don’t want these guys thinking in single calendar years.”

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Warren Buffett's deputy investment managers are giving their boss less to brag about this year.
warren buffett, berkshire hathaway, investments, stock pickers
Friday, 19 December 2014 10:28 AM
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