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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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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/
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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.
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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.
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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 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
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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
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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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