The Wall Street Journal on Jan. 18 reported that both Todd Combs and Ted Weschler outperformed the S&P 500 and Warren Buffett (Trades, Portfolio) in 2013. The 2013 results mark the second year in a row that the two portfolio managers hired by Berkshire Hathaway’s (NYSE:BRK.A) (NYSE:BRK.B) Warren Buffett (Trades, Portfolio) have exceeded the S&P 500 (which gained 32% including dividends last year) as well as Mr. Buffett. Mr. Combs, who started at Berkshire in 2011 has beaten the S&P 500 three years in a row. Similarly, Mr. Weschler’s returns have exceeded the S&P 500 in each of the two years he has been with Berkshire. In 2012, Mr. Combs and Mr. Weschler each beat the S&P 500 by a double digit margin.
How did Mr. Combs and Mr. Weschler outperform the S&P 500 and Mr. Buffett in 2013? From quarterly Form 13F filings with the Securities and Exchange Commission, Berkshire’s portfolio of U.S. based equities is available through September 30, 2013. The 13F for the quarter ending December 31, 2013 will likely be filed on February 14, 2014. Mr. Buffett has said that the small positions in Berkshire’s portfolio of 43 stocks as of September 30 are very likely investments made by Mr. Combs or Mr. Weschler, while the larger ones are his. For example, since the arrival of Mr. Combs and Mr. Weschler, Mr. Buffett has acknowledged investments in IBM (NYSE:IBM) in 2011 and Exxon Mobil (NYSE:XOM) in 2013 with yearend 2013 market values of $12.6 billion and $4.1 billion, respectively.
By examining Berkshire’s recent 13F filings through September 30, 2013, I have identified 19 stocks that are highly likely to be investments of Mr. Combs and/or Mr. Weschler. These 19 holdings, acquired since the arrival of Messrs. Combs and Weschler, had a combined value of $15.7 billion on December 31, 2013. They represent a small percentage of Berkshire’s U.S. portfolio of more than $100 billion. Since these positions have been relatively stable through the first nine months of 2013, I am assuming they remained the same as of December 31. All 19 investments had positive returns last year, with the highest percentage increases resulting from Starz (+120.2%), Chicago Bridge and Iron (+79.4%), and MasterCard (+70.1%). Their top four positions by yearend market value (and date of initial acquisition) are:
(1) DirecTV (NASDAQ:DTV) - $2.5 billion, +37.7% (Third Quarter 2011)
(2) Phillips 66 (NYSE:PSX) - $2.1 billion, +45.3% (Second Quarter 2012)
(3) DaVita (NYSE:DVA) - $2.0 billion, +14.7%, (Fourth Quarter 2011) and
(4) General Motors (NYSE:GM) - $1.6 billion, +41.8% (First Quarter 2012)
These four stocks represented 53% of the total value of the Combs and Weschler portfolios. The remaining 15 stocks in their portfolios in descending order of yearend market value are:
(5) Bank of New York (NYSE:BK) - $861 million, +36.0% (93% of shares acquired since First Quarter 2012)
(7) Chicago Bridge and Iron (CBI) - $794 million, +79.4% (First Quarter 2013)
(8) National Oilwell Varco (NOV) - $706 million, +16.4% (Second Quarter 2012)
(9) Viacom B (VIAB) - $662 million, +65.6% (Second Quarter 2012)
(10) Verisign (VRSN) - $658 million, +54% (Fourth Quarter 2012)
(11) Suncor (SU) - $631 million, +6.3% (Second Quarter 2013)
(12) Precision CastParts (PCP) - $532 million, +42.2% (Third Quarter 2012)
(13) Wabco (WBC) - $381 million, +43.3% (Third Quarter 2012)
(14) Deere (DE) - $363 million, +5.7% (First Quarter 2013)
(15) Visa (V) - $346 million, +40.9% (Third Quarter 2011)
(16) MasterCard (MA) - $338 million, +70.1% (First Quarter 2011)
(17) Starz (STARZA) - $164 million, + 120.2% (First Quarter 2013)
(18) Verisk (VRSK) $102 million, +28.9% (Second Quarter 2011)
(19) DISH Network (DISH) - $32 million, +59.1% (Second Quarter 2013)
DirecTV, DaVita, and Liberty Media were among Mr. Weschler’s largest holdings in his hedge fund, Peninsula Capital, and MasterCard was one of Mr. Combs’ investments in his hedge fund, Castle Point Capital, prior to their joining Berkshire Hathaway. Mr. Buffett previously mentioned that his portfolio managers had invested in DirecTV and Phillips 66.
(1) Wells Fargo (WFC) - $19.1 billion, +32.8%
(2) Coca-Cola (KO) - $15.2 billion +14.0%
(3) IBM (NYSE:IBM) - $12.6 billion, -2.1%
(4) American Express (AXP) - $11.5 billion, + 57.8%
These four stocks represented a total of $58.4 billion, or more than half of Berkshire’s portfolio at the end of 2013.
The consistent superior performance by Todd Combs and Ted Weschler since their arrival at Berkshire Hathaway in 2011 and 2012, respectively, should reassure shareholders that Berkshire’s investments will be in good hands in the years ahead.
About the author:
Tyser Teaching Fellow, Department of Finance
Ph.D., Harvard University
Robert H. Smith School of Business
4412 Van Munching Hall
University of Maryland
College Park, MD 20742-1815
Email: [email protected]
Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, Maryland Public Television, Business News Network TV (Canada), and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.