Warren Buffett (Trades, Portfolio) is slowly winding down his management of Berkshire Hathaway (BRK.A)(BRK.B)’s investment operations. Even though he is still undoubtedly the leading of the group, his two investing lieutenants Todd Combs and Ted Weschler have gained more independence in recent years.
Buffett appointed Todd Combs in 2010 and Ted Weschler in 2011 to begin to take over the critical investment operations of Berkshire. Initially, their mandates were limited to $2 billion each, but Buffett has since expanded the total to $10 billion.
The CEO and chairman of Berkshire Hathaway isn’t getting any younger, and in the years ahead, it’s likely that Combs and Weschler will take on a more prominent role, both privately and publicly at Berkshire.
So far, interviews given by these two managers have been limited but they have spoken in the past on their investment process. I thought it would be interesting to gather some of this insight from two of Buffett’s most trusted employees.
The first interview was with Yahoo Finance, and it gives some insight into the lives of these managers. When asked to describe their days Weschler said:
“I’ve always been kind of a one man band, analytically. I spend the vast majority of my day reading. I try to make about half of that reading random. Things like newspapers and trade periodicals.”
And Combs replied:
“I get in around 7 or 8, and I read until about 7 or 8 at night... And I go home, and see my family, and then I’ll read for another hour or two in bed at night. And you know, there might only be three to four phone calls the entire week. So there are very, very few interruptions. I have a great assistant who knows everything that I read, and she kinda provides everything, and there’s a back and forth between us where I’ll mark it up, and give it back to her. And we have a system for filing and so forth. But it’s literally just reading about 12 hours a day of everything I just mentioned.”
Another interview, this time with just Ted Weschler, published on Business Insider, gives more insight into Weschler’s investment process and daily activities (hint: he reads a lot):
BI: As you have been a very successful investor for years: Is there a recipe to it?
TW: There is one, but I am not telling you [laughing]. Investing is kind of a game of connecting the dots. The nice thing about it is the longer you are in the business, as long as you are intellectually curious, your collection of data points of dots gets bigger and bigger. That is where someone like Warren is just incredible. He has had a passion for investing for well over 70 years. He started by the age of 10 or 12. He keeps building that library of data, the ability to recognize patterns in data. Being a successful investor you need to be hungry, intellectually curious, interested, read all the time. Read a lot of newspapers. You need a certain level of randomness in order to connect things that might give you an insight into where a business is going in five years that somebody else might not see.
When it comes to wholly owned businesses among other factors it is about pricing power. You have something that is so attractive to the consumer that they pay a premium to walk into your store and do something. There is a number of attributes like that. But you can never just point to one thing. It is a mosaic of all sort of different things. If then you read the book of a business you can pretty quickly find out if that is a good business or not.
Interestingly, the interviewer then asks Weschler for some investment advice based on his years of experience:
BI: If I had 5000 euros, where should I invest?
TW: In a perfect world you could buy a good business with long term prospects at that price. I am a big fan of investing in what people do from day to day. But there are only little enterprises for that amount of money. With interest rates being historically low right now I would not want to invest in bonds. Also a bond is a contract and you can’t do anything with that. The appeal businesses is that they have the ability to change and frequently do just fine because of this. To be more specific. If I was living in Europe I would probably put that 5000 Euro in a European based index fund to keep transaction costs very low and then I forget about it for a long time.
Weschler is mirroring Buffett’s advice for beginning investors to buy a simple index fund rather than try to beat the market.
And finally, here’s a snippet from German financial publication, Manager Magazine, in which Weschler describes why he believes Apple is such a good investment. It’s this logic that presumably convinced Buffett to devote a sizable portfolio of Berkshire’s portfolio to owning the tech giant.
In the first detailed explanation of Berkshire’s investment thesis for Apple, Weschler says that the smartphone business had been transformed by the app economy and cloud computing. "As network speed has gotten faster and faster, and with it the information that people can absorb on the network, things like photo applications, and apps, they create a stickier ecosystem". Statistics showed that there was a high likelihood iPhone or iPad buyers would also purchase their next device from Apple, he added: "Once you are fully invested in the App ecosystem and you have got your thousands of photographs up in the cloud and you are used to the keystrokes and functionality and where everything is, you become a sticky consumer."
Disclosure: The author owns no stock mentioned.