A few days ago I wrote Investment Advice From Berkshire's Todd Combs and Ted Weschler. Following this piece, I thought it would be interesting to look for some more advice and guidance from these two investment managers who will, one day, take over the management of Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial)’s equity portfolio from the Oracle of Omaha,Â Warren Buffett (Trades, Portfolio).
As I covered in my previous article, 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.
Todd Combs on working for Buffett
Florida State University alumnus, Todd Combs recently spoke with the FSU magazine about his time at Berkshire.
It seems as if working around Buffett is a constant lesson in worldly, and investing wisdom, which creates the perfect environment for nurturing an investment idea. As Combs describes when asked, “What’s the best part of your weekly lunches with Buffett?”
“Warren loves teaching, and his ability to weave wisdom into storytelling and combine it with lessons from business history is really special. Warren credits his longtime business partner Charlie Munger (Trades, Portfolio) with the best 30-second mind, but Warren’s ability to simplify the most complex issue is also unparalleled. Einstein lists the order of intelligence as “smart, intelligent, brilliant, genius, simple.” Warren’s mind is just frictionless in its ability to simplify issues to the core.”
A common theme that runs through both the answers to these questions, and the previous interview I covered, is that Combs, Weschler, Buffett and Munger all seem to spend hours sitting around talking about the best ideas and thinking about future opportunities. Berkshire Hathaway’s offices seem to have more in common with a library than investment managers’ offices.
The distraction-free environment is perfect for Buffett and his team to find and analyze opportunities. Rather than being distracted by non-essential items, all of the managers’ time is spent on the singular effort of trying to find the horse “that no one else thinks is a great horse.”
“ Howard Marks (Trades, Portfolio) wrote a book titled “The Most Important Thing,” and I think it had 20 lessons. So it’s hard to distill into one – but it’s really a judgment business at the end of the day. You want to find the best business you can at the cheapest price you can. You can have a wonderful business at a high price resulting in a terrible investment, and conversely you can have a terrible business at a wonderful price yielding a terrific investment. Charlie Munger (Trades, Portfolio) compares it to the parimutuel system or betting on horses. Everyone may know who the best horse is, but if it’s more than reflected in the odds, then it won’t pay off. You want to find the great horse that no one else thinks is a great horse.”
“I read about 12 hours a day. Our offices are like a library. So I read annual reports, conference call transcripts, trade magazines, etc. Most things are routine, mundane and obvious, but every once in a while you find something interesting worth digging into. Warren and I will usually catch up once or twice a day on stuff that’s going on – deals, stocks, stuff with our companies. Sometimes our managers reach out or a banker calls with an idea, but that’s about it.”
Combs has the luxury of working for Berkshire Hathaway, so he can spend his day reading and looking for the best ideas -- a luxury few other investors can afford. Still, his process offers some invaluable lessons, most importantly, the need to be continually reading to better yourself as an investor and uncover the best ideas. Removing any distractions is another pointer.
Disclosure: The author owns no stock mentioned.