Jan 062015
 
  • Berkshire Hathaway’s Todd Combs and Ted Weschler appear to have underperformed the S&P 500 in 2014.
  • Combs and Weschler’s largest investments, DirecTV and DaVita, outperformed the S&P 500.
  • Many of Combs and Weschler’s holdings declined in 2014.

The S&P 500 rose 11.4% in 2014, with a total return (including dividends) of 13.7%. After outperforming the S&P 500, and Warren Buffett in both 2012 and 2013, did Todd Combs and Ted Weschler outperform the S&P 500 in 2014?

From quarterly Form 13F filings with the Securities and Exchange Commission, Berkshire’s portfolio of U.S.-based equities is available through September 30, 2014. The 13F for the quarter ending December 31, 2014, will likely be filed on February 14, 2015. Mr. Buffett has said that the small positions in Berkshire’s portfolio are very likely the 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 investment in International Business Machines (NYSE: IBM) with a year-end 2014 market value of $11 billion.

By examining Berkshire’s recent 13F filings through September 30, 2014, I have identified 16 stocks that are highly likely to be investments of Mr. Combs and Mr. Weschler and were acquired since their arrival at Berkshire Hathaway. Since these positions have been relatively stable through the first nine months of 2014, I am assuming they remained the same as of December 31.

DirecTV (NASDAQ: DTV), DaVita (NYSE: DVA), and Liberty Media (NASDAQ:LMCA) were among Mr. Weschler’s largest holdings in his hedge fund, Peninsula Capital, and MasterCard (NYSE: MA) 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 General Motors (NYSE: GM).

Mr. Combs and Mr. Weschler are each managing about $7.5 billion of the $120 billion equity portfolio of Berkshire Hathaway (NYSE: BRK.A) (NYSE:BRK.B). Their largest investments, DirecTV (+25.5%) and DaVita (+19.5%), performed very well in 2014. DTV (Combs and Weschler) and DVA (Weschler) are each currently valued at more than $2.5 billion.

In addition to DTV and DVA, the following Combs/Weschler investments also rose in 2014: Charter Communications (NASDAQ: CHTR) ($750 million) (+21.8%), Liberty Global (NASDAQ: LBTYA) ($750 million) (+10.4%), MasterCard ($350 million) (+3.1%), Visa (NYSE: V) ($550 million) (+17.7%), and WABCO (NYSE: WBC) ($400 million) (+12.2%).

However, their investments in General Motors ($1.3 billion) (Weschler) (-14.6%) and Chicago Bridge & Iron (NYSE: CBI) ($500 million) (Combs) (-49.5%) fell in 2014. Other declines in the Combs and Weschler portfolios included National Oilwell Varco (NYSE: NOV) ($265 million) (-8.6%), Suncor Energy (NYSE: SU)($575 million) (-9.3%), Viacom (NASDAQ: VIAB) ($600 million) (-13.8%), Liberty Media ($550 million) (-8.7%), Precision Castparts (NYSE: PCP) ($500 million) (-10.6%), VeriSign (NASDAQ: VRSN) (-4.7%) ($750 million) and Verizon (NYSE:VZ) ($750 million) (-4.8%).

Calculating the returns to the Combs and Weschler portfolios from outside the company is a combination of art and science since Berkshire does not reveal who is responsible for each pick in its Form 13F filings to the U.S. Securities and Exchange Commission. Nor does it list when shares were acquired or when they were sold and at what prices.

It is important to note that although it appears that Mr. Combs and Mr. Weschler have underperformed the S&P 500 in 2014, their bonuses, which comprise the bulk of their compensation, depend on the amount they beat the S&P 500 on a three-year rolling basis.

With respect to Warren Buffett’s performance in 2014, his largest equity investment, Wells Fargo (NYSE: WFC), rose 20.7% in 2014 and is currently valued at about $27 billion. His next three largest investments are Coca-Cola (NYSE: KO) ($17 billion) (+2.2%), American Express Company (NYSE: AXP) ($14 billion) (+2.5%), and International Business Machines ($11 billion) (-14.5%). These four holdings equal about $70 billion and represent approximately 70% of Berkshire’s portfolio managed by Warren Buffett. It, therefore, appears that Warren Buffett’s portfolio also underperformed the S&P 500 in 2014.

Shares of BRK.A and BRK.B rose 27% in 2014 primarily as a result of the excellent performance of the 80 companies owned by Berkshire, which now comprise the vast majority of its assets. Also, since Mr. Combs and Mr. Weschler outperformed the S&P 500 in 2012 and 2013 and very likely on a three-year rolling basis, shareholders should be reassured that Berkshire has a very bright future.

(Note: This article was published by Seeking Alpha on January 6, 2015.  It is an update of my Seeking Alpha article:  “How Todd Combs and Ted Weschler Outperformed the S&P 500 and Warren Buffett in 2013″ – January 24, 2014.)

 Posted by at 11:46 pm
Jan 052015
 

I am quoted in a Wall Street Journal article on Berkshire Hathaway’s labor problems at NetJets:

“Perhaps this is standard posturing between labor and management, but it does appear to be getting more contentious,” said David Kass, a professor of finance at the University of Maryland and Berkshire shareholder. “And Buffett has said perpetual money or labor problems would be two reasons to exit a company.”

The entire article is available at:

http://www.wsj.com/articles/netjets-unrest-puts-warren-buffett-in-a-rare-pinch-1420485740?mod=WSJ_hp_LEFTWhatsNewsCollection

 

 Posted by at 5:03 pm
Jan 042015
 

The S&P 500 rose 11.4% in 2014, with a total return (including dividends) of 13.7%.  After outperforming the S&P 500 and Warren Buffett in both 2012 and 2013, did Todd Combs and Ted Weschler outperform the S&P 500 in 2014?

Combs and Weschler are each managing about $7.5 billion of the $120 billion equity portfolio of Berkshire Hathaway (BRK.A) (BRK.B).  Their largest investments, DirecTV (DTV) (+25.5%) and DaVita (DVA) (+19.5%), performed very well in 2014.  DTV (Combs and Weschler) and DVA  (Weschler) are each currently valued at more than $2.5 billion.

In addition to DTV and DVA, the following Combs/Weschler investments also rose in 2014: Charter Communications (CHTR) ($750 million) (+21.8%), Liberty Global (LBTYA) ($750 million) (+10.4%), Mastercard (MA) ($350 million) (+3.1%), Visa (V) ($550 million) (+17.7%), and Wabco (WBC) ($400) (+12.2%).

However, their investments in General Motors ($1.3 billion) (Weschler) (-14.6%) and Chicago Bridge & Iron ($500 million) (Combs) (-49.5%) fell in 2014.  Other declines in the Combs and Weschler portfolios included National Oilwell Varco (NOV) ($265 million)(-8.6%), Suncor Energy (SU) ($575 million) (-9.3%), Viacom (VIAB) ($600 million) (-13.8%), Liberty Media (LMCA) ($550 million) (-8.7%), Precision Castparts (PCP) ($500 million) (-10.6%) and Verizon ($750 million) (-4.8%).

Calculating the returns to the Combs and Weschler portfolios from outside the company is a combination of art and science since Berkshire does not reveal who is responsible for each pick in its Form 13F filings to the U.S. Securities and Exchange Commission. Nor does it list when shares were acquired or when they were sold and at what prices. 

It is important to note, that although Combs and Weschler appear to have underperformed the S&P 500 in 2014, their bonuses, which comprise the bulk of their compensation, depend on the amount they beat the S&P 500 on a three-year rolling basis.

I am quoted in a Bloomberg article on this topic:

“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.

The entire article is available at:

http://www.bloomberg.com/news/2014-12-18/buffett-s-backup-stock-pickers-stumble-as-gm-declines.html?cmpid=yhoo

Note 1:  With respect to Warren Buffett’s performance in 2014, his largest equity investment, Wells Fargo (WFC), rose 20.7% in 2014 and is currently valued at about $27 billion.  His next three largest investments are Coca-Cola (KO) ($17 billion) (+2.2%), American Express ($14 billion) (+2.5%), and IBM (IBM) ($11 billion) (- 14.5%).  These four holdings equal about $70 billion and represent approximately 70% of Berkshire’s portfolio managed by Warren Buffett.  It, therefore, appears that Warren Buffett’s portfolio also underperformed the S&P 500 in 2014.

Note 2:  BRK.A and BRK.B each rose about 27% in 2014.  The 80+ companies owned by Berkshire now comprise the vast majority of its assets

This blog post has been published by ValueWalk:

http://www.valuewalk.com/2015/01/berkshire-hathaways-combs-weschler-outperform-sp-500-2014/

Seeking Alpha published a version of this blog post:

http://seekingalpha.com/article/2801175-how-berkshire-hathaways-todd-combs-and-ted-weschler-performed-relative-to-the-s-and-p-500-in-2014

 Posted by at 9:43 pm
Dec 182014
 

After outperforming the S&P 500 and Warren Buffett in both 2012 and 2013, Todd Combs and Ted Weschler may have underperformed  the S&P 500 in 2014.

Combs and Weschler are each managing about $7.5 billion of the $120 billion equity portfolio of Berkshire Hathaway (BRK.A) (BRK.B).  Their largest investments, DirecTV (DTV) and DaVita (DVA), performed very well, with each outperforming the S&P 500 by about 10 percentage points.  DTV (Combs and Weschler) and DVA  (Weschler) are each currently valued at more than $2.5 billion.

However, their investments in General Motors ($1.3 billion) (Weschler) is down 20% this year, and Chicago Bridge & Iron ($500 million) (Combs) has lost about 50% of its value.  By contrast, the S&P 500 has risen over 10% in 2014.  Other declines in the Combs and Weschler portfolios include National Oilwell Varco (NOV), Suncor Energy (SU), Viacom (VIAB), and Liberty Media (LMCA).  However, the following Combs/Weschler investments rose in 2014: Charter Communications (CHTR), Liberty Global (LBTYA), Mastercard (MA), Visa (V), Precision Castparts (PCP), and Wabco (WBC).

Calculating the returns to the Combs and Weschler portfolios from outside the company is a combination of art and science since Berkshire does not reveal who is responsible for each pick in its Form 13F filings to the U.S. Securities and Exchange Commission. Nor does it list when shares were acquired or when they were sold and at what prices. 

With respect to Warren Buffett’s performance in 2014, his largest equity investment, Wells Fargo (WFC), rose about 25% in 2014 and is currently valued at about $27 billion.  His next three largest investments are Coca-Cola (KO) ($17 billion) (+5%), American Express ($14 billion) (+8%), and IBM (IBM) ($11 billion) (- 13%).

I am quoted in a Bloomberg article on this topic:

“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.

The entire article is available at:

http://www.bloomberg.com/news/2014-12-18/buffett-s-backup-stock-pickers-stumble-as-gm-declines.html?cmpid=yhoo

 

 Posted by at 11:07 pm
Dec 142014
 

In a Berkshire Hathaway (BRK.A, BRK.B) news release dated December 12, 2014, “Berkshire Hathaway Completes Investment in Restaurant Brands International Inc.”, Berkshire revealed that it currently owns 4.18% of the common shares of Restaurant Brands International (QSR), and it controls 14.37% of the total number of votes attached to all outstanding voting shares of the Corporation.

Upon the closing of the Burger King (BKW) acquisition of Tim Horton’s (THI) on December 12, 2014, Berkshire purchased, for a total of $3 billion, a 9% perpetual voting preferred stock and exercised a warrant to purchase 8,438,225 common shares at the exercise price of $0.01 per share (at a cost of $84,382.25).  The exercise of this warrant represented 1.75% of the common shares of the merged firm.

This is discussed in a Bloomberg article on this topic:

http://www.bloomberg.com/news/2014-12-15/berkshire-to-hold-larger-stake-in-burger-king-tim-hortons-parent.html?cmpid=yhoo

 

 Posted by at 1:52 pm
Dec 102014
 

When Burger King’s (BKW)  acquisition of Tim Horton’s (THI) closes on December 12, Berkshire Hathaway (BRK.A, BRK.B) will purchase $3 billion of 9% preferred shares and receive a warrant to purchase 1.75% of the common shares of the combined company at an exercise price of $0.01 per common share.  Berkshire has informed Burger King that it intends to exercise the warrant promptly following the closing of the transaction.  Berkshire will then own 8.4 million shares with a current market value of about $275 million.

Although the preferred shares will result in Berkshire receiving annual dividends of $270 million, approximating the current value of its common shares of the merged company, Berkshire’s “penny” warrants are atypical compared to its financing in recent years of Goldman Sachs (GS), General Electric (GE), Dow Chemical (DOW), and Bank of America (BAC).  In each of the latter deals, Berkshire either waited several years (GS and GE) to convert its warrants or has not yet converted (DOW and BAC).  The conversion of Berkshire’s penny warrants requires a relatively small investment of only $84,000 for the 8.4 million shares of the merged company’s common shares.  The new company will be named Restaurant Brands International, have a ticker symbol of QSR, and trade on the New York Stock Exchange.

I am quoted in an Omaha World-Herald article (December 10) on this topic:

“The common shares will be highly marketable securities, but I don’t see Buffett selling them anytime soon,” said David Kass, a University of Maryland business professor and Berkshire shareholder. “Some people may say the shares are topped out, but next time Berkshire reports its holdings, I think we will see that Buffett does not think that.”

The entire article is available at:

http://www.omaha.com/money/burger-king-deal-to-bring-berkshire-quick-gain/article_10693b8a-d0c6-5d00-8277-89026a8570ec.html

 Posted by at 8:32 am
Dec 092014
 

I am quoted in an Omaha World-Herald article on Berkshire Hathaway Insurance entering Singapore (December 9, 2014):

“It is one of the best economies in the world, certainly in Southeast Asia,” said David Kass, a business professor at the University of Maryland and a Berkshire shareholder. “It is a great financial and economic environment and it makes great sense to expand there.”

Insurance is the lifeblood of Berkshire, whose businesses run from boxed confections at See’s Candies to industrial chemicals at Lubrizol. Insurance businesses provided Buffett with $77 billion as of December 2013, money that had been paid in by customers as premiums but not yet paid out to settle claims. That money, called float in the insurance industry, can be used to invest in other ventures.

“It is the fuel for Warren Buffett’s investments,” Kass said.

The entire article is available at:

 

 Posted by at 7:51 am
Dec 052014
 

When Burger King’s (BKW)  acquisition of Tim Horton’s (THI) closes on December 12, Berkshire Hathaway (BRK.A, BRK.B) will purchase $3 billion of 9% preferred shares and receive a warrant to purchase 1.75% of the common shares of the combined company at an exercise price of $0.01 per common share.  Berkshire has informed Burger King that it intends to exercise the warrant promptly following the closing of the transaction.  Berkshire will then own 8.4 million shares with a current market value of about $300 million.

 

From the Burger King/Tim Horton’s prospectus:

“In connection with the transactions,
Berkshire Hathaway Inc. (“Berkshire”) will purchase for an aggregate purchase price of $3,000,000,000 (USD),
(a) Class A 9% cumulative compounding perpetual voting preferred shares of Holdings (the “preferred shares”) and
(b) a warrant to purchase Holdings common shares (the “warrant”), which shares issuable pursuant to the warrant
will represent 1.75% of the fully diluted common shares of Holdings as of the completion of the transactions, at an
exercise price per Holdings common share of $0.01. The warrant may be exercised until the fifth anniversary of the
closing of the transactions. Berkshire has informed Holdings that it intends to exercise the warrant promptly
following the closing of the transactions.”

 

http://www.omaha.com/money/berkshire-hathaway-gets-percent-interest-stock-in-burger-king-tim/article_410c071e-3db5-11e4-93f8-0017a43b2370.html

http://online.wsj.com/articles/burger-king-nears-closing-tim-hortons-acquisition-1417785495?

 Posted by at 11:43 pm
Dec 012014
 
I am quoted in a Omaha World-Herald article (November 30, 2014) on Berkshire Hathaway and clean energy:

“Omaha’s Berkshire Hathaway appears set to gain from the energy changes. The company owns two major U.S. pipelines, including Omaha-based Northern Natural Gas, the nation’s largest. Berkshire’s MidAmerican Energy, based in Iowa, is the utility industry’s biggest generator of wind energy.

The company also has invested billions in solar projects, including one in California described as the largest solar farm in the world. It’s under construction, scheduled for completion next year.”

“Berkshire’s energy investments show a certain amount of foresight in reading the tea leaves,” said David Kass, a University of Maryland business professor who follows Berkshire and is a shareholder. “Seeing what direction the country is going with green technology has allowed Berkshire to get there faster than others.”
 
The entire article is available at:
 Posted by at 7:35 am
Nov 162014
 

In its SEC 13F filing after the market closed on Friday, November 14, Berkshire Hathaway (BRK.A, BRK.B) revealed several major changes to its portfolio during the third quarter of 2014.

Berkshire’s four largest transactions involved increasing its previous stakes in three companies, and divesting its prior investment in a fourth as follows:

(1) DirecTV (DTV) – Holding increased by over $500 million, or 28%, to 30,000,000 shares currently valued at $2.6 billion.  This is an investment of both Ted Weschler and Todd Combs.

(2) Charter Communications (CHTR) – Stake increased by over $400 million, or 114%,  to 4.95 million shares currently valued at about $750 million.  This is likely an investment of Ted Weschler or Todd Combs.

(3) General Motors (GM) – Holding increased by over $200 million, or 21%, to 40 million shares currently valued at $1.2 billion.  Warren Buffett has previously attributed this investment to Ted Weschler.

(4) Deere & Co. (DE) – Sold entire holding of 4 million shares currently valued at over $300 million.  This investment was made by Todd Combs (Fortune Magazine, October 27, 2014).

 

 

 

 

 

 Posted by at 10:04 pm