Editor’s note: This article was first published in October 2014; Berkshire’s share price and market capitalisation, the three-year returns of Combs and Weschler against the index, the losses it mentions and its market outlook are from then. Charlie Munger died in 2023, and Greg Abel was later named Buffett’s successor as CEO.
Shares of Berkshire Hathaway, the company run by the legendary Warren Buffett, are trading at around $203,000 each, giving it a market capitalisation of $334 billion. The question on many investors’ minds is: what will happen when Buffett and Munger are no longer in charge of the company? Will there be managers who can live up to these investing legends?
Everything suggests there will. At first it was rumoured that Warren Buffett’s successor would be a woman named Tracy Britt, who has been Buffett’s “protégée” for years. Today, though, the names being mentioned are Ted Weschler and Todd Combs, both excellent disciples of Buffett, to whom the company has given more than $115 billion to manage independently.
Judging by the results, that amount is likely to grow in the future, since they are estimated to have made more than $14 billion, even though they do not reinvest dividends.
There is a lot of secrecy around the returns of these prodigies, but according to an analysis by Fortune magazine, they have consistently beaten the market (the S&P 500) over the last three and four years, even though beating it in the middle of a bull run like the one of the past five years is hard even for investing legends.
Even so, Ted and Todd have done it, and not by a small margin.
Over the last three years, Todd Combs has generated a cumulative return of 116%, more than double the index’s 55% gain over the same period, according to Fortune, while Ted Weschler has achieved a return of 81% in slightly less time, since he joined Berkshire a year later.
Buffett, who declined to comment on the figures, said only that these estimates of the two investors’ gains fall short. In other words, they have done even better than people think.
Buffett has said clearly that Berkshire has made billions thanks to these two, money the company would not have made otherwise.
In his words, both of them have a fundamental combination of soundness and brilliance.
In case anyone hasn’t made the connection, Ted Weschler is the man who paid more than $2 million to have lunch with Buffett.
How have they achieved such high returns?
These investors work for Berkshire because they believe in value investing. In a way, Buffett chose them because he saw his own reflection in them, although Todd Combs tends to get in and out of stocks much faster than Buffett does.
For him, stocks are not forever, as one of Warren Buffett’s principles has it. This way of investing has paid off for him: he manages to buy solid companies when their share price is at its lowest, take his profits and then reinvest them in the next opportunity the market offers.
And of course they have made mistakes with some stocks. Todd Combs made a bad $800 million investment in Chicago Bridge & Iron, which plunged 30% because of weakness in construction. Likewise, his colleague invested in General Motors, whose shares fell 21%. But on the whole, both have shown special talent and skill.
Now, we have seen how they do in a bull market. Will they do it again in times of stock market turbulence like the one that seems to be on its way?
If they do even half as well as they have so far, the question of how Berkshire will work once Buffett and Munger are gone has probably already been answered.
Further reading
- In depth: how Warren Buffett analyses companies before investing
- 8 books Warren Buffett thinks everyone should read
- 5 books every investor should read
Featured image: The Library of Congress, Public domain, via Wikimedia Commons.
