By Dr. David Kass
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:
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
