How Berkshire Hathaway’s Todd Combs and Ted Weschler Performed Relative to the S&P 500 in 2014

By Dr. David Kass

Summary

  • 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.

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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.)

 

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David I Kass Clinical Associate Professor, Department of Finance Ph.D., Harvard University Robert H. Smith School of Business 4412 Van Munching Hall University of Maryland College Park, MD 20742-1815 Phone: 301-405-9683 Email: [email protected] (link sends e-mail) Dr. David Kass has published articles in corporate finance, industrial organization, and health economics. He currently teaches Advanced Financial Management and Business Finance, and is the Faculty Champion for the Accelerated Finance Fellows. Prior to joining the faculty of the Smith School in 2004, he held senior positions with the Federal Government (Federal Trade Commission, General Accounting Office, Department of Defense, and the Bureau of Economic Analysis). Dr. Kass has recently appeared on Bloomberg TV, CNBC, PBS Nightly Business Report, Maryland Public Television, Business News Network TV (Canada), Fox TV, American Public Media's Marketplace Radio, and WYPR Radio (Baltimore), and has been quoted on numerous occasions by Bloomberg News and The Wall Street Journal, where he has primarily discussed Warren Buffett and Berkshire Hathaway. He has also launched a Smith School “Warren Buffett” blog. Dr. Kass has accompanied MBA students on trips to Omaha for private meetings with Warren Buffett, and Finance Fellows to Berkshire Hathaway’s annual meetings. He is an officer of the Harvard Business School Club of Washington, DC, and is a member of the investment and budget committees of a local nonprofit organization. Dr. Kass received a Smith School “Top 15% Teaching Award” for the 2009-2010 academic year.