The Wall Street Journal on January 18 reported that both Todd Combs and Ted Weschler outperformed the S&P 500 and Warren Buffett in 2013. The 2013 results mark the second year in a row that the two portfolio managers hired by Berkshire Hathaway's (NYSE:BRK.A) (NYSE:BRK.B) Warren Buffett have exceeded the S&P 500 (which gained 32% including dividends last year) as well as Mr. Buffett. Mr. Combs, who started at Berkshire in 2011, has beaten the S&P 500 three years in a row. Similarly, Mr. Weschler's returns have exceeded the S&P 500 in each of the two years he has been with Berkshire. In 2012, Mr. Combs and Mr. Weschler each beat the S&P 500 by a double-digit margin.
How did Mr. Combs and Mr. Weschler outperform the S&P 500 and Mr. Buffett in 2013? From quarterly Form 13F filings with the Securities and Exchange Commission, Berkshire's portfolio of U.S.-based equities is available through September 30, 2013. The 13F for the quarter ending December 31, 2013 will likely be filed on February 14, 2014. Mr. Buffett has said that the small positions in Berkshire's portfolio of 43 stocks as of September 30 are very likely 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 investments in IBM in 2011 and Exxon Mobil (NYSE:XOM) in 2013 with year-end 2013 market values of $12.6 billion and $4.1 billion, respectively.
By examining Berkshire's recent 13F filings through September 30, 2013, I have identified 19 stocks that are highly likely to be investments of Mr. Combs and/or Mr. Weschler. These 19 holdings, acquired since the arrival of Messrs. Combs and Weschler, had a combined value of $15.7 billion on December 31, 2013. They represent a small percentage of Berkshire's U.S. portfolio of more than $100 billion. Since these positions have been relatively stable through the first nine months of 2013, I am assuming they remained the same as of December 31. All 19 investments had positive returns last year, with the highest percentage increases resulting from Starz (+120.2%), Chicago Bridge and Iron (+79.4%), and MasterCard (+70.1%). Their top four positions by year-end market value (and date of initial acquisition) are:
(1) DirecTV (NASDAQ:DTV) - $2.5 billion, +37.7% (Third Quarter 2011)
(2) Phillips 66 (NYSE:PSX) - $2.1 billion, +45.3% (Second Quarter 2012)
(3) DaVita (NYSE:DVA) - $2.0 billion, +14.7%, (Fourth Quarter 2011) and
(4) General Motors (NYSE:GM) - $1.6 billion, +41.8% (First Quarter 2012)
These four stocks represented 53% of the total value of the Combs and Weschler portfolios. The remaining 15 stocks in their portfolios in descending order of year-end market value are:
(5) Bank of New York Mellon (NYSE:BK) - $861 million, +36.0% (93% of shares acquired since First Quarter 2012)
(6) Liberty Media (NASDAQ:LMCA) - $822 million, +34.6% (Fourth Quarter 2011) + spin-off of Starz
(7) Chicago Bridge and Iron (NYSE:CBI) - $794 million, +79.4% (First Quarter 2013)
(8) National Oilwell Varco (NYSE:NOV) - $706 million, +16.4% (Second Quarter 2012)
(9) Viacom B (NASDAQ:VIAB) - $662 million, +65.6% (Second Quarter 2012)
(10) Verisign (NASDAQ:VRSN) - $658 million, +54% (Fourth Quarter 2012)
(11) Suncor (NYSE:SU) - $631 million, +6.3% (Second Quarter 2013)
(12) Precision Castparts (NYSE:PCP) - $532 million, +42.2% (Third Quarter 2012)
(13) WABCO (NYSE:WBC) - $381 million, +43.3% (Third Quarter 2012)
(14) Deere (NYSE:DE) - $363 million, +5.7% (First Quarter 2013)
(15) Visa (NYSE:V) - $346 million, +40.9% (Third Quarter 2011)
(16) MasterCard (NYSE:MA) - $338 million, +70.1% (First Quarter 2011)
(17) Starz (NASDAQ:STRZA) - $164 million, + 120.2% (First Quarter 2013)
(18) Verisk (NASDAQ:VRSK) $102 million, +28.9% (Second Quarter 2011)
(19) DISH Network (NASDAQ:DISH) - $32 million, +59.1% (Second Quarter 2013)
DirecTV, DaVita, and Liberty Media were among Mr. Weschler's largest holdings in his hedge fund, Peninsula Capital, and MasterCard 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 Phillips 66.
By contrast, Warren Buffett's largest four investments are:
(1) Wells Fargo (NYSE:WFC) - $19.1 billion, +32.8%
(2) Coca-Cola (NYSE:KO) - $15.2 billion +14.0%
(3) IBM (NYSE:IBM) - $12.6 billion, -2.1%
(4) American Express (NYSE:AXP) - $11.5 billion, + 57.8%
These four stocks represented a total of $58.4 billion, or more than half of Berkshire's portfolio at the end of 2013.
The consistent superior performance by Todd Combs and Ted Weschler since their arrival at Berkshire Hathaway in 2011 and 2012, respectively, should reassure shareholders that Berkshire's investments will be in good hands in the years ahead.