Post New

Today's FT headline:
Berkshire Hathaway stock picker Todd Combs to leave for JPMorgan
Warren Buffett announces leadership shake-up at conglomerate.

The new role at JPMC seems a bit buzzword heavy and generic ( Head of Strategic Investment Group of the firm's new Strategic and Resilliency Initiative). This group oversees about $10b, substantially below what a post-Buffett investment manager at Berkshire would have expected to oversee.

This suggests Todd's departure was probably something Berkshire weren't particularly bothered by.To me it seems like Coomba was not offered a big enough role after Buffett's retirement and he sourced a role from JPMC where he was on the board.

Todd did a great job at GEICO. As far as his investment performance for BRK if a documented record is ever leaked out I suspect that we would be stunned as to how poorly he did vs the indices.

Quite a few changes announced today in addition to Coombs' departure, including a new CEO for GEICO, a new general counsel from Munger Tolles, and a new CFO from BHE. This has obviously been in the works for a while. Greg is building his team.

The statement announcing the changes is available here https://investingnews.com/berkshire-hathaway-annou...

abromber

My first thought was: just as well.

Knowing next to nothing about Todd, I listened to a podcast interview with him a few years ago.

I was left with the impression (pardon the mangled saying) that while you can take the bro out of Florida, you can’t take the bro out of the bro.

It didn’t seem like a cultural fit with the Warren/Charlie ethos (whereas Greg does, I think)

- sutton
I don’t recall the podcast, but if there’s an interest I can dig around a bit

I've heard Combs interviewed and have loosely followed his career path going back to when he was managing Gates money. Combs is 54, has considerable experience gained in multiple areas (insurance, investing, implementing organizational change at Geico, managing staff). He could be on track to take Jamie's job. He always struck me as a highly capable person.

Berkshire is a huge company comprised of many companies. Abel is a natural fit for managing the now dominant operational business units side of the company. Replacing Warren Buffett on the investment side is not likely to happen, at least not with the same level of proficiency. I wonder if there will be a new era where a Danaher type of splitting up of the companies will happen with the insurance companies spun out, the Marmon and related companies spun out, the energy companies and rail company spun out and the consumer facing companies spun out. The index could use some new company listings. None of us know anything, so this is pure conjecture. Over the years, Warren has repeatedly made a point of the drag created by the law of large numbers applied to company size and how this inevitably pushes results to average growth rates.

Like many of you, selling Berkshire would represent a 23.8% capital gains tax rate + my state's 4.25% for a total 28.05% discount on our personal holdings. Thus our choice going forward is to hold Berkshire despite its likely eventual growth decline to growing at whatever the average rate is seen across US businesses. As Warren's A shares and the A shares of many other long-term holders are sold during the next ten years, there will eventually be pressures to split up Berkshire. I think those of us continuing to hold Berkshire up to that point will go on to do quite well afterwards as the spin outs take place.

Thoughts?

Uwharrie

Berkshire won't split companies . This why the childeren are on the board to make sure it doesn't happen.

The new role at JPMC seems a bit buzzword heavy and generic ( Head of Strategic Investment Group of the firm's new Strategic and Resilliency Initiative). This group oversees about $10b, substantially below what a post-Buffett investment manager at Berkshire would have expected to oversee.

I had the same thought:
As part of the program, the bank said it will commit up to $10 billion in direct equity and venture capital investments to help selected U.S. companies expand growth, drive innovation and accelerate strategic manufacturing.

Bolding mine. I've seen the same exact phrase from a client (food manufacturing). Probably the same management consultancy!

Berkshire won't split companies . This why the childeren are on the board to make sure it doesn't happen.

This. Hasn't Warren made it very clear that a breakup of Berkshire will not happen, not while a Buffett is still around?

" This. Hasn't Warren made it very clear that a breakup of Berkshire will not happen, not while a Buffett is still around?"


In 5 years after Buffett has sold off half his shares the people who control 10 percent plus will makes the rules!

The timing leads me to believe his departure has more to do with Able taking over (or Warren leaving) than it does some grand opportunity with JP. CEO of Geico>>>>>> a $10B fund. I don't really have any thoughts beyond that. Berkshire shareholders like consistency but a new sheriff is in town and we have to get used to the fact that things are going to change. Greg is an operator so it's not shocking he's making operational changes (changes Warren was admittedly reluctant to make). That was a lot of news for one day. In Berkshire circles this is somewhat akin to when Marty McFly plays with Marvin Berry's band and breaks out Johnny B. Good. No one is quite sure what we are witnessing:-)

"In 5 years after Buffett has sold off half his shares the people who control 10 percent plus will makes the rules!"

Yeah I kind of agree with this. I don't know if it'll be 5 years or 10 but it would be naive of us to think the same culture will remain in tact while Wall Street sits on the sidelines. Those goofballs always find a way to complicate things!

This JPM deal is not the kind of gig one would take if one were in line to run investments for Berkshire post Buffett. It’s less money under management than he has even now. Then again, Warren didn’t exactly give Combs a ringing endorsement at the AM saying Greg will decide what to do with investments and the fate of those currently involved.

Hamburg has been Warrens right hand man for decades—he’s been the guy who executes daily what Warren wants to do. He’s been fantastic. But yes Warren’s personal guy. Greg is bringing his own guy—it appears his own version of Mark Hamburg. Makes total sense. And Hamburg is due for a well deserved retirement, I would not be surprised if he stayed around a few extra years as loyalty to Warren. And now guiding through a 6 month transition, total class and stud.

Don’t see what the big deal is here. Combs has been in limbo. He did a nice rescue fix it job at GEICO but his investment results were apparently mediocre-at-best over the long term. And Warren holds long term scorecards.

If Combs was seriously in line here a.) he’d know by now…b.) he’d never have left for this job.

“If Combs was seriously in line here a.) he’d know by now…b.) he’d never have left for this job.”

Agree totally with your post. Todd has been a highly valued leader but he likely sees even greener pastures perhaos with JPM and Dimon who are totally first-class.

It’s honestly a bit unsettling to hear if all of the changes at once, but we all expected these types of things with Greg taking over at CEO. I do like the transparency. Greg has really thought this over for quite some time, and we have a great bench @ BRK who he knows well.

Btw, I was a bit anxious that Ajit might have been stepping down so very to happy to see there is no news on that front! I hope he continues to love what he has been doing there for 40 years and continues a solid relationship with Greg.

Very interested to see Berkshire under Greg over the next year or two. We will be fine.

Combs seems to buy and sell quickly on a few stocks, that’s what really bother me as it indicates he didn’t think in the same way Buffett did.

I saw Todd interviewed by Seth Klarman at the Boston Invest Conf in November. He did a fantastic job and had some interesting things to say about what its been like working with Warren and especially Charlie. ( all positive)

Like most of you, I have followed his career since the day he and Ted were announced as the guys put in place to take the mantle from Warren on capital allocation. My guess is that he left for the same reason Lou Simpson did after that announcement....Some of you might recall that the official word was that Lou was retiring. He proceeded to start managing individual accounts with his wife as the ops manager of the new company right away. He clearly felt disrespected and passed over after years of loyal service because of his age. ( Warren said that Lou wasn't that much younger than him as Lou was in his 70's)

Not everyone wants to stay at BRK forever. Tracy Britt had a position similar to one of those announced today and left her "dream job" to start her own fund.

I never heard that Combs managed Gates' money- do you have any info on when?

My general take on today's news is that, there is no role for Todd at Berkshire. Taking Jamie's job, huge long shot IMO. He did a great job with GEICO, and we don't know anything about his investment performance, though internally at Berkshire they do.

I think that the huge equity portfolio will morph into an index fund, or mirror the SPX in some way. Huge dollars like this are not going to be able to outperform that index. Buffett has hinted in prior meetings that it is not a bad idea to keep cash in an index fund. Abel can simply be waiting around for better valuations.

I have posted long ago that the hardest part of the future is to hold through the inevitable changes and likely mistakes that Abel will make. Things like "Warren would have never done that..." etc.

Let's all remember that Warren has made many mistakes over the years, but, speaking for myself, I have held through them all because he was there. I will give plenty of rope to Abel, but it will be very difficult to sit through a large mistake he makes.

To be clear, today's news is not a mistake at all, just a changing of the guard.

Mr. Market don't like it. Down 2.3% so far.

I was hoping for an end of year pop for another DAF donation.
Doesn't Warren care about my charities (and my tax deductions)? Sheesh!

Let's all remember that Warren has made many mistakes over the years, but, speaking for myself, I have held through them all because he was there. I will give plenty of rope to Abel, but it will be very difficult to sit through a large mistake he makes.

Yes, and with the dry powder available, a mistake could be *huuge*.

I doubt it, though. Buybacks and bolt-ons will be the norm, I think.

He did a nice rescue fix it job at GEICO but his investment results were apparently mediocre-at-best over the long term.

Though both T&T reportedly have modestly underperformed the S&P during their tenure, it's quite possible that their work has been quite good.

How so? I suspect they came up with quite good returns while taking very much less risk than jumping on board the Mag7, with their sometimes substantial unpredictability and substantial assumption of future growth baked in. Getting around the same number without that kind of risk is actually quite a big deal, and the advantage from that would not show up until a big bear market passes by. As the saying goes, you don't know who's swimming naked till the tide goes out.

A geeky thing to wonder about: I wonder if his portfolio will get blown out the way Mr Simpson's was. If so, we'd find out which picks were his and which were Ted's.

Jim

Taking Jamie's job, huge long shot IMO.
I don't see any real chance of that. Comb's career has been of an investment manager till he stepped in temporarily at GEICO to fix some issues there as he had some experience of the insurance industry through a short stint at progressive earlier in his career when he was a pricing analyst.

If and when JPMC gets a new executive, it will be very likely someone who has operational and leadership experience in the banking world. There will be many more credible and stronger candidates than Combs.

I think that the huge equity portfolio will morph into an index fund, or mirror the SPX in some way.

I think that it's quite possible for them to do meaningfully better than the S&P 500 even with very very large portfolios--an long run advantage of 1%/year might be possible. Not by picking winners and concentrated positions in them--that's really hard unless your name is Buffett. But by merely skipping the ones most likely to be losers and playing the statistics game a bit. It's amazing how much better a portfolio does if you take out even a very small number of the worst performers.

Omaha would likely do that by knowing which business models just don't make sense, but even statistical approaches might work. It seems quite possible to identify find a chunky subset of stocks that is likely to contain a substantially-more-than-random number of big losers: you're not taking on extra risk by not merely skipping that whole subset.

It takes a very different kind of discipline to go for that kind of modest goal though. Which is why not that many folks do it.

Jim

Seems like a good idea, but if it was possible to do this statistically, wouldn't one of the big fund companies have already done it?

Hamburg is due for a well deserved retirement, I would not be surprised if he stayed around a few extra years as loyalty to Warren. And now guiding through a 6 month transition, total class and stud.

Even classier and more studly, as Berkshire’s announcement said that Hamburg will retire on June 1, 2027, and Chang will succeed him on June 1, 2026. I assume they will work together from now until June 1, 2026, with Hamburg as SVP and CFO; followed by another full year together with Chang as SVP and CFO.

I always thought that the easiest way to do 1% more than the S&P500 was to buy 400 stocks that are in the index. Finding 100 that should underperform by statistical analyse seem very possible for me. I'm surprise nobody tried to market such a fund. Jim did you test an approach like that?

Seems like a good idea, but if it was possible to do this statistically, wouldn't one of the big fund companies have already done it?

Lots of fund companies do already do it. Google factor ETFs. Too early to say which one's work, if any.

https://www.blackrock.com/us/financial-professiona...

There’s a silver lining in this. Buffett gets to do a repeat of 1969, sort of, in identifying some new names to manage the burgeoning Billions. That could well be his last hurrah.

Wondering if he can even name a few this time around. In 1969, it was a rarified field; Ruane, Munger, Schloss. And it was millions then.

As to a potential blow up of Todd’s purchases, wondering if GOOG could be one of those 😉

Major changes already, Berkshire will look quite different post Buffett. Abel making his mark 👍

I don't think this matters.

Todd and Ted have gotten some great remarks in the annual letter - I'm remembering maybe 5-10 years ago Warren made mention about their returns on stocks had eclipsed his own. And in his folksy self-deprecating way, he put it in a parenthetical in a small font.

I say it doesn't matter because in 2006 or so, when Warren made a thin, indirect indication that he was looking for an investing right hand man. He got over 4,000 applications (I was one of them and as he also says, if the phone doesn't ring you'll know it is him calling).

There's a huge legion of talent that would be glad to be the head value investor for Greg. Greg has plenty of aptitude. Just on this board, there are folks with incredible strategic patience and analytic bent who would be ale to do this (just don't make me move to cold boring Omaha).

If nothing else this is good for Berkshire indirectly - Warren spoke of Byron Trott favorably on several occasions when he was at Goldman, and now Berkshire gets another capable, trusted agent at another huge firm.

<<<Hamburg is due for a well deserved retirement, I would not be surprised if he stayed around a few extra years as loyalty to Warren. And now guiding through a 6 month transition, total class and stud.

Even classier and more studly, as Berkshire’s announcement said that Hamburg will retire on June 1, 2027, and Chang will succeed him on June 1, 2026. I assume they will work together from now until June 1, 2026, with Hamburg as SVP and CFO; followed by another full year together with Chang as SVP and CFO.<<<

Agree!!

I think it makes a massive difference.

What is the most impactful recent investment that's generated significant value for Berkshire?

Apple; only Buffett would make such a move at scale. Would Greg? I doubt it.

I thought T&T would have been the guys to do it.

Finding 100 that should underperform by statistical analyse seem very possible for me. I'm surprise nobody tried to market such a fund. Jim did you test an approach like that?

Good news: yes.
Bad news: yes, thousands of such approaches : )
99% of which are spurious historical coincidences, I assume.

Best one-check filter is ROE, as far as I can tell.
As a random example, 1986-2024 (a pretty good sample of market regimes), an equally weighted portfolio of the top 30% of the Value Line 1700 group beat the S&P 500 by +2.18%/year. Or +1.60% if hunting only among the top 150 by market cap. I've always felt that surely there is some way to capture a bit of that tail wind...

Jim

Combs was not without issue. Heard stories he was fired from Conning & Co. in Hartford and did some unethical things with Gerry Shwartz ONEX.

Obviously, Precision Cast Parts (big write down) and his underperforming the S&P forever were of no help to his reputation.

Yes he fixed GEICO

I say good riddance.

WEB should replace him with ADAM PETERSON of Boston-Omaha(BOC). Omaha based on strong fit.

"I've always felt that surely there is some way to capture a bit of that tail wind..."

Sorry to be slow, but I'm not sure that I'm following the proposed approach. Are we trying to avoid the stocks that are likely to underperform or buy the stocks that are likely to outperform? Or some combination of both? Why not just buy the top 5% by ROE (or sales growth or earnings yield or something positively correlated with future return)? Jim has shown ROE to be a good choice. A histogram or plot of return versus decile likely has a normal or skewed normal distribution. The magic formula certainly does (Table 7.2 in "The little book that beats the market"), with the top decile outperforming the median and the S&P 500 by 5 percentage points. What am I missing?

"I thought T&T would have been the guys to do it."

Do we know definitively that it was all Warren? As I recall the Apple idea was brought to Warren by T or T and Warren decided to go all in. As with all things Berkshire this kind of information is always opaque but T & T may have very well been involved.

"Do we know definitively that it was all Warren? As I recall the Apple idea was brought to Warren by T or T and Warren decided to go all in."

I think it was said that they basically came to it independently.

I've always felt that surely there is some way to capture a bit of that tail wind...

I wonder if this is [yet another] case of a strategy, that once used by enough people, ceases to provide the "edge" (the higher returns). The theory is that when enough people start doing it, the initial prices get bid up just enough such that the benefit is nearly arbitraged out.

Todd Combs would often have breakfast with Buffett on Saturday mornings. According to a WSJ article, around 2016, Buffett challenged Combs to find a stock that met specific criteria.

This time, Buffett asked Combs to identify a stock in the S&P 500 that met three criteria. The first: a reasonably cheap price/earnings multiple of no more than 15, based on the next 12 months’ projected earnings. The stock also had to be one the managers were at least 90% sure would enjoy higher earnings over the next five years. And they had to be at least 50% confident that the company’s earnings would grow by at least 7% annually for five years or longer.

What made the search a little more difficult was that the companies that met the criteria also had to have a market cap large enough so Berkshire could buy enough of to move the needle of its portfolio but not overly impact the demand for the stock. This specific framework led them to repeatedly identify Apple in their discussions. (Apple was trading at a reasonable valuation at the time, unlike its current P/E).

As an aside, just four years earlier this is what Buffett had to say about Apple and Google 😉

Asked why he had bought IBM shares rather than Apple or Google at Berkshire Hathaway’s 2012 shareholder meeting, Buffett said: “The chances of being way wrong in IBM are probably less, at least for us, than the chances of being way wrong in Google or Apple ... I just don’t know how to value them.“I would not be at all surprised to see them be worth a lot more money 10 years from now but I would not buy either one of them. I sure as hell wouldn’t short them either.”

Buffett asked Combs to identify a stock in the S&P 500 that met three criteria. The first: a reasonably cheap price/earnings multiple of no more than 15, based on the next 12 months’ projected earnings. The stock also had to be one the managers were at least 90% sure would enjoy higher earnings over the next five years. And they had to be at least 50% confident that the company’s earnings would grow by at least 7% annually for five years or longer.

LULU
* TTM EPS : $14.71 / share
* Stock Price : $180 / share
* PE : 12.23

* Confidence level in higher earnings in next 5 years, 75%-90%
* Confidence level in 7% growth in earnings, 50%-75%

Even last quarter (which wasn't great), sales grew at 6.5% (from 2.37B to 2.53B) (but net-income dropped 5.6%).

This has been discussed on the Falling Knives board at length...

tecmo
...

Sorry to be slow, but I'm not sure that I'm following the proposed approach. Are we trying to avoid the stocks that are likely to underperform or buy the stocks that are likely to outperform? Or some combination of both? Why not just buy the top 5% by ROE (or sales growth or earnings yield or something positively correlated with future return)?
...
I wonder if this is [yet another] case of a strategy, that once used by enough people, ceases to provide the "edge" (the higher returns).

These two points are fairly related.

First, a trivial answer to the first notion: the top 5% by ROE doesn't outperform the top 30% by ROE, so that's why I don't suggest it. This isn't a weakness of the correlation--the "top 30%" thing is extremely robust. It's just that it isn't a linear function. Stock performance, especially long term, does not have linear functions with the quant criteria. A nice ramping of performance among deciles is usually a sign of a vriable that won't get you good performance, more often a sign of a cute coincidence in the historical data. The investment world is more complicated than that.

The observation here is that the statistical correlation of ROE, though extremely reliable, is quite weak. If you only want to pick up a percent or two, it's easy: this half does better than that half, and always will. So stop there.

But if you need marketing to sell a new fund, you need more than that, so you look for the extremes, and claim an extreme advantage. If the top 1/3 is good, then the top 4% is even better, right!? No. More concentrated, more sure of yourself, more subject to front-running, and destined to failure.

The first approach is the one I was suggesting: a very small tilt, and because of its smallness and modest goals, we know it will always work. The half of firms with horrible ROE will always underperform the half of firms with good ROE, for sound economic reasons that will never end. To push a bit further, sure, I've found the third of firms with high ROE reliably outperform the 2/3 that are worse on that metric. But much beyond that, such claims weaken: it comes down to much more sophisticated stock picking, or more elaborate quant criteria...which can and will fail.

Quant investing isn't like combining a lot of linear equations to get the best on every axis. Markets are too heterogeneous for that. Rather, the really good quant performance is (to the extent they exist at all) in a large number of small pockets each bounded by a few variables. For example, rather counterintuitively, low P/E firms with SLOW growth do better than the average firm, even though slow growth by itself is inversely correlated with business results (quite separate from stock price performance--always know which one you're trying to predict).

The good news is that, to the second point quoted above, if you're willing to settle for the small edge of (say) the top 1/3, it won't be competed away. It's a simple fundamental of business that better businesses will (ON AVERAGE) have better results from their assets than poor businesses. Over the long run, that will show up in slightly better average stock returns. Emphasis on "slightly".

Jim

Thanks for explaining, Jim.

And they had to be at least 50% confident that the company’s earnings would grow by at least 7% annually for five years or longer.

Can this EVER be true for a clothing company? Clothes come into style and out of style periodically, often over less than a 5 year period.

Post New

Berkshire Hathaway FAQ

---

Contact Shrewd'm
Contact the developer of these message boards.