According to a Financial Times analysis using Morningstar data, the two individuals expected to manage Berkshire Hathaway's stock portfolio after Warren Buffett, Ted Weschler and Todd Combs, have underperformed both their mentor and the broader market. Over the past decade, their average annual return was approximately 7.8%, falling short of Buffett's 10.2% gain and the S&P 500's 12% return. They have trailed the S&P 500 in seven out of the last ten years. As of the analysis, their combined portfolios were worth about $27 billion, out of Berkshire Hathaway's total $354 billion equity investments, excluding employee pension funds. The death of Charlie Munger in November has intensified scrutiny on the company's succession plan, with Buffett, aged 93, still at the helm. He established the "Owner's Manual" in 1996 to guide successors.
Despite their current performance, Combs and Weschler are expected to benefit from Berkshire's "permanent capital" structure, largely due to its insurance operations, which provides a significant advantage over many other investment funds. Shareholders suggest that even if the new managers don't match Buffett's record, their returns are likely to surpass those from corporate and government bonds, which are common investments for rival insurers. This unique financial structure is seen as a key reason for Berkshire's continued relevance post-Buffett.
However, a significant challenge for Combs and Weschler compared to Buffett's early career is the sheer scale of the investment portfolio they will manage. With a stock portfolio larger than any of Berkshire's individual operating divisions, they will become some of the world's largest money managers. Alongside Greg Abel, Buffett's chosen successor as CEO, they will also decide how to allocate a record cash pile of $168 billion, a sum large enough to acquire all but a handful of global companies. The company's business model, described as a closed-end fund with long-term commitment and close engagement with investee companies, has been effective but rarely copied, according to John Kay. Buffett's genius lies in his focus on competitive advantage, good management, and giving that management freedom with accountability.
Warren Buffett has historically opted to reinvest profits into businesses rather than pay out dividends, leading to a 20% compound growth in book value over 48 years. This reinvestment strategy is seen as a hallmark of "inclusive capitalism" that benefits all stakeholders, contrasting with modern trends of prioritizing massive dividend payments and share buybacks. Berkshire's ability to remain robust even in extreme scenarios, such as making $1.6 billion in insurance underwriting profit despite a record loss from Hurricane Sandy, highlights the strength of its diversified earnings streams. The company's simple yet effective business model, characterized by minimal central oversight and a trusting relationship with operating companies, stands as a counter-narrative to many contemporary corporate practices.
