Money Talks
I know a few important people. Well, one. Sort of. Okay, maybe he’s not that important. Just smart, I guess. But he’s really smart. And good at managing a “portfolio,” which is a word that frightens me unless we’re talking about my collection of pastel sketches from 6th grade.
So, yes, he’s one of those evil “financial people.” Gasp!
“So…” I said to him today, “this Warren Buffett guy said something important, right? He apparently tapped some dude who is about my age and lives right down the road from me to be his maybe-successor at Berkshire Hathaway. True?”
True, he said.
Todd Combs, a Florida native and hedge-fund manager in Darien CT, will apparently be given responsibility for managing a small portion of Berkshire’s gargantuan investment portfolio. Reportedly, if he is successful, Combs’s role will expand over time.
“What does it all mean?” I asked.
Here’s what he replied:
My overall reaction is that he seems more than competent, wouldn't demand outrageous compensation like bigger-name people might, would be willing to keep a low profile like Buffett would probably want, and in any case, the impact he has on the overall company would be very minimal at first.
If he is very good, his impact will increase and he would likely become the primary successor to Buffett as chief investment officer...and I assume people will be happy with that if he is successful, especially since he has the potential for a very long tenure given his age.
If he is not so good, he will depart or have a smaller role that will not be material to the company, and I'm sure they can find somebody else. In the past Buffett has said that there were four people who had committed to coming to Berkshire to manage investments if they were called to immediately do so, if Buffett passed away or decided to step down.
So it's a big financial news deal since people have speculated on this for so long, but it has effectively zero impact on my impression of Berkshire or its prospects…
Okay. Well, he’s only 39. What makes this guy so special, anyway?
He has a background as a bank regulator in Florida and in insurance pricing, later studied securities analysis at Columbia and managed financial stocks for another fund before he started his own fund in 2005, and apparently is a very intense worker, reading 500 pages per week and doing "deep-dive" research, according to the CEO of the company that gave Combs seed money to start his fund.
It appears that he has all of the background necessary to analyze financial companies, which are often the hardest ones to confidently figure out. They have many subjective accounting judgments that can make it easy to hide problems. Hidden problems can have a much bigger impact at financial companies, since they are highly leveraged (meaning that they have liabilities that are many times the equity), so a mistake that would be manageable at another company could sink a financial company.
He has been up roughly 5 percent per year on average, better than the down roughly 1% per year of the market. He tends to go in and out of stocks more than Buffett does, and also shorts stocks, which Buffett doesn't do. Maybe people aren't that impressed. But those returns are good if you don't take a lot of risk, he was only down about 6 percent in 2008 when the market was down 38 percent and many financial companies, which is where he specializes, were down much more than even that.
As I listened to my friend explain all this, it occurred to me that if it doesn’t work out with Todd, Warren might want to consider my friend for the job.
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Comments :
Jul '10
Re: Money Talks
Buffett should hire me.
My investment strategy is simple: bet that the Federal government and the Federal Reserve are criminally stupid.
I'm up 50% over the S&P 500 for the past 3 years.