Buffett’s succession plan: Todd Combs joins Berkshire

In a news release announced on Monday, Warren Buffett’s Nebraska-based Berkshire Hathaway said that hedge fund manager Todd Combs would join Berkshire Hathaway as an investment manager to handle a significant position that would eventually lead the firm to manage and expand its portfolio. Berkshire Hathaway, at present, owns numerous businesses focused on the insurance sector and a huge amount of liquidity involved in stocks.

According to Warren Buffett, one of the world’s richest tycoons, the new yet unexpected move fits with the succession plan, which the 80-year-old has outlined for the company he owns and leads since 1965.

Buffett had addressed his succession agenda in May this year and as per his plan his position would ultimately be split into a CEO role that would be taken care of by three or four investment chiefs.

Since then there has been a speculation on the kind of recruitments Buffett’s Berkshire Hathaway would make.

Buffett made a significant statement in his company news release, he said that he and his business partner Charlie Munger looked for someone like Combs for three years and they finally found Combs, who will now handle a significant position of Berkshire Hathaway’s investment portfolio.

“We are delighted that Todd will be joining us,” added Buffett.

James Armstrong, owner of the Berkshire stocks and president of Pittsburgh-based Henry H. Armstrong Associates said, “The fact that he’s come public with one of the names means he must be pretty confident in Mr. Combs, or why release the name. It’s not been his practice.” Armstrong oversees $ 400 million.

Combs’ appointment news, however, was surprisingly revealed right after Berkshire disclosed a dispute with securities regulators over its accounting for investments.

Todd Combs: Fact File

39-year-old Todd Combs has been managing Castle Point Capital, a financial service, as a hedge fund manager since five years. Combs has reportedly been able to manage $ 395 million since the firm’s inception in November 2005 till July 2010 and his fund climbed 28% up during the mentioned period.

Combs issued a letter to the limited partners of Castle Point Capital after Berkshire’s announcement that he is joining them.

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Berkshire Beyond Buffett: The Enduring Value of Values

Berkshire Beyond Buffett: The Enduring Value of Values

Berkshire Hathaway, the 0+ billion conglomerate that Warren Buffett built, is among the world’s largest and most famous corporations. Yet, for all its power and celebrity, few people understand Berkshire, and many assume it cannot survive without Buffett. This book challenges that assumption.

In a comprehensive portrait of the corporate culture that unites Berkshire’s subsidiaries, Lawrence Cunningham unearths the traits that assure the conglomerate’s perpetual prosperity. Riveting stories of each subsidiary’s origins, triumphs, and journey to Berkshire reveal how managers generate economic value from intangibles like thrift, integrity, entrepreneurship, autonomy, and a sense of permanence.

Berkshire Beyond Buffett explores

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Berkshire Hathaway Letters to Shareholders, 2013

Berkshire Hathaway Letters to Shareholders, 2013

Warren E. Buffett first took control of Berkshire Hathaway Inc., a small textile company, in April of 1965. A share changed hands for around at the time. Forty-nine letters to shareholders later, the same share traded for 7,900, compounding investor capital at just under 21% per year — a multiplier of 9,883 times. This book compiles the full, un-edited versions of every one of Warren Buffett’s letters to the shareholders of Berkshire Hathaway. In addition to providing an astounding case study on Berkshire’s success, Buffett shows an incredible willingness to share his methods and act as a teacher to his many students. There are hundreds of books about Buffett’s life, advice, and methods. These are his actual letters — word for word

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Learning from Warren Buffet’s Annual Letter to Berkshire Hathaway Shareholders

Warren Buffett’s annual letter to Berkshire Hathaway shareholders was released over the weekend. Readers will find plenty of investing lessons among the twenty-three pages. Warren began this letter as he begins each letter, by stating Berkshire’s change in per-share book value:

“Our gain in net worth during 2005 was .6 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%. Over the last 41 years, (that is, since present management took over) book value has grown from to ,377, a rate of 21.5% compounded annually.”

Some may wonder why Buffett opens by announcing the change in per-share book value rather than the earnings per share number. Over long periods of time, the change in per-share book value should nicely approximate the returns to owners. You may remember that, in my analysis of Energizer Holdings, I applauded the company for reporting comprehensive income within the income statement. Although a company’s net income is often referred to as its bottom line, net income is, in fact, a (sub)component of comprehensive income. Energizer Holdings (ENR) literally reports comprehensive income as its bottom line.

FASB merely requires that “an enterprise shall display total comprehensive income and its components in a financial statement that is displayed with the same prominence as other financial statements that constitute a full set of financial statements”. Unfortunately, despite the lack of attention paid to it by investors, the statement of changes in stockholders’ equity is considered “a financial statement that constitutes a full set of financial statements”.

Therefore, comprehensive income can be reported in a statement many investors either do not review or do not understand. Alternatively, a company may choose to report comprehensive income in a separate Statement of Comprehensive Income. This, of course, baffles many investors, who think they are reading a second copy of the income statement. After all, what is comprehensive income? Isn’t the net income number reported in a (traditional) income statement a comprehensive number?

No. The widely reported earnings per share number is not comprehensive. That isn’t to say the EPS number isn’t important. It is very important. In fact, for certain businesses, it may be the most useful figure for evaluating a going concern. This is especially true if the investor is only looking at the financials for a single year. A single year’s comprehensive income may actually be less representative of a business’ performance than a single year’s EPS number (both can be pretty unrepresentative).Remember, the earnings per share number does not tell you how much wealth was actually created (or destroyed). You need to look to the comprehensive income number to find that information.

Essentially, Buffett is reporting Berkshire’s earnings in that opening line. He is simply using a more comprehensive income figure. He’s saying here’s how much wealth we created, and here’s how much capital it took to create that wealth. When he writes “Our gain in net worth during 2006 was .6 billion, which increased the per-share book value of both our Class A and Class B stock by 6.4%” he’s really saying Berkshire earned .6 billion and a 6.4% return on equity. He prefers using comprehensive income rather than net income, because comprehensive income includes non-operating earnings such as changes in the market value of available for sale securities.

If you still have doubts about the idea that Buffett is essentially reporting Berkshire’s comprehensive income in that formulaic opening line of his annual letters, compare the change in net worth numbers Buffett has reported in past years to the comprehensive income numbers found in Berkshire’s annual reports. For the past three years, Berkshire’s reported “gain in net worth” and Berkshire’s reported “comprehensive income” were .6 billion vs. .5 billion, .3 billion vs. .2 billion, and .6 billion vs. .4 billion. I hope this helps explain why I like it when public companies prominently report comprehensive income instead of presenting net income as if it were the Holy Grail of investing.

Of course, there is no such Grail. Neither net income nor comprehensive income captures the true economic changes to an owner’s share of the business. There is no truly comprehensive income number – and there never will be. A review of the financial statements alone is not sufficient to determine how a business’ competitive position has improved (or deteriorated) over the course of the year.

“Every day, in countless ways, the competitive position of each of our businesses grows either weaker or stronger. If we are delighting customers, eliminating unnecessary costs and improving our products and services, we gain strength. But if we treat customers with indifference or tolerate bloat, our businesses will wither. On a daily basis, the effects of our actions are imperceptible; cumulatively, though, their consequences are enormous.”

It is to these actions and their effects that an investor must look when he is forming his qualitative assessment of a business. After all, a company may lose money and yet improve its competitive position. In fact, that is exactly what a great many young businesses do. The question, of course, is whether those present losses will be more than offset by future gains after accounting for the opportunity costs incurred.

All costs are opportunity costs. It makes no sense to evaluate a year’s losses as if the alternative was to stop time. The available returns on the lost capital must be considered as well. That is why when one of Berkshire’s units has consumed capital, the loss has weighed heavily on Buffett.

Over Berkshire’s history, the cost of any losses also included the over twenty percent compound annual gain that was foregone. Buffett has always been painfully aware of the fact that, for Berkshire, losing ,000 today would be much the same as losing over ,000 ten years from today or over 5,000 twenty-five years from today. Berkshire will no longer grow its per-share book value at over 20% a year. So, these particular figures are outdated. However, if you refer to Buffett’s thoughts at the time when the Buffalo News was losing money (and when Berkshire’s textile operations were losing money), you will see just how heavily these opportunity costs weighed on him.

Still, it is possible that a business operating at a loss is actually improving its competitive position and creating wealth for its owners. One very difficult question that must be answered is exactly what the assets (often the intangible assets) that have been gained at great expense are actually worth. In some very special businesses, huge expenses are fully justified.

“Auto policies in force grew by 12.1% at GEICO, a gain increasing its market share of (the) U.S. private passenger auto business from about 5.6% to about 6.1%. Auto insurance is a big business: Each share-point equates to .6 billion in sales.”

“While our brand strength is not quantifiable, I believe it also grew significantly. When Berkshire acquired control of GEICO in 1996, its annual advertising expenditures were million. Last year we were up to 2 million. And I can’t wait to spend more.”

This excerpt helps explain why I think all the money PetMed Express (PETS) puts into cable TV ads is money well spent. Pet medications, like auto insurance, is a highly fragmented business. Sales volume is important. Obviously, name recognition is as well. PETS can spend a lot on cable advertising and still spend less per sale than its competitors. It’s also important to remember that pet medications are rarely the sort of thing a customer buys once (just like auto insurance). While you won’t be able to retain all your customers, you will have a much easier time getting a current customer to stick with you than you will getting a new customer to switch from a competitor.

I’ll end this post with one of Buffett’s best lessons:

“Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.”

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Omaha Skin Specialist Tells Berkshire Hathaway Stockholders to Invest in Yourself

Omaha Skin Specialist Tells Berkshire Hathaway Stockholders to Invest in Yourself










Omaha, Neb. (PRWEB) May 7, 2006

A smart investment grows over time, as Berkshire Hathaway stockholders know. But time may not be your best friend when it comes to your skin. A baby boomer turns age 60 every 7 seconds for the next 19 years.

“Let’s face it, aging baby boomers are finding out that time isn’t always kind to us in terms of wrinkles, sun damage, and gravity,” says Omaha dermatologist Joel Schlessinger, MD.

“The best investment you can make is in yourself, with regular skin screenings for early signs of skin cancer, and by taking care of your skin using the right moisturizers and daily skin routines,” he says. “Then you’ll be around to enjoy your long-term gains not only in your portfolio but in your health and good looks.”

More and more baby boomers are redefining the concept of leading active, healthy lives, according to the American Academy of Dermatology. That’s why they are turning to products and procedures to erase the telltale signs of aging.

Aging skin is a fact of life, just like the markets ups and downs. You’re smart to invest with a financial genius like Warren Buffett, advises Dr. Schlessinger. And smart investors in their own health will consult a dermatologist if they are considering any number of cosmetic procedures to turn back the hands of time.

“Be sure to talk with a dermatologist who is best qualified to discuss your outcome and select the best products and treatment for you,” says Dr. Schlessinger.

A full, back-page advertisement in Saturday’s Omaha World-Herald Business section, purchased by Dr. Schlessinger’s LovelySkin.com, welcomes Berkshire Hathaway stockholders to Omaha and tells about the “other Omaha success story”: LovelySkin.com – the world’s largest online seller of professional skin care products serving 100,000+ customers on six continents. The ad features a special bonus offer for the more than 24,000 visitors to Omaha this weekend for the Berkshire Hathaway annual meeting. The $ 20 coupon in the ad can be redeemed online for skin care products.

About LovelySkin.com: A wholly owned subsidiary of Skin Specialists, PC, a dermatological practice owned by Joel Schlessinger, MD, a board-certified dermatologist and board-certified general cosmetic surgeon. LovelySkin.com carries over 2,000 personal care products within 70 product lines and is the largest online outlet for dermatologist-recommended skin care products. Dr. Schlessinger’s medical practice is based in Omaha, Neb.

About Us: A wholly owned subsidiary of Skin Specialists, PC, a dermatological practice owned by Joel Schlessinger, MD, a board-certified dermatologist and board-certified general cosmetic surgeon. LovelySkin.com carries over 2,000 personal care products within 70 product lines and is the largest online outlet for dermatologist-recommended skin care products. Dr. Schlessinger’s medical practice is based in Omaha, Neb.

Contact Info:

Joel Schlessinger, MD

(cell) (402) 677-7546

(also available at the Berkshire Hathaway meeting on May 6)

http://www.LovelySkin.com

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