Should Berkshire Hathaway Disclose Performance for Investment Managers?
This article is the first in a series of responses to questions from readers.
Thanks to the subscribers who submitted questions for The Rational Walk’s first-ever “Ask Me Anything” article. The AMA topic was about Berkshire Hathaway and there were a total of seven questions. I originally intended to write one article to answer all of the questions but I am now planning to respond in a series of articles. Today’s installment is about whether Berkshire Hathaway should disclose the performance of investment managers, specifically Todd Combs and Ted Weschler.
I will write additional articles covering the remaining questions, although I am not sure about the timing since a few questions/topics require an extended discussion. Topics include worst-case scenarios for Berkshire, how the company’s culture will change with new management, the current inflationary environment, the outlook for reinsurance, and whether management has added value via reinvestment of earnings.
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“Buffett once published Lou Simpson's investment track record in the annual report. When do shareholders get the same treatment for Ted and Todd?”
I wrote a brief tribute to Lou Simpson in early 2022 soon after his death:
Mr. Simpson’s track record as an investor at GEICO spanned from 1979 through the end of 2010 when he retired to found SQ Advisors. His positions were closely followed by investors in the years that followed. When Berkshire Hathaway acquired GEICO in 1995, Lou Simpson became the only investment manager at Berkshire to whom Warren Buffett granted complete autonomy to make investment decisions.
In his 2004 letter to shareholders, Warren Buffett provided Lou Simpson’s track record with GEICO’s portfolio under the title of “Portrait of a Disciplined Investor”:
This quarter-century record is extraordinary. Why did Warren Buffett refer to Lou Simpson as “disciplined”? Take a look at the underperformance of Mr. Simpson’s portfolio from 1997 to 1999. This was the height of a massive bull market and even strong performance in absolute terms was insufficient to beat the S&P 500. However, this difficult period was followed by years of outperformance. Lou Simpson never strayed from his core investing style. When Mr. Simpson retired in 2010, Mr. Buffett joked that he was not disclosing Mr. Simpson’s record from 2005 to 2010 because it would make Mr. Buffett’s performance look bad in comparison. “Who needs that?”
This brings us to the question of whether Berkshire Hathaway should disclose the performance records of Todd Combs and Ted Weschler. Mr. Combs was hired in 2010 and Mr. Weschler joined the company in early 2012. However, Berkshire emphasized that Warren Buffett would continue to manage most of Berkshire’s funds. This state of affairs has continued for over a decade.
Berkshire’s 13-F disclosures do not specify the investment manager responsible for each position. However, Warren Buffett is known to focus on larger positions while Todd Combs and Ted Weschler often own smaller stakes. For example, we know that Berkshire’s large stake in Occidental Petroleum is Mr. Buffett’s position and we can infer that small positions such as Floor & Decor, Louisiana-Pacific, and Diageo were purchased by either Mr. Combs or Mr. Weschler.
But there is always some ambiguity.