2 Berk­shire bosses show­ing more sway

Northwest Arkansas Democrat-Gazette - - BUSINESS & FARM - NOAH BUHAYAR

Some of Berk­shire Hath­away Inc.’s big­gest new in­vest­ments high­light the grow­ing in­flu­ence of War­ren Buf­fett’s man­agers Todd Combs and Ted Weschler.

Berk­shire’s hold­ing in Amer­i­can Air­lines Group Inc. is over­seen by “one of the fel­lows,” who ini­tially made a bet on a larger group of car­ri­ers, the bil­lion­aire said in an in­ter­view Mon­day on CNBC. Buf­fett, 86, built up stakes in the other three ma­jor U.S. air­lines — Delta Air Lines Inc., South­west Air­lines Co. and United Con­ti­nen­tal Hold­ings Inc.

He also said that a small part of Berk­shire’s in­vest­ment in Ap­ple Inc. was made by one of the deputies. Buf­fett has since piled in, build­ing his com­pany’s stake to 133 mil­lion shares, val­ued at more than $18 bil­lion at Fri­day’s clos­ing price.

The in­vest­ments were

sur­pris­ing to many Berk­shire fol­low­ers be­cause Buf­fett gen­er­ally avoided in­vest­ing in tech­nol­ogy, and he spent years crit­i­ciz­ing air­lines as ter­ri­ble busi­nesses. While the deputies gen­er­ally work in­de­pen­dently from their boss, Buf­fett’s com­ments Mon­day show how they’re bring­ing fresh ideas to his at­ten­tion.

“It’s nice to have a cou­ple other peo­ple out there look­ing at new ideas,” said David Rolfe, a chief in­vest­ment of­fi­cer at Wedge­wood Part­ners, a Berk­shire and Ap­ple in­vestor that over­sees $7.2 bil­lion. “I’m sure th­ese guys know what may start to pique his in­ter­est.”

Buf­fett didn’t say Mon­day which deputy had taken the Amer­i­can or Ap­ple stakes. Peo­ple fa­mil­iar with the mat­ter have pre­vi­ously said that Weschler, 55, stud­ied up on the air­line in­dus­try last year af­ter seeing a pre­sen­ta­tion from Amer­i­can. The air­line’s chief ex­ec­u­tive of­fi­cer, Doug Parker, ar­gued that con­sol­i­da­tion had ended the boom-and-bust cy­cle that had plagued his com­pany and com­peti­tors for decades.

Buf­fett said Mon­day that air­lines had a “bad first cen­tury” but that he came around on the in­dus­try be­cause car­ri­ers had been op­er­at­ing at higher ca­pac­i­ties. That is es­sen­tial, he said, be­cause hav­ing too many seats forces air­lines to lower prices and “go broke over time.”

Weschler also told a Ger­man mag­a­zine last year that cloud com­put­ing and apps had made cus­tomers more loyal to Ap­ple. Buf­fett echoed that think­ing on Mon­day, say­ing that he warmed to the iPhone maker be­cause its prod­ucts have be­come in­dis­pens­able for lots of con­sumers.

“Ap­ple strikes me as hav­ing

quite a sticky prod­uct and an enor­mously use­ful prod­uct to peo­ple that use it, not that I do,” Buf­fett said, prais­ing Tim Cook, the tech­nol­ogy com­pany’s CEO. “He’s been very in­tel­li­gent about cap­i­tal de­ploy­ment.”

Not so long ago Ap­ple was look­ing like its star was fad­ing. The com­pany last year re­ported its first an­nual sales de­cline in more than a decade as iPhone up­dates failed to at­tract enough new buy­ers.

Cook’s re­sponse was to push more ser­vices, such as Ap­ple Mu­sic, the App Store and iCloud. Th­ese busi­nesses are more prof­itable than iPhones and iPads, and they in­crease the chances cus­tomers will buy fu­ture Ap­ple gad­gets be­cause users’ apps and data are tightly wo­ven into the com­pany’s op­er­at­ing sys­tems.

Buf­fett said Berk­shire’s Ap­ple pur­chases this year were com­pleted be­fore the iPhone maker re­ported quar­terly re­sults on Jan. 31. The stock surged af­ter the earn­ings report.

“It did jump, and that’s why we quit buy­ing,” Buf­fett said. “We would have prob­a­bly bought more.”

Hir­ing Combs in 2010 and Weschler in 2011 was a cor­ner­stone of Buf­fett’s suc­ces­sion plan. The for­mer hedge-fund man­agers each over­see more than $10 bil­lion, Buf­fett wrote in his an­nual let­ter, which was posted on­line Satur­day. That com­pares with about $9 bil­lion a year ear­lier.

The pair have helped their boss in other ways. Each was named chair­man of a Berk­shire sub­sidiary. And an in­vest­ment by Combs, 46, in Pre­ci­sion Cast­parts ul­ti­mately led to Buf­fett’s buy­out of the air­plane parts sup­plier last year for $37 bil­lion.

Omaha World-Her­ald/RYAN SODERLIN

War­ren Buf­fett, in an in­ter­view with CNBC’s Becky Quick, said Mon­day that Berk­shire Hath­away is heav­ily in­vested in Ap­ple be­cause the iPhone maker has a “sticky prod­uct” that has proved in­dis­pens­able for many con­sumers.

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