Exploring Markets

Lessons About Investing From Warren Buffett's Top Hire

Warren Buffett picked a man named Todd Combs to join Berkshire Hathaway in 2010. At the time, Combs was running his own hedge fund. His returns were solid and outperformed most at nearly 34% per year. Combs was a graduate of Columbia Business School. Just like Buffett. And so eventually word spread and Buffett heard of him, talked with him, and then hired him. Ever since Combs has been climbing the ladder. Some think he will be the next Buffett. That’s why reading about his insights on investing and markets is so important. He is also very private and rarely ever does interviews or talks. In this post, however, we’ve uncovered a talk he did at his undergraduate university Florida State (link here but access is private):

Combs is asked about the first time he met Buffett at Columbia. Here’s what he remembers:

“That he’s brilliant, humble and inspiring. Warren went to Columbia B-school as well and really built BRK through insurance, which I knew well from my days at Progressive. Both investing and insurance are a game of probabilistic science, where you try to get the odds in your favor. So, things he talked about that day and the way he spoke really struck a chord with me. He said, “I read 500 pages a week,” referencing the huge stack he had walked into the room with. “Any of you can do it, and the knowledge just compounds over time.”

Combs is asked what it’s like to work with Buffett. What Combs says shows how focused he is on constantly learning and problem solving with Buffett:

“Well, this one is hard to describe in words. You have this special combination of an incredible human being as well as the world’s greatest investor. Both are priceless because you learn so much from both aspects, especially when they’re combined. We see so many aspects of business at Berkshire; between our subsidiaries, public and private situations, it’s a pretty robust mosaic. And to be able to discuss those situations, problems and solutions with him is really special. It’s a rare person where the closer you look, the better he gets.”

At Berkshire, each week employees have a weekly lunch with Buffett and the team management. Combs says these moments are priceless:

“Warren loves teaching, and his ability to weave wisdom into storytelling and combine it with lessons from business history is really special. Warren credits his longtime business partner Charlie Munger with the best 30-second mind, but Warren’s ability to simplify the most complex issue is also unparalleled. Einstein lists the order of intelligence as “smart, intelligent, brilliant, genius, simple.” Warren’s mind is just frictionless in its ability to simplify issues to the core.”

Combs is asked what he thinks is the most important thing about investing. He says this:

“Howard Marks wrote a book titled “The Most Important Thing,” and I think it had 20 lessons. So it’s hard to distill into one – but it’s really a judgment business at the end of the day. You want to find the best business you can at the cheapest price you can. You can have a wonderful business at a high price resulting in a terrible investment, and conversely you can have a terrible business at a wonderful price yielding a terrific investment. Charlie Munger compares it to the parimutuel system or betting on horses. Everyone may know who the best horse is, but if it’s more than reflected in the odds, then it won’t pay off. You want to find the great horse that no one else thinks is a great horse.”

Combs manages about $10 billion. That’s a lot of money and here’s how he thinks about it:

“You’re really just making the best decision you can regardless of how many zeroes are in the number. My smallest position is now larger than the fund I was running ($500 million), although several of the positions are the same; they’re just bigger now. So the position or decision-making process doesn’t change.”

You might be surprised to hear that Combs reads for most of the day. That includes looking over company financials and reading transcripts from earnings:

“I read about 12 hours a day. Our offices are like a library. So I read annual reports, conference call transcripts, trade magazines, etc. Most things are routine, mundane and obvious, but every once in a while you find something interesting worth digging into. Warren and I will usually catch up once or twice a day on stuff that’s going on – deals, stocks, stuff with our companies. Sometimes our managers reach out or a banker calls with an idea, but that’s about it.”

How Cheap Is Warren Buffett? Is He Happy Being Cheap?

Warren Buffett is often called the greatest investor America has ever seen. But maybe there's more to the story. Maybe it also has to do with how well he saves and how frugal he is. Some people might even call him "cheap." But there's no shame in that if you love it and if it works for you.

So how cheap is Buffett? Get ready and read this:

1. Bill Gates, in his 2017 annual letter, wrote about Warren Buffett while they were traveling in China. Specifically, he recalls one moment when they went to McDonald's in the middle of Hong Kong and Buffett offered to pay. But Buffett did not want to use cash. Or even a credit card. Instead, he wanted to use coupons! Yes, Buffett pulled out coupons from his pocket to pay. The richest man! Gates writes:
"Remember the laugh we had when we traveled together to Hong Kong and decided to get lunch at McDonald's? You offered to pay, dug into your pocket, and pulled out … coupons!"

2. There is more to this story. In 1958, Buffett bought the current home he lives in for $32,000. Today, that home is worth $260,000 and he still lives in that home today. Buffett has never once moved. If you were one of the richest people on Earth, how many homes would you own and where in the world? Buffett still lives in the same home today.

3. Every morning, whenever Buffett decides to eat Breakfast out, he goes to McDonald's. And he never pays more than 3 certain amounts: two sausage patties for $2.61, a sausage, egg and cheese for $2.95 or a bacon, egg and cheese for $3.17. That's it. He NEVER spends more than $3.17.

4. At the 2014 Berkshire Hathaway annual shareholder meeting, Buffett dropped some wisdom about his life and his frugality. Why is he so cheap? He explained it like this and you might want to send this to your friend, wife, or children: 
"There are things money can't buy. I don't think standard of living equates with cost of living beyond a certain point. Good housing, good health, good food, good transport. There's a point you start getting inverse correlation between wealth and quality of life. My life couldn't be happier. In fact, it'd be worse if I had six or eight houses. So, I have everything I need to have, and I don't need any more because it doesn't make a difference after a point. When you get to 10 times or 100 times or 1,000 times, it doesn't make a difference in quality of life." - Warren Buffett

Want to read or watch more? Here some sources to check out

- Warren Buffett's HBO Documentary About His Life
- How Buffett Once Bought Bill Gates Breakfast with Coupons
- Warren Buffett's Quote About Being Cheap