Lessons About Investing From Warren Buffett's Top Hire | 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. Now some think he will be the next Buffett. That’s why reading about his insights on investing and markets is so important. He's also very private and rarely ever does interviews or talks. In this post, however, we’ve uncovered a talk he did Florida State University (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.”