Buffett’s Protégés and the Road to Apple

Warren Buffett, the “Oracle of Omaha”, doesn’t seem to be slowing down at the ripe age of nearly 86. Still, the buzz around when he’ll pass the baton continues, with much attention focused on Ted Weschler and Todd Combs, the supposed successors to run Berkshire’s $129 billion stock portfolio. According to the company’s legendary CEO, both former hedge fund managers have a “fundamental combination of soundness and brilliance”. Like most market players, Wechsler and Combs have had varied success in their picks. But Berkshire’s announcement earlier this week that it made a $1 billion investment in Apple Inc. stock (earlier this year) suggests that Buffett, who hasn’t been shy about his aversion to tech stocks, still has the utmost confidence in his protégés.

In Buffett’s annual letter to shareholders in April 2014, he revealed that his Wechsler-Combs team had “made Berkshire billions already that we wouldn’t have otherwise made.” Given how tight-lipped Buffett has been about the performance of his would-be successors, this was a huge feather in their respective caps. An article in Forbes last January, however, claimed that Wechsler and Combs “blew it in 2014”, referring to their less than stellar stock picks including General Motors and Viacom. Combs’ portfolio dip of.3% for the year broke Buffett’s No. 1 rule of investing: Never lose money. Apparently, the hiccup didn’t ruffle shareholders too much, since 2014 saw a 27% increase in Berkshire’s share price.

The sizeable investment in Apple Inc. is among the largest investments yet by the Wechsler-Combs duo, and particularly surprising given that 4 years ago Buffett ruled out investing in Apple or Google. “I just don’t know how to value them,” he said. Buffett hasn’t revealed which of the gentlemen made the call to buy.

Last month, Apple reported its first quarterly revenue decline since 2003, due in part to a slowdown in iPhone sales. But Apple Chief Executive Tim Cook said that, while it was a “challenging quarter”, he also said it “doesn’t change the future. The future is very bright.”

Wechsler and Combs seem to be on that page as well. And, despite Buffett’s concerns about technology stocks, Apple’s competitive advantage and predictable cash flow are traits that he looks for in companies.