Tuesday, April 30, 2013

This Is How You Earn $50 Million

article photo
source: Omaha Times

Yesterday I posted a note about Warren Buffett and the two lieutenants he hired to help him, Todd Combs and Ted Weschler. 

Normally I don't comment on the same article twice, but in this case I thought the picture accompanying the piece was worth another look.

I have pasted the picture of Todd Combs above.  Combs and Weschler took home out-sized paychecks ($50 million +) last year because their performance was so far ahead of the S&P 500.

Here's what the article wrote:

Todd Combs, 42, and Ted Weschler, 51, are expected to receive bonuses exceeding $50 million each based on their investment results in 2012, evidence that they and Buffett made the right choices when they connected....

Today, Combs and Weschler each manage about $5 billion out of Berkshire Hathaway's $88 billion in investments.

Their pay package is no surprise. Both were high-income investment managers on their own before joining Berkshire.

Buffett has said they would be paid salaries of about 0.1 percent of the money they manage, which would be $5 million a year based on a $5 billion portfolio. They also receive “performance pay” of 10 percent of the amount their investments grow beyond gains by the Standard & Poor's index of 500 publicly traded stocks averaged over several years.

In his latest report to shareholders, Buffett said investments by Weschler and Combs in 2012 were more than 10 percentage points higher than the 16 percent returns by the S&P 500. “They left me in the dust as well,” Buffett wrote.


Here's what struck me about the picture of Combs above:
  1. Look at the stack of reading on his desk - this is probably one day's worth of study;
  2. His computer monitor is turned off, with no ticker tape in evidence;
  3. His office is very bare bones;
  4. His feet on on his desk - good investing is about thinking and learning, not athletics.
Ted Weschler has told friends that he does not feel comfortable making an investment until he has studied it for 500 hours, so it would seem that both he and Combs share the same approach.

As does Warren Buffett's sidekick Charlie Munger.  Here's a quote from Munger:

Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts. Slug it out one inch at a time, day by day. At the end of the day - if you live long enough - most people get what they deserve.

I wasn't the only one impressed by this picture.  Blogger Joshua Brown also posted this picture on his blog The Reformed Broker, and added this comment:

Both Ted and Todd already knew how to make money and pick stocks - but what Buffett is teaching them now is how to become legendary.

It begins with getting off the phone, shutting down the monitor, turning off the TV and reading. A lot. Charlie Munger once famously remarked "In my whole life, I have known no wise people who didn't read all the time -- none, zero. You'd be amazed at how much Warren(Buffett) reads -- at how much I read. My children laugh at me. They think I'm a book with a couple of legs sticking out.” It's nice to see that they really live this ethos at Berkshire.