UPDATE: Berkshire announced its first new investment manager on October 25: Todd Combs of Castle Point Capital. SEE ALSO COMMENTS AND STATISTICS UNDER TODD COMBS MONTHLY RETURNS.
1. Here are his picks from Gurufocus. There are some stocks on this list that Buffett would not buy, but to be fair, he's not running a long-short hedge fund.
2. Castle Point is a hedge fund funded by Stone Point Capital, the investment vehicle of Steve Friedman and Chuck Davis. Steve is former CEO of Goldman Sachs; Chuck is a former head of investment banking at Goldman and member of the investment committee as well as Vice Chairman of Marsh & McLennan. Both have long track records of making insurance investments, and Chuck is currently a director of Progressive Insurance. However, Buffett met Combs through Charlie Munger.
3. The process through which this choice was made was surprising, to say the least. As the Wall Street Journal put it, "Mr. Combs was one of hundreds of people who responded to an unconventional 'help wanted' request Mr. Buffett made in early 2007. But his initial inquiry didn't distinguish itself. Undaunted, the low-key father of three, who lives in Darien, Conn., recently sent another letter to Berkshire Vice Chairman Charles Munger asking for a meeting. Mr. Munger said in an interview that he gets 'hundreds' of such requests each year, but 'something in his request piqued my interest.' The two soon met for a lunch that extended well into the afternoon at the California Club in downtown Los Angeles. Mr. Munger later phoned Mr. Buffett and told him, 'this is a guy I am sure you are going to like,' Mr. Munger recalls. Mr. Buffett says he and Mr. Munger were sold on Mr. Combs not only because of his ability and intelligence but also because they were convinced he would fit in to Berkshire's no-fuss culture." One must ask, why weren't the other people who volunteered in 2007 considered? There were at least a couple of dozen viable candidates. Can it really be that the choice of the CIO of Berkshire turned on one person's decision to write a letter to Charlie Munger? WHAT HAPPENED TO THE FOUR CANDIDATES "WAITING IN THE WINGS" who are "immediately available" to Berkshire if needed???
4. Todd is young (39). After a short stint doing pricing at Progressive, he went to business school at Columbia. During this period, he interned at Keefe, Bruyette & Woods. Later, he worked at Copper Arch Capital for some time. Copper Arch is the Scott Sipprelle hedge fund that started the movement to oust Phil Purcell at Morgan Stanley; Copper Arch was subsequently wound down; Sipprelle is currently the Republican candidate for New Jersey's 12th Congressional district. Todd is better known among the financial service analysts on the buy and sell sides than may be discerned from reading press reports, because he came up through the ranks at a hedge fund in the usual way (i.e., relying on others as teachers). It's not my place to speak for them, but maybe some will weigh in with opinions (see one here).
5. Based on his holdings, Todd could most accurately be described as an insurance investor who also trades other financial services stocks. However, an investor presentation is circulating that shows he is actually well-versed in bottom-up analysis of bank and other financial stocks using the kind of techniques followed at a boutique (e.g., such as KBW). Berkshire is apparently moving to a sector investing approach, either guided by a senior manager who coordinates sectors, or not (this is unclear but it appears that Todd will be in charge of everything). Some of the publicity surrounding the appointment is pretty funny ("Warren Buffett Picks His Successor: Todd Combs Set to Take Over Berkshire Hathaway" from the Daily Beast :-) ....) Undoubtedly there will be more commentary in the coming weeks, possibly with 3Q earnings letter, about how this is all going to work.
6. BRK closed down 1.3% on a flat day for the market on this news and the following day is underperforming by another 1.3% as I write this update. As to why -- here are varying thoughts of people with whom I've connected:
> The move means we're getting closer to a handover, and Buffett's irreplaceable;
> Sector style asset allocation is a capitulation -- it means there is no Lou Simpson-caliber investor waiting in the wings;
> Investors should be happy to have some clarity about who is going to run the portfolio;
> Todd Combs is virtually unknown and the size of his portfolio is small;
> Why did Buffett choose a young, unknown value investor when there are well-known, proven candidates who are qualified?;
> It may be a tradeoff to get someone young enough/humble enough/open-minded enough/who's not coasting on a reputation;
> Berkshire may be showing signs of becoming the classic situation in which a legendary CEO chooses pedestrian successors;
> The process has a rushed, haphazard feel and raises question of poor planning and judgment on the part of Buffett and Munger;
> Is something going on that we don't know about? Why the rush all of a sudden?
> Or, Todd Combs is a hidden genius who will surprise everyone, and this will turn out to be a phenomenal move on Buffett's part. Buffett has a long history of choosing people successfully for the roles in which he places them.