John P. Reese

About the Author John P. Reese

John P. Reese is considered an expert in the systematic investing methodologies of legendary investors, including Peter Lynch, Ben Graham, Warren Buffett and many others. He has been active in the development of fundamentally-based quantitative models since the mid-90s. His commentary and research on Seeking Alpha will include stock ideas, strategy related pieces, value investing concepts, behavioral finance related posts, systematic and modeling methods as well as other long term investing concepts. John is founder and CEO of Validea.com and also co-founder of Validea Capital Management, a separate account asset management firm serving individuals and institutions. John sub-advises the National Bank Consensus American and International Equity Funds offered in the Canadian market. He holds two U.S. patents in the area of automated stock analysis and is considered an expert in the field of quantitative stock selection using the strategies of investing legends. John is a columnist for TheStreet.com, Forbes.com and Canada's Globe & Mail and is co-author of “The Guru Investor: How to Beat the Market Using History’s Best Investment Strategies". He holds a master's of business administration from Harvard Business School and a degree in computer science from MIT. A more complete biography can be found here: http://en.wikipedia.org/wiki/John_P._Reese

Berkshire Hathaway Inc.’s Buffett Protégés and the Road to Apple Inc.

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, Weschler 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. (NASDAQ:AAPL) 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 Weschler-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 Weschler and Combs “blew it in 2014,” referring to their less than stellar stock picks including General Motors (NYSE:GM) and Viacom (NASDAQ:VIA) (NASDAQ:VIAB). 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 Weschler-Combs duo, and particularly surprising given that 4 years ago Buffett ruled out investing in Apple or Google (NASDAQ:GOOG) (NASDAQ:GOOGL). “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.”

Weschler 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.

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  • baligeko

    AAPL Long.

  • Robert J Miskines

    Apple and Google don’t seem that hard to value, both have descent moats: market leaders, transparent business operations and are highly profitable. Had Mr. Buffet spent a little extra time in the bathtub four years ago evaluating these companies, Berkshire Hathaway shareholders would be slightly better off.