Buffett's Apple, Airline Wagers Highlight Emergence of Deputies

(Bloomberg) -- Some of Berkshire Hathaway Inc.’s biggest new stock bets highlight the growing influence of Warren Buffett’s backup investment managers, Todd Combs and Ted Weschler.

Berkshire’s holding in American Airlines Group Inc. is overseen by “one of the fellows,” who initially made a bet on a larger group of carriers, the billionaire said in an interview Monday on CNBC. Buffett, 86, built up stakes in the other three major U.S. airlines -- Delta Air Lines Inc., Southwest Airlines Co. and United Continental Holdings Inc.

He also said that a small part of Berkshire’s investment in Apple Inc. was made by one of the deputies. Buffett has since piled in, building his company’s stake to 133 million shares, valued at more than $18 billion at Friday’s closing price.

The investments were surprising to many Berkshire followers because Buffett generally avoided investing in technology, and he spent years criticizing airlines as terrible businesses. While the deputies generally work independently from their boss, Buffett’s comments Monday show how they’re bringing fresh ideas to his attention.

“It’s nice to have a couple other people out there looking at new ideas,” said David Rolfe, a chief investment officer at Wedgewood Partners, a Berkshire and Apple investor that oversees $7.2 billion. “I’m sure these guys know what may start to pique his interest.”

‘Bad First Century’

Buffett didn’t say Monday which deputy had taken the American or Apple stakes. People familiar with the matter have previously said that Weschler, 55, studied up on the airline industry last year after seeing a presentation from American. The airline’s chief executive officer, Doug Parker, argued that consolidation had ended the boom-and-bust cycle that had plagued his company and competitors for decades.

Buffett said Monday that airlines had a “bad first century” but that he came around on the industry because carriers had been operating at higher capacities. That is essential, he said, because having too many seats forces airlines to slash prices and “go broke over time.”

Weschler also told a German magazine last year that cloud computing and apps had made customers more loyal to Apple. Buffett echoed that thinking on Monday, saying that he warmed to the iPhone maker because its products have become indispensable for lots of consumers.

‘Sticky Product’

“Apple strikes me as having quite a sticky product and an enormously useful product to people that use it, not that I do,” Buffett said, praising Tim Cook, the technology company’s CEO. “He’s been very intelligent about capital deployment.”

Not so long ago Apple was looking like its star was fading. The company last year reported its first annual sales decline in more than a decade as iPhone updates failed to attract enough new buyers.

Cook’s response was to push more services, such as Apple Music, the App Store and iCloud. These businesses are more profitable than iPhones and iPads, and they increase the chances customers will buy future Apple gadgets because users’ apps and data are tightly woven into the company’s operating systems.

Buffett said Berkshire’s Apple purchases this year were completed before the iPhone maker reported quarterly results on Jan. 31. The stock surged after the earnings report.

“It did jump, and that’s why we quit buying,” Buffett said. “We would have probably bought more.”

Hiring Combs in 2010 and Weschler in 2011 was a cornerstone of Buffett’s succession plan. The former hedge-fund managers each oversee more than $10 billion, Buffett wrote in his annual letter, which was posted online Saturday. That compares with about $9 billion a year earlier.

The pair have helped their boss in other ways. Each was named chairman of a Berkshire subsidiary. And an investment by Combs, 46, in Precision Castparts ultimately led to Buffett’s buyout of the airplane parts supplier last year for $37 billion.

--With assistance from Katherine Chiglinsky and Molly Schuetz

To contact the reporter on this story: Noah Buhayar in Seattle at nbuhayar@bloomberg.net.

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net, Steven Crabill

©2017 Bloomberg L.P.