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On Wednesday, Berkshire Hathaway revealed that it has taken up new investments in Starz and Chicago Bridge & Iron Co. They also decided to sell off some of their shares of Mondelez International Inc., a snack food maker.

There were a number of other adjustments made to the $85 billion US stock portfolio of Berkshire Hathaway during the first quarter of 2013. These changes were recently disclosed in documents that were filed with the Securities and Exchange Commission, or the SEC for short.

At the end of the first quarter, the company owned 6.5 million shares of construction and engineering firm Chicago Bridge & Iron, which has a main focus on energy products, and they also owned shares in the Starz movie network totaling 5.6 million

Chicago Bridge & Iron recently completed their purchase of The Shaw Group back in February of this year. They are the primary contractor at Plant Vogtle’s nuclear expansion. This deal is valued at $3.1 billion. The Shaw Group continues to remain the primary contractor of the Mixed Oxide Fuel Fabrication Facility at Savannah River Site.

It’s quite common for investors to closely watch the things that Berkshire Hathaway does when trading so they can copy what Warren Buffett does. But, many of the most recent investments are smaller than $500 million. So these investments are most likely coming from Ted Weschler and Todd Combs, Berkshire Hathaway’s investment managers.

We are unable to learn which investments were made by whom through the quarterly stock filing. We do know that Ted Weschler and Todd Combs each have $5 billion portfolios that they manage for Berkshire Hathaway. Although Warren Buffett continues to make the majority of the investment decisions for the conglomerate based out of Omaha, Nebraska.

The officials at Berkshire Hathaway do not often comment when making their required disclosures, and when left a message on Wednesday afternoon, no one responded immediately.

At the end of 2012, Berkshire owned 12.8 million shares of Mondelez International. It has now cut its stake to 7 million shares. The company also trimmed their shares of Kraft Foods to 1.6 million. It was previously 1.67 million shares.

Berkshire also added on to some of the other investments in their energy portfolio. They bought more shares of National Oilwell Varco Inc. which brings it to 7.5 million shares. They didn’t add to their shares of ConocoPhillips or Phillips 66.

It’s no surprise that Buffett also added onto his favorite bank stock, Wells Fargo & Co. The company now owns 458.2 million shares. This is up from 439.9 million shares.

Berkshire also added onto its investment in Walmart, and brought it up to 49.2 million shares at the end of March. They previously held 47.5 million.

Buffett also increased his company’s investment in Internet registry service VeriSign Inc. They previously held 3.7 million shares, and now own 8.2 million.

The company completely eliminated two of their smaller investments in General Dynamics Corp. and Archer Daniels Midland Co. Both were part of the Berkshire Hathaway portfolio at the end of 2012. Plus, Berkshire reduced its stake in Bank of New York Mellon from 19.6 million shares to 18.9 million shares.

Warren Buffett, the most famous investor in America, really holds himself to a much higher standard than most. That’s why he describes the business year of 2012 as “subpar” even though Berkshire Hathaway made a total of $24.1 billion for its shareholders. Buffett pointed out that only for the ninth time in Berkshire Hathaway’s 48 years, their book value of 14.4% was actually less than the S&P’s gain of 16%. This is basically how Buffett kicks off his annual letter, which he released on Friday, March 1. If you are interested in investing, then this document is a must read for you and anyone else interested in this field. It’s filled with plenty of Warren Buffett’s homespun, wry style.

Putting aside the “subpar” performance of Berkshire Hathaway, Buffett’s other major regret was the “inability” to achieve a major accomplishment during 2012. “I pursued a couple of elephants, but came up empty handed,” wrote Buffett. He did find his mojo again during the early part of 2013, being part of a blockbuster 23.3 billion-dollar acquisition of H.J. Heinz Co., the ketchup giant. Berkshire Hathaway is putting up $12 billion to purchase half of the company, along with another group of investors led by Brazilian businessman Jorge Paulo, who is buying the other half of the company.

Buffett wrote that now that this deal is done, it’s time for more big game hunting. “Charlie and I have again donned our safari outfits and resumed our search for elephants.” (Charlie Munger is long-time partner to Warren Buffett and friend of many years.)

Without question, the Buffett annual letter to shareholders is quite educational in regards to his philosophy of value investing, which he learned from Benjamin Graham, his mentor and author of The Intelligent Investor, a classic business tome.

Buffett’s investing philosophy is quite simple: Invest in easy to understand companies, for the long-term, with managers who love their business, and the businesses are currently undervalued. Always disregard all flavor of the month trends.

Buffett personally loves to invest in large, extremely reliable American businesses. This explains why the four biggest Berkshire Hathaway investments are in Wells Fargo, Coca-Cola, IBM and American Express. He increased Berkshire Hathaway’s ownership stake in all of these companies during 2012. The Omaha, Nebraska-based investment firm now owns 8.9% of Coca-Cola, 6% of IBM, 13.7% of American Express and 8.7% of Wells Fargo. “Berkshire’s ownership interest in all four companies is likely to increase in the future,” wrote Buffett. “Mae West had it right: ‘Too much of a good thing can be wonderful.’”

Let’s now take a look at some of the major highlights of the Berkshire Hathaway annual letter:

Guessing about Succession: The question asked most frequently in American capitalism is this: Who is going to finally replace the 82-year-old Warren Buffett? Buffett has made it quite clear that his duties are going to be divided among an investment manager – who is responsible for the allocation of Berkshire’s money – and a CEO, ultimately in charge of running the entire $170 billion empire that is Berkshire Hathaway. Warren Buffett confirmed last year that Ted Weschler and Todd Combs, two relatively unknown hedge fund managers, will be replacing him on the investment side. Buffett was very pleased with their performance during 2012.

Weschler and Combs “have proved to be smart, models of integrity, helpful to Berkshire in many ways beyond portfolio management, and a perfect fit,” wrote Buffett. “We hit the jackpot with these two. In 2012 each outperformed the S&P 500 by double-digit margins.” Buffett then added mischievously, in a very tiny font: “They left me in the dust as well.” As a result of this excellent performance, Buffett and Berkshire Hathaway have decided to increase their investment funds to around $5 billion. “Todd and Ted are young and will be around to manage Berkshire’s massive portfolio long after Charlie and I have left the scene. You can rest easy when they take over,” wrote Buffett.

On the side of management, Warren Buffett didn’t provide any clues, but he did heavily praise Ajit Jain, a longtime favorite of Buffett who manages the reinsurance group of Berkshire Hathaway worth in the multi-billions. He is widely looked upon as one of the top candidates to take over the CEO position at Berkshire. “From a standing start in 1985, Ajit has created an insurance business with float of $35 billion and a significant cumulative underwriting profit, a feat that no other insurance CEO has come close to matching,” wrote Buffett. “He has thus added a great many billions of dollars to the value of Berkshire. If you meet Ajit at the annual meeting, bow deeply.”

Newspapers: We all know that Buffett loves newspapers, “and if the economics make sense, [Berkshire] will buy them even when they fall far short of the size threshold we would require for purchase of, say, a widget company.” Over the last 15 months, Berkshire Hathaway has acquired 28 daily newspapers and paid $344 million for the privilege, he wrote, even with his long-standing prediction that “the circulation, advertising and profits of the newspaper industry overall are certain to decline.”

Here’s Warren Buffett’s logic: “News, to put it simply, is what people don’t know that they want to know,” wrote Buffett. “And people will seek their news – what’s important to them – from whatever sources provide the best combination of immediacy, ease of access, reliability, comprehensiveness and low cost.” Buffett will readily admit that the Internet has been a disruption on the traditional newspaper business model, causing a drastic decline in revenues and readership. But there’s one particular area in this industry where Buffett sees an opportunity:

Newspapers continue to reign supreme, however, in the delivery of local news. If you want to know what’s going on in your town – whether the news is about the mayor or taxes or high school football – there is no substitute for a local newspaper that is doing its job. A reader’s eyes may glaze over after they take in a couple of paragraphs about Canadian tariffs or political developments in Pakistan; a story about the reader himself or his neighbors will be read to the end. Wherever there is a pervasive sense of community, a paper that serves the special informational needs of that community will remain indispensable to a significant portion of its residents. [...]

Charlie and I believe that papers delivering comprehensive and reliable information to tightly-bound communities and having a sensible Internet strategy will remain viable for a long time. We do not believe that success will come from cutting either the news content or frequency of publication. Indeed, skimpy news coverage will almost certainly lead to skimpy readership. And the less-than-daily publication that is now being tried in some large towns or cities – while it may improve profits in the short term – seems certain to diminish the papers’ relevance over time. Our goal is to keep our papers loaded with content of interest to our readers and to be paid appropriately by those who find us useful, whether the product they view is in their hands or on the Internet.

Uncertainty: In one of the more surprising parts of the annual Berkshire letter, Warren Buffett called out a few of his fellow US CEOs who have “cried ‘uncertainty’ when faced with capital allocation decisions (despite many of their businesses having enjoyed record levels of both earnings and cash).” Buffett is an optimist for America, who wrote that he is not in agreement with their concerns. “If you are a CEO who has some large, profitable project you are shelving because of short-term worries, call Berkshire. Let us unburden you,” wrote Buffett.

American business will do fine over time. And stocks will do well just as certainly, since their fate is tied to business performance. Periodic setbacks will occur, yes, but investors and managers are in a game that is heavily stacked in their favor. (The Dow Jones Industrials advanced from 66 to 11,497 in the 20th Century, a staggering 17,320% increase that materialized despite four costly wars, a Great Depression and many recessions. And don’t forget that shareholders received substantial dividends throughout the century as well.)

Since the basic game is so favorable, Charlie and I believe it’s a terrible mistake to try to dance in and out of it based upon the turn of tarot cards, the predictions of “experts,” or the ebb and flow of business activity. The risks of being out of the game are huge compared to the risks of being in it. My own history provides a dramatic example: I made my first stock purchase in the spring of 1942 when the U.S. was suffering major losses throughout the Pacific war zone. Each day’s headlines told of more setbacks. Even so, there was no talk about uncertainty; every American I knew believed we would prevail.

The country’s success since that perilous time boggles the mind: On an inflation-adjusted basis, GDP per capita more than quadrupled between 1941 and 2012. Throughout that period, every tomorrow has been uncertain. America’s destiny, however, has always been clear: ever-increasing abundance.

Omaha, Nebraska, Next Stop: The Berkshire Hathaway annual shareholders meeting is known as the Woodstock of capitalism – and for very good reason. Each year, tens of thousands of the Berkshire Hathaway faithful make a pilgrimage to the annual meeting of the company, which takes place in Omaha, Nebraska on May 4 this year. It is quite the spectacle: imagine for a moment a Grateful Dead concert populated by hard-core, and in certain cases, the very wealthy, true believers in capitalism. Everyone is always in a great mood. Among this year’s highlights are:

• Berkshire Hathaway’s second annual international newspaper tossing challenge. “Last year I successfully fought off all challengers,” wrote Buffett. “But now Berkshire has acquired a large number of newspapers and with them came much tossing talent (or so the thrower’s claim). Come see whether their talent matches their talk.”
• The “Berkshire 5K” race will start at CenturyLink Center, the arena that holds 19,000 seats and is also the location of the annual meeting. “We will have plenty of categories for competition, including one for the media,” wrote Buffett. “Regretfully, I will forgo running; someone has to man the starting gun.”
• On Sunday, May 5, they hold the Borsheims Fine Jewelry gala. (Berkshire has owned Borsheims, the Omaha-based company, since 1989.) “Around 1 PM on Sunday, I will begin clerking at Borsheims,” wrote Buffett. “Last year my sales totaled 1.5 million. This year I won’t quit until I hit the $2 million. Because I need to leave well before sundown, I will be desperate to do business. Come take advantage of me. Ask for my ‘Crazy Warren’ price.”

The annual Berkshire Hathaway meeting is always a very memorable experience. Buffett can seem like he’s ageless at times, but unfortunately, that just isn’t the case. So if you happen to be a Berkshire Hathaway shareholder in the area of Omaha during the first weekend of May, you never know who you’re going to run into at Piccolo’s or Gorat’s. “These restaurants are my favorites, and I will eat at both of them on Sunday evening,” wrote Buffett. If you decide to go to Piccolo’s, “order a giant root beer float for dessert,” advises Buffett. “Only sissies get the small one. (I once saw Bill Gates polish off two of the giant variety after a full course dinner; that’s when I knew he would make a great director.)”

The shareholders of Berkshire Hathaway may have been seeing glimpses into the future without Buffett for some time now. Most of the deals that Berkshire Hathaway made last year were not directly involving the 82-year-old billionaire investor. They either started with one of the two investment managers Buffett recently hired over the last few years, or they started with one of the subsidiaries. No matter what way you look at it, Berkshire Hathaway did quite well during 2012.

Buffett will release his annual letter to shareholders this Friday afternoon, which is later on today.

The author of Warren Buffett’s Successor: Who It Is and Why It Matters, Jeff Matthews, tells us that last year’s deals are very comforting because they show how Berkshire Hathaway could work once Buffett is no longer there.

“It’s very reassuring. This didn’t used to happen,” said Matthews.

The main thing shareholders will miss most about Warren Buffett is his fantastic judgment and excellent connections. Take the 23.3 billion dollar deal to purchase a portion of H.J. Heinz, a Pittsburgh-based company.

No matter what kind of deal is being made by Berkshire Hathaway, the annual letter written by Warren Buffett is possibly the best read document throughout the entire business world. This is all because of his incredible record of accomplishment and his excellent ability to explain complicated matters in plain English.

There’s no question that shareholders are wondering about the future of the former textile manufacturer known as Berkshire Hathaway. Buffett is getting up there in years. He also recently suffered from prostate cancer, although it wasn’t life-threatening and he seems to have gotten through it quite nicely.

Some of the biggest dollar value deals Berkshire Hathaway made last year are:

Repurchasing $1.2 billion worth of Berkshire Hathaway Class A shares and purchasing $1.5 billion in mortgage loans from Residential Capital.

They also made a $4 billion deal to cover CIGNA Corp.’s insurance losses, and received a $2.2 billion premium in exchange.

Other deals were made but the terms have not been disclosed. Analysts tell us that the Oriental Trading Co. acquisition, as well as the Prudential real estate network will not likely be a major boost to Berkshire Hathaway’s bottom line by themselves.

The only Berkshire Hathaway deals that Warren Buffett likely initiated are the share repurchase acquirement, the acquisition of Oriental Trading Co. and potentially the deal with CIGNA. The rest of the deals started elsewhere. But there’s no question that Warren Buffett signed off on each and every one of them.

Buffett seems to enjoy all of the speculation revolved around who will eventually run the company. Meyer Shields, KBW analyst, said that Buffett probably won’t help narrow down the competition because of his enjoyment of the speculation.

If you follow the company as an investor, you might look upon these four people as the strongest potential candidates: Greg Abel, CEO and President of MidAmerican; Burlington Northern Santa Fe CEO Matt Rose; Ajit Jain, head of the Berkshire Hathaway reinsurance division; and CEO of Geico, Tony Nicely.

Buffett told us that his son Howard, also a member of the Berkshire Hathaway board, is ideally suited as the company chairman.

Berkshire Hathaway also hired two hedge fund managers, Ted Weschler and Todd Combs, who will eventually be able to run the entire Berkshire Hathaway portfolio. They each manage portfolios worth around $4 billion. Buffett continues to make the majority of the investments on behalf of Berkshire Hathaway as he searches for large acquisitions.

Warren Buffett once told us that avoiding dividends during the early years of Berkshire Hathaway gave him the ability to refocus the company’s money on better businesses, just like a person would overcome “a misspent youth.”

The billionaire Warren Buffett, now 82 years old, is focusing on his legacy as he prepares Berkshire Hathaway for new management as his time with the company winds down to a close. Using the annual letter being published on March 1 as a way to outline a dividend plan could show shareholders a way for the next leaders of the company to look at the challenge of allocating profits.

“It may ease the burden on the successors” if they have the ability to pay a dividend, Richard Cook tells us, co manager of the Cook & Bynum Fund, which has Berkshire Hathaway as one of its largest holdings. Berkshire and its subsidiaries “generate a lot of cash.”

Buffett’s annual letter is there to teach Berkshire Hathaway shareholders about corporate governance, investing and business, as well as the annual meetings in Omaha, Nebraska, where the company is located. As Berkshire grew through acquisitions and investment gains, so did its rather large pile of cash, which by the end of September 2012 amounted $47.8 billion. This large sum has made it very difficult to allocate the funds, since it is often difficult to find large investments that are worthwhile, we learned from Buffett himself.

The CEO and Chairman started buying back Berkshire shares in 2011 and used part of the most recent annual letter to explain when share repurchasing made sense. Last May, while on CNBC, he said that he would probably discuss the makings of a logical dividend policy in the upcoming annual letter.

Buffett’s Blessing

“It’s a very sensible move” to discuss when the company should begin paying a dividend, so the next CEO of Berkshire Hathaway will appear to have a Buffett’s blessing, we learned from Tom Russo, currently a partner at Gardner Russo & Gardener, overseer of more than US$5 billion, and that includes Berkshire Hathaway shares. After Warren Buffett is gone, many will have “a tendency to second-guess,” said Russo.

In 1965, Warren Buffett took over Berkshire Hathaway and changed it from a company that made men’s suit linings and textiles, and turned it into a $251 billion company that currently has retail businesses, lots of manufacturing companies, subsidiaries that generate electricity, they sell insurance and haul freight among many other things. His opinions about investments, due to his excellent record of accomplishment, make his annual letters a must read on Wall Street.

In his 1985 letter, Warren Buffett said that dividends make sense when a company’s managers cannot generate adequate returns when keeping the money inside the business. Berkshire Hathaway never paid a dividend because it’s always been able to earn better rates on retained profits, he told us at the time.

Averting Disaster

Buffett once wrote that paying a significant amount of money to his investors could have actually been “disastrous” in the beginning because the three businesses that he and Charlie Munger oversaw in the beginning had very little money. They also incurred losses and were only a fraction of their original size just 20 years later.

“It’s been like overcoming a misspent youth,” said Buffett of the Berkshire Hathaway effort to expand their chocolate making, newspaper publishing and insurance businesses. “Clearly, diversification has served us well.”

Buffett continually finds the best ways to invest the extra cash that Berkshire Hathaway has on hand. Over the last 30 years, he’s amassed tremendous stakes in large companies including IBM, Coca-Cola and Wells Fargo & Co. He even buys whole companies such as General Re reinsurer and Burlington Northern Santa Fe railroad.

Just this month, he teamed up with Jorge Paulo Lehman’s 3G Capital in a deal worth $23 billion to purchase H.J. Heinz Co. and make it a private company. The deal will provide Berkshire Hathaway with $4.1 billion worth of equity and $8 billion in preferred stock that pays a dividend of 9%, we learned from the regulatory filing.

Charles Munger’s Wish

Warren Buffett points out his own mistakes in his annual letters, and he also uses them to praise his managers like Ajit Jain, his reinsurance chief, and the CEO of Burlington Northern Santa Fe Matt Rose. Warren Buffett relies heavily upon the subsidiary heads to oversee the day-to-day operations of these businesses. This leaves him and Charlie Munger the time they need to allocate the profits properly.

I believe that some of the people reading this article will live to see the day when Berkshire Hathaway pays a dividend. But hopefully it isn’t in the very near future.

The enormous size of Berkshire Hathaway could very well make a dividend a necessity at some point in the future since they may not have a better way to invest the accumulated funds, we heard from Munger at a meeting during 2011 in Pasadena, California.

“I think that some of you will live to see Berkshire pay a dividend, but I hope I don’t,” said Munger, 87 years old at the time, responding to the question of a member of the audience. “You’re saying, ‘Do you predict failure?’ And I suppose I do.”

During last year’s annual letter, Warren Buffett told us that the board chose a manager to take over as the next CEO, but they chose not to identify this individual. For a while now, Mr. Buffett has been allowing his investment managers Ted Weschler and Todd Combs to oversee more of the company’s $88 billion worth of stock.

Stock Rally

As of this morning, Berkshire Class A shares gained 0.5% to reach the amount of $152,650 at the opening around 9:35 AM in New York. Over the last 12 months, Berkshire has rallied for a 29% gain due to the gains in their operating units, a buy back in stock and Bank of America Corp. investment. In the same period of time, the S&P 500 index only gained 10%.

One roadblock to potentially paying a dividend now is that Warren Buffett, as the largest shareholder of Berkshire Hathaway, would have to do something with the payments he earns, said Russo. You probably know that he has pledged the majority of his wealth to charity, but he still has stock in Berkshire Hathaway worth more than $50 billion.

“Warren doesn’t want cash. He doesn’t need it. He doesn’t want the burden of investing it,” said Russo.

Paying a dividend could certainly makes sense once Buffett is no longer leading the firm, and more of the current shares he has passed over to the Bill & Melinda Gates Foundation as well as his children’s philanthropic endeavors, Russo said. These charitable organizations are obligated to spend the money generated by a dividend, Russo also said.

The mutual fund manager, Cook, said he’d rather Berkshire skip paying a dividend and hold onto the cash for the time being.

“You’ve got a 50 year track record of being the best capital allocator in the world,” said Cook of Buffett. “As long as he’s alive, we think we’re generally better off with him” handling the money.

Ted Weschler is already proving his value to Berkshire Hathaway as much more than a stock picker. He has a knack for finding value in distressed companies. Since Ted joined Berkshire Hathaway this past January, the former hedge fund manager, at 51 years old, has already gone above and beyond the call of duty.

He’s made a bid for a mortgage business in bankruptcy, brought Berkshire Hathaway further into the newspaper publishing business through one of his negotiations, and he has reviewed potential takeover targets – all while running an equity portfolio worth multiple billions of dollars.

Ted Weschler and Todd Combs, Berkshire Hathaway’s other investment manager, oversee their own chunk of the $86.2 billion stock portfolio that Berkshire Hathaway owns. This past July, Warren Buffett gave each man $4 billion and the sole responsibility to invest it the way they choose.

Weschler is currently expanding his role with the company, and because of it, and the experience that he has, makes him an excellent candidate to take over as head of the company once the 82-year-old Warren Buffett decides to retire. We learn this from Alice Schroeder, the author of The Snowball: Warren Buffett and the Business of Life.

“He has a background in broad capital management, including private equity, mergers and acquisitions, owing businesses, and being directly involved in their management,” she said. Schroeder also mentions that takeovers are going to continue to be a very integral part of Berkshire Hathaway in his future if the company plans to continue growing at its current pace.

Just like Warren Buffett, Ted Weschler has created a style of investing that heavily relies on patience, knowing the ins and outs of any potential investment’s financials, plus a wide range of interests in many industries. We gathered this information through dozens of interviews with business acquaintances, friends and former colleagues of Weschler.

And just like Warren Buffett, Weschler created the bulk of his fortune away from Wall Street. The majority of his 30 year career was spent in his hometown of Charlottesville, Virginia, where he built a private equity firm and then started his own hedge fund later on – named Peninsula Capital Advisors. As you know, Warren Buffett decided to keep the home of Berkshire Hathaway in his hometown of Omaha, even through the entirety of its expansion. The company now employs more than 250,000 people, and it’s worth more than $200 billion.

Ted Weschler divides his time between Charlottesville and Omaha, as he collaborates with the heads of the Berkshire Hathaway operating units, and helps look into potential takeover targets, according to someone familiar with the role that wants to keep his or her identity private.

Weschler did not comment for this story, but he has helped Warren Buffett buy 63 newspapers from Media General (including the Richmond Times-Dispatch), as well as refinance its debt. He also handled the negotiations when Berkshire Hathaway bid on the assets of mortgage lender Residential Capital, which is a bankrupt unit of Ally Financial.

Associates and friends of Ted Weschler – whose father was an executive at A&P – has had a long desire to make lots of money. He wrote in his middle school yearbook that he wanted to become a millionaire, we learned from Chris Hagerty, director of advancement at Cathedral Preparatory School in Erie, Pennsylvania. Weschler also sold cigars to his fellow classmates while in high school, as they traveled to watch the school’s basketball team compete to win the state championship.

Weschler earned his bachelor’s degree from the University of Pennsylvania’s Wharton School, where he went on to work for chemical maker W.R. Grace. For two years, he served as the assistant to J Peter Grace, who led the company for over four decades.

In his role as assistant, Weschler had to attend every budget and operating review meeting with the head of the company, as well as looking over capital requests from natural resources, restaurant, healthcare, chemical and retail operations, which we learned from Terry Daniels, then vice chairman of Grace. “It was a tremendous learning experience. You got to see executives and how they responded,” said Daniels.

Weschler joined Daniels in 1989 when he started his private equity firm, which is now named Quad-C Management, based out of Charlottesville, Virginia. Just like Warren Buffett, Ted Weschler focused on only a handful of companies for his investments, and he held those investments for many years. Before Berkshire Hathaway announced Ted Weschler’s hiring during the second quarter of 2011, the entire hedge fund’s portfolio was only spread out among nine different companies, according to filings. Peninsula owned five of those stocks just three years earlier.

Ted Weschler was responsible for Peninsula, and managed their $2 billion dollar US stockholdings from a small two room office above a Charlottesville Virginia bookstore. He often went to work in shorts and short sleeve T-shirts, we learned from Michael David, a friend and former colleague that currently runs a hedge fund in Akron, Ohio. “He’s still stunned by the fact that he’s become incredibly wealthy,” Hawes Spencer said (Weschler backed him when he started a weekly newspaper in 2002 in Charlottesville, Virginia named Hook). “If I saw a Rolex on his wrist, I would faint.”

Also like Warren Buffett, Weschler made it a point to study lots of company filings and industry publications so he can get an overall edge in any industry. He once told Michael David that he wouldn’t invest in a company unless he studied them and the idea for at least 500 hours. “He’d go on vacation and take 10-Ks and 10-Qs with him,” David said, referring to SEC reports of publicly traded companies. “He still does.” It’s not surprising that he was able land a job with Berkshire Hathaway with that approach. It also didn’t hurt that he won two charity auctions in both 2010 and 2011, which he paid $2.63 million each time to have meals with Warren Buffett.

During 2001, workers claimed that Grace’s asbestos products were causing illnesses and forms of cancer, so they declared bankruptcy. Weschler amassed a stake of roughly 15% of the chemical maker by the end of that year.

He worked with the plaintiff’s attorneys and the company, and he was able to help broker a settlement in 2008 that will create trusts that take responsibility for the asbestos claims, while protecting the shareholders from being wiped out.

“He understood the issues for my clients weren’t all dollars and cents,” says Joe Rice, one of the attorneys working on the case on behalf of the injured workers. “He was a catalyst.”

The company stock has risen around 40 times over since the initial bankruptcy filing, and it was one of the main reasons why Peninsula Capital Management gained over 1000% during the years 2000 through 2011, which is the time that Weschler closed the fund.

As of October 19, 2012, Weschler owns $3.74 million worth of Grace shares, and it’s estimated that they would currently be worth about $225 million.

Warren Buffett mentioned last year that Ajit Jain, 61, his reinsurance lieutenant, would most likely have the support of the board to become the next CEO if he decided that he wanted the job. Schroeder believes that Weschler is also a very good long-term choice if he can prove himself to Buffett. “Warren keeps describing him as an investment manager,” she says. “But the reality is his skills are more comparable to those of Warren himself.”

Here’s the bottom line: as well as overseeing a large part of Berkshire Hathaway’s $86.2 billion stock portfolio, Weschler also reviews takeover targets and negotiates deals.

If you don’t already know, Berkshire Hathaway hired two individuals to manage their portfolio. This was done so they have a team of three people that will be able to take over once Berkshire Hathaway founder and Chairman Warren Buffett finally retires. There is no date as of now when he plans on retiring. Todd Combs is a hedge fund manager who was hired by the company in 2010. He was chosen out of hundreds of different applicants when Warren Buffett placed a help wanted ad in 2007. Ted Weschler met Warren Buffett while winning an auction to have lunch with him. He’s a former hedge fund manager, and he was hired by the company in September of 2011.

Here’s what Warren Buffett said in his shareholder letter: “when our quarterly filings report relatively small holdings, these are not likely to be buys I made but rather holdings denoting purchases by Todd or Ted.”

Granted, neither manager has had a great deal of time to prove himself in the roles in which they were hired for, but the stock performance of their recent picks definitely tells us that the future of Berkshire Hathaway should be in good hands. The top winners for both managers are MasterCard, Visa and CVS.

MasterCard

Berkshire Hathaway picked up 216,000 shares of MasterCard during the first quarter of 2011 at an average price of $243 per share. They also picked up more during the second quarter of 2011, and they grabbed another 189,000 shares at $274 per share. This is currently the best-performing stock that the new managers picked. MasterCard has gone up 84% from the average purchase price, and it’s even risen 27% during 2012.

MasterCard provides an important economic link between businesses, banks and the cardholders, and they connect them with merchants all across the world. Their current market cap is $56.34 billion, and the stock currently trades around $473.70 per share. The current P/E ratio is 21.8, and the P/S ratio is 8.4. MasterCard’s dividend currently pays 0.3% per share.

MasterCard saw a revenue increase in the third quarter by 9%. They also increased their net income by 17% year-over-year. Also, their worldwide purchase volume increased by 13% during the third quarter to a total of $661 billion.

Visa

Berkshire Hathaway purchased 2,291,708 shares of this company stock during the third quarter of 2011 at an average price of $87 per share. They also increased the amount of shares they owned during the fourth quarter of 2011 by adding on another 573,300 shares. They did this at an average price of $94. During the second quarter of 2012, Berkshire Hathaway sold 785,349 shares at an average price of $119 per share. Visa was the second best performer from the new managers, and it increased 82% from the average price that they paid, and it’s up 38% year to date. It’s currently trading at $140.26 per share as of the time of this writing.

Visa currently has the largest retail electronic payment network across the globe, and it’s the most recognized financial services brand on a worldwide scale. Their current market cap is $108.92 billion, and its current share price is $140.26. The P/E ratio is 22.7 and the P/S ratio is 11.9. The stock has a dividend yield of 0.7%.

During the third quarter of 2012, Visa suffered a net loss of $1.8 billion. This happened because they spent $4.1 billion on litigation. If you take out the litigation provision and the tax benefit that comes along with it, they would have made a net income of $1.1 billion. This is a year-over-year increase by 25%. Visa’s payments grew to $979 billion, which is a 6% gain.

“Visa once again reported solid global growth in payments volume, cross border transactions and processed transactions outside the U.S., executing on our strategy of growing the electronification of payments worldwide. We are pleased that we were able to come to a resolution in the merchant litigation which was acceptable to most parties while ensuring the long-term health of the U.S. payments industry,” said Joseph Saunders, chairman and chief executive officer of Visa Inc. “As we look forward, we remain focused on launching new payment solutions and products for our financial and merchant partners and consumers, while supporting the Visa brand and the advancement of electronic payments.”

Visa also repurchased a total of 4 million shares of their stock during the third quarter, and paid a total cost of $461 million. This was authorized as part of a $1 billion repurchase program.

CVS

Berkshire Hathaway purchased 5,661,000 shares of CBS during the third quarter of 2011. They paid an average price of $36 per share. During the fourth quarter of 2011, they added another 1,445,500 shares which they paid an average price of $37 to purchase. Berkshire then sold 1,804,584 shares of CVS stock during the second quarter of 2012 at an average price of $45 per share. Their total position size was 5,301,916 shares at the end of the second quarter. CVS share price went up 48% from the average price paid, and the stock is up 20% year to date.

CVS/Caremark is a premier integrated pharmacy services provider in the United States of America. This combines one of the biggest pharmacy chains with one of the largest pharmaceutical services companies.

The total market cap for CVS Caremark Corporation is $61.61 billion. Its current share price is $48.86 at the time of this writing. They have a P/E ratio of 15.9 and a P/S ratio of 0.6. The CVS Caremark Corporation dividend yield is 1.3% per share. The company also saw an annual average earnings growth of 15.7% during the last 10 years. CVS was given the business predictability rank of 4-star by GuruFocus.

The third quarter net revenue for CVS has increased by 16.3%, and reached a record total of $30.7 billion. Their pharmacy services were up 28.2%, and the retail pharmacy was up 6.9%. The increase in pharmacy services sales happen primarily because of the new clients that they successfully acquired during the 2012 selling season, coupled with drug cost inflation and new activity that they gained in April of 2012 when they acquired the Medicare prescription drug plan of Universal American Corp.

Weschler and Combs have also made other picks that have done quite well. They bought shares of DirecTV, and they are up 16% higher than the average purchase price that they paid, and the stock is up 24% year to date. DaVita, another company they purchased, is currently 34% higher than the average purchase price that they paid. The stock is also up 16% year to date. General Dynamics is up 5% higher than the average purchase price that they paid, and currently 1.2% higher year to date.

I’d like to start off this article right away by wishing Warren Buffett a happy birthday, because he is now 82 years old. But the one thing that many people worry about is whether or not the Oracle of Omaha is going to slow down as his years start to decline. This also brings into question the stability of his investment company Berkshire Hathaway, and what it is eventually going to be worth once the CEO and chairman decides that it is time to finally call it quits for good. But as an investor there, you happen to have a lot of reasons to like the stock of Berkshire Hathaway, even if Warren Buffett is not there running the ship.

The first thing you definitely have to like about Berkshire Hathaway stock is that the price is directly on point. It hasn’t been this cheap in over 15 years, with the exception of the lowest days of the market crash between 2007 through 2009, according to Whitney Tilson who is a manager at the Tilson Focus Fund. The manager of the Wintergreen Fund, David Winters also agrees with him and says “The stock used to have a Warren Buffett premium, and that premium no longer exists.”

The Class B shares of Berkshire Hathaway, that were going for around $85 a share in early August, have lagged behind the S&P 500 index by about 4% each year over the last three years. Berkshire Hathaway is also a very attractive stock because a lot of investors happen to be undervaluing these high-class stocks all across the board, according to Winters.

The thing you really need to recognize is that the core businesses of Berkshire Hathaway are all very strong. The insurance premiums of the group insurance companies owned by Berkshire Hathaway has made an increase of 7.8% during the first quarter of 2012, when you compare it to the same quarter in the year 2011. Earnings prior to being taxed for the noninsurance businesses of Berkshire Hathaway, which include MidAmerican Energy Holdings and Burlington Northern Santa Fe, are up about 25% from this time last year.

So you have to realize that even if Warren Buffett decided to retire tomorrow, those businesses are going to continue to stay strong and Berkshire Hathaway isn’t going to suffer one bit. But better than that, Ted Weschler and Todd Combs are being groomed as potential heirs that are going to succeed Warren Buffett of his Berkshire Hathaway thrown. Berkshire Hathaway already knows who is going to take Warren Buffett’s place when he retires, but they are keeping that information close to the hip.

There is even plenty of evidence that shows us that Berkshire Hathaway themselves believe their stock is cheap. The Board of Directors at Berkshire Hathaway made a decision in September of 2011 to begin a buyback program if the stock should actually fall to 110% or less of book value, and this is based on assets minus liabilities. Inside of the annual report for 2011, Warren Buffett also mentioned it again that the program is going to continue, which basically says that the current stock price is either at that price right now, or below the 110% mark. That tells you that Berkshire Hathaway is at a significant discount to what it is actually worth.

But not only that, Warren Buffett is actually still in charge of the company, and he is still going very strong so this price is a no-brainer. Tilson said that “He can make investments that nobody else can because he is Warren Buffett.” He also believes that since Warren Buffett is very committed to the company, and he is still in good health, that he wouldn’t be surprised if Warren Buffett stays in charge of the company for another five years. “He still has some more rabbits to pull out of his hat.”

During the second-quarter of 2012, the cash flow of Berkshire Hathaway has reached its highest level in over a year as Warren Buffett, chairman, backed off regarding the amount of shares that Berkshire Hathaway owns as far as consumer-products stocks are concerned.

Berkshire’s cash has actually advanced to $40.7 billion over the last three months, which is a 7.5% gain. This number was officially calculated on June 30, 2012. This information was first made public in a Berkshire Hathaway regulatory filing on August 3. Berkshire sold off equities during this particular quarter in companies that distribute and create consumer goods, and they also added on to the financial firms that they own, which fall under the category of “commercial, industrial and other.” The individual stocks that were purchased were not listed in this particular filing.

During a phone interview with Tom Russo, who is a partner at Gardner, Russo & Gardner, which is an investor in Berkshire Hathaway, we learned that Mr. Russo said “why keep his old names that served a purpose for a while and have gone up.” He also mentioned that a few of the consumer stocks being held by Berkshire “have various forms of blemishes.”

The 81-year-old Warren Buffett has spoken about challenges that the consumer-products firms are going to be facing. He particularly spoke about the ones in the Berkshire Hathaway stock portfolio which are Procter & Gamble, Kraft Foods Inc., and Johnson & Johnson. He has used the cash from these sales to add to his other stocks, and in particular his financial stocks, like Wells Fargo and Company. He also is expanding his Berkshire Hathaway reach through other business acquisitions.

One thing that Buffett looks for each year is a good buyout deal that he can come across. During May, he mentioned at a shareholders meeting, that he could not come to an agreement on at potential acquisition that was going to cost around $22 billion. Berkshire has not made such a large purchase like this since 2011 when they purchased Lubrizol Corp., which is an engine additives maker. They bought the company for roughly $9 billion.

Having this extra cash on hand will allow Buffett and company the ability to make a very large takeover purchase, similar to the one that they made in 2010 when they bought railroad company Burlington Northern Santa Fe for $26.5 billion. This is according to Andrew Kilpatrick, a Warren Buffett biographer.

Something Extravagant and Big

According to Kilpatrick by phone interview, “if an elephant comes along, he will fire. He’s fully equipped to do something enormous.”

During the second quarter, Berkshire Hathaway sold $3.01 billion in equities. They also purchased $1.85 billion worth of stock, and this information is gathered according to the recent filing on August 3. The consumer portfolios cost the basis slipped from $12.3 billion down to $9.84 billion.

The amount of the financial firm holdings rose up to the amount of $17.7 billion, and this is coming from $17.1 billion. They advance their position in the commercial – industrial group from $23.3 billion to $23.7 billion. According to the data, and the way we’ve extrapolated it, it doesn’t look like Buffett and Berkshire Hathaway plan on building another large stake at this time, just like they did last year in International Business Machines Corp. (IBM), says Kilpatrick.

Buffett cut back on their holdings of Kraft Foods Inc. in the year 2010, and he has continued this trend over the last four quarters consecutively, and the shares are now at a total of 78 million as of March 31, which was learned through the regulatory filings. Warren Buffett actually mentioned during the 2010 shareholders meetings of Berkshire Hathaway, that he thought Kraft’s takeover of Cadbury PLC, plus the sale of their pizza brands during the year was a “dumb” move. But Kraft stock has risen a total of 37% since Warren Buffett made those remarks in 2010, up to August 3 of 2012. The shares are currently worth $40.51.

Berkshire’s stake in Johnson & Johnson

As of March 31 in 2012, Berkshire Hathaway and Warren Buffett only owned 29 million shares of Johnson & Johnson stock. This is actually down from a total of 42.6 million shares that they held at the end of 2010. Johnson & Johnson shares have increased a total of 5.4% this year, and their share price as of August 3 is $69.12. So the New Brunswick, New Jersey healthcare maker seems to be doing okay for themselves as well.

One blemish against Johnson & Johnson is that they have to pay over $1.1 billion in fines during April 2012. A jury in Arkansas said that the firm misled their patients and doctors in regards to the risks of Risperdal, which is an antipsychotic medication that the company produces. They have even struggled with recalls of over-the-counter medicines and artificial hip implants.

In an interview that Warren Buffett gave on CNBC on February 27, 2012, he stated “it’s still got a lot of wonderful products and it’s got a wonderful balance sheet and all of that, but there have been too many mistakes.”

Procter & Gamble

Warren Buffett and Berkshire Hathaway also cut back on their holdings of Procter & Gamble by a total of 4.6% during the first quarter of 2012. This brought the total of their shares down to 73.3 million. One area where P&G struggled is raising their prices for specific products where there are cheaper alternatives. Gillette razors and Tide laundry detergent immediately come to mind. Warren Buffett also spoke about this on CNBC in May. P&G stock has gone down a total of 1.8% during the year 2012, and the share prices are currently worth $65.50 as of August 3.

Robert McDonald, CEO of Procter & Gamble, is working on a plan to show that the way he prices his products, plus the cost-cutting measures that are currently in place, will be enough to improve the results of the company. Bill Ackman’s Pershing Square Capital Management LP actually took out a $1.8 billion stake in Procter & Gamble in July. People who are familiar with the company, and those in the know, are under the impression that Mr. Ackman plans on pushing for changes in leadership in Proctor & Gamble.

Berkshire Hathaway has until the end of next week to file its US equity holdings list as of June 30 with the SEC. None of the representatives from Procter & Gamble, Kraft Foods Inc. or Johnson & Johnson felt the need to comment. Warren Buffett himself never returned a message that was left for him with his assistant.

Combs, Weschler

It is highly unlikely that Warren Buffett and Berkshire Hathaway lowered their stake in Coca-Cola Company, which is an Atlanta-based business. They are actually Berkshire Hathaway’s largest holding at this time. It is also known that Warren Buffett added to his stake of Walmart during June of this year. Shares of Walmart unfortunately took a nosedive in April when a New York Times article mentioned that the company was bribing Mexican officials to speed their expansion. The shares dropped down to $57.36 at that time.

Warren Buffett stated, in regards to Walmart, that the shares were “very attractive compared to other big companies.” He mentioned this when the shares were roughly $58-$59. This was mentioned on Bloomberg television in an interview that he did with Betty Liu. As of August 3, Walmart shares are currently worth $74.55.

It is also speculated that some of the extra money that Berkshire Hathaway has on hand is going to be distributed to former hedge fund managers Todd Combs and Ted Weschler. They were hired over the last two years to help Mr. Buffett and Berkshire oversee their investments, according to David Kass who is a professor at the University of Maryland’s Robert H. Smith school of business. He also mentioned in that same interview on July 13 that both former hedge fund managers will most likely oversee about $4 billion each worth of investments, as opposed to the current $2.7 billion worth of investments that they are currently managing.

Derivative Bets

It is also expected that Warren Buffett will use the excess funds to get out of some of his derivative bets, which was also stated by David Kass during an interview that he gave on the phone. Berkshire came to a deal after June 30, and they were going to cancel half of their $16 billion in notational protection which it sold against state and municipal bond defaults, and this is according to their last filing. It is a possibility that Buffett’s firm is going to have to pay a counterparty in order to relieve themselves of these obligations, said Kass.

The bets in derivatives have made the earnings of Berkshire Hathaway a lot more volatile. Mainly because they are marked to market. Their net income actually dropped 9% during the second quarter to a total of $3.11 billion due to a much broader loss from derivatives that are separate to the equity markets. Operations earnings, which are not so clouded by the investment results, are higher due to gains that their insurance and railroad divisions have made.

Warren Buffett mentions in a letter to the shareholders in February that the current new rules based around collateral have unfortunately made derivatives not so attractive any longer. He also mentioned that these bets in derivatives are most likely going to shrink when the company’s new leaders take over, which he said during the annual meeting in the month of May.

If there is one person in the world that many investors wouldn’t mind mimicking, it is definitely going to be Warren Buffett. If you read the most recent letter to Berkshire Hathaway shareholders, you really won’t have any illusion as to why this is so.

Buffett originally invested $1.3 billion into Coca-Cola, and that investment has turned into $14 billion over the years. Buffett could also sell $450 million worth of his Gillette investment for $5 billion right now, although it is now part of Procter & Gamble shares that the company has. Buffett could also turn around and sell $1.3 billion worth of his American Express investment that he made a while back, and he would receive over $7 billion for those shares.

Since Warren Buffett has an incredible stock picking track record, it’s obviously understandable that many investors would want to pay close attention to the investment decisions that he makes.

You need to pay close attention when you hear that Warren Buffett is buying something, and make sure you are very careful that the news you are hearing is actually about a company in which Warren Buffett is actually buying.

Why, you may ask?

For instance, Sue Chang of Market Watch put out an article titled ”Phillips 66 Gains on Report of Buffett Investment” that offers this information:

“Shares of Phillips 66 (PSX) jumped on Friday in response to a report that billionaire Warren Buffett invested in the refiner which had spun off from ConocoPhillips (COP) earlier this year.”

On a similar note, Steve Gelsie, also of Market Watch, released a similar story titled “Buffett gases Phillips 66″ which offers the following news:

“A report that marquee investor Warren Buffett waded into shares of Phillips 66 sparked healthy gains in shares of the refiner on Friday, as energy stocked rallied with the broad equities market. Shares of Phillips 66 jumped 5% after the Berkshire Hathaway founder and chief Buffett told Bloomberg News he reduced his holdings in ConocoPhillips and bought into Phillips 66, a recent newcomer to the S&P 500.”

Do you want to know what the major problem is regarding these updates on Warren Buffett? The truth is that they don’t actually tell you about real investments made by Warren Buffett himself. The AP did get this Buffett report right when they announced this news update:

“Shares of Phillips 66 rose Friday after billionaire Warren Buffett said a Berkshire Hathaway (BRK.A) investment manager purchased shares in the oil refining company. During an interview on Bloomberg television, the chairman and CEO of Berkshire Hathaway Inc. said one of his company’s new investment managers purchased the stock of Phillips 66, which was spun off by ConocoPhillips in May. Buffett didn’t disclose any details of the investment, but he has said that investments made by managers Todd Combs or Ted Weschler tend to be smaller than those he makes. So the Phillips 66 investment likely was worth somewhere between $200 million dollars and $1 billion.”

So you know, there isn’t anything wrong with getting investment advice from Ted Weschler or Todd Combs. They are very successful investors who have incredible track records to their name. This is the reason why Warren Buffett hired them in the first place. So don’t feel like this is any kind of insult to either deputy if someone were to suggest there was a difference between a Buffett investment and a Weschler/Combs investment.

It sad, and just not true, that there are media outlets out there that will report that every single Berkshire Hathaway purchase was made by Warren Buffett. It’s obviously wrong to assume this since Buffett obviously didn’t purchase those shares in Phillips 66. That’s why you need to begin doing extra due diligence if you are making moves based on Berkshire Hathaway’s portfolio thinking that Warren Buffett is making those purchases. It’s important to distinguish between the two, and you’ll need to be able to figure out if Buffett made a trade or one of his assistants made that particular stock purchase. So get used to having to sort through misinformation due to misreporting by the media.