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Lindley Estes is a business writer for The Free Lance-Star and This blog is on Fredericksburg-area business. Send an e-mail to Lindley Estes.

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Warren Buffett and Todd Combs: Birds of a feather?

This is my FLS investment column for the week:

INVESTORS seemed a little disappointed by Berkshire Hathaway’s announcement last week that hedge fund manager Todd Combs would be joining Warren Buffett’s firm at year-end to help manage its $100 billion investment portfolio.

Berkshire’s stock fell about 5 percent in the few days following the announcement, which means Combs is now one of the leading candidates to handle Berkshire’s investments after Buffett, 80, is no longer around. It’s possible that Berkshire will hire additional investment managers, and the company will also have a CEO (David Sokol is widely considered the favorite to succeed Buffett in the company’s top position).

Though it’s possible that the Combs announcement had nothing to do with investors selling Berkshire stock, it seems the most likely explanation. Combs, 39, is a relative unknown and thus far in his investment career hasn’t produced the eye-popping results that Buffett has put up over the past six decades.

He was so unknown, in fact, that reporters’ efforts to obtain a photo of him proved impossible. It seems that Combs, whose hedge fund is called Castle Point Capital Management, is a lot more interested in the stock market than he is in publicity. That’s also the case with Buffett, although in the past decade he has become a huge celebrity who’s no longer able to toil in anonymity.

A closer examination of Combs’ background as described this past week by two excellent articles in Fortune and The Wall Street Journal shows that he and Buffett share a lot of characteristics that make his appointment easy to understand. Among them:

  • Both men have an affinity for the insurance industry. Though Berkshire has widely diversified itself, insurance remains its biggest business (Berkshire owns Geico). Combs used to work for Progressive setting auto insurance rates, and also worked for a Florida state financial regulator. Insurance companies remain among his hedge fund’s biggest positions.
  • Like Buffett, Combs also invests a lot in banks. Both hold large positions in U.S. Bancorp, which has emerged from the financial meltdown as among the country’s stronger banks.
  • Both focus above all else on downside risk. Buffett is always trying to imagine worst-case scenarios that might kill companies. He has written that his successor must be “genetically programmed to recognize and avoid risk, including those never before encountered.” Combs avoided investing in any of the financial companies that blew up in 2007-08 by diving deep into their data and spotting troubled loans ahead of time.
  • Like Buffett, Combs attended the prestigious Columbia Business School and learned how to find undervalued securities. Combs was remembered by a Columbia professor as having a deep desire to make money, an attitude famously shared by Buffett.
  • Both men do their own research by independently poring over newspapers, annual reports and obscure trade publications to gain an edge in knowledge. When they find something they like, they take big positions. Combs’ hedge fund has 57 percent of its assets in its top 10 positions.
  • Neither man talks publicly about his investments, unlike most managers who are all too eager to pontificate on CNBC. They seem to subscribe to the saying “Those who know, don’t say; those who say, don’t know.”
  • Neither man is especially good with chitchat, but they both light up when talking about investing and the stock market.

Thus it seems clear that Buffett has found someone in his mold but half his age to join him at Berkshire. That isn’t something that should disappoint Berkshire’s investors.