The Ultimate Reality Show: Team Buffett vs. Team Icahn

by Marc Bastow | August 16, 2012 11:40 am

The Ultimate Reality Show: Team Buffett vs. Team Icahn

I’ve got an idea for a new TV (you remember TV, right?) series: Dynasties — sort of a ripoff of the old Dynasty (you remember that, too, right?).

What’s the gist of the new show? Simple: Warren Buffett and his sidekick Charles Munger of Berkshire Hathaway (NYSE:BRK.A[1], BRK.B[2]) will pit their protegees Todd Combs and Ted Weschler up against Carl Icahn’s presumptive dynastic duo of son Brett Icahn and David Schechter[3]. Oh, this is going to be good!

A little background that we’ll put in the pilot episode:

Combs and Weschler started with an initial authorization to run separate $2.75 billion portfolios. Berkshire’s most recent 13F filing indicated the group has sold its Intel (NASDAQ:INTC[4]) holding completely after just nine months, suggesting that somebody didn’t do such a great job of investing. But nobody’s talking, so we’ll assume all is well since Buffett has raised their allowance to $4 billion each[5] earlier this year.

As for Icahn the younger and Schechter, they’ve both been around the office for a while, with Schechter having come on board in 2004 after working at Citigroup (NYSE:C[6]). Brett Icahn started as an investment analyst at pop’s firm around 2002.

In April 2010, Carl Icahn provided the guys with $300 million to invest in loans and securities, with a market cap limit of $2 billion on those companies. Their investments generated 96% in gains, according to a filing with the SEC. So, dad boosted his dynamic duo’s budget to $3 billion, with a new market cap limit of $10 billion. Nice raise.

So now the plot: Who best manages and grows the business? This should be quite a riveting show.

Here’s some advice for the players (after all, I am the producer):

Berskshire and Buffett are synonymous with the old-school investment principles of Dodd and Graham, and that’s not going to change. With the recent swing out of positions in Johnson & Johnson (NYSE:JNJ[7]) and Procter & Gamble (NYSE:PG[8]) and into the oil patch[9], Coombs and Wechsler might want to, at the very least, stay out of consumer stocks.

However, if they want to make a play that runs counter to their competition, staying in the bank sector is the way to go. Already a big player in financials with American Express (NYSE:AXP[10]), Bank of America (NYSE:BAC[11]) and Goldman Sachs (NYSE:GS[12]), Berkshire increased its investment in Wells Fargo (NYSE:WFC[13]) to 411 million shares as of June 30 from 394.3 million three months earlier. That stake is worth around $13 billion.

A bit of a gamble perhaps, but Combs and Wechsler will get the time to sort it out and maybe move even further into the sector. Oh, and stay out of techs.

Icahn is perhaps just as famous, but more for his daring takeover style in which he amasses stakes in companies he deems undervalued or underperforming. To boost the share price, he then works to shake up, or replace, management. Some examples include Time Warner (NYSE:TWX[14]), Motorola Solutions (NYSE:MSI[15]) and most recently, Yahoo (NASDAQ:YHOO[16]). Of course, in some cases, the end game is a sale of the company.

If the boys want to make the senior Icahn happy, they should stick to his knitting. They’ll find no shortage of companies dying for some life or leadership in the boardroom: Avon (NYSE:AVP[17]), Groupon (NASDAQ:GRPN[18]) and Green Mountain Coffee Roasters (NASDAQ:GMCR[19]) come to mind right away.

The curtain is coming up on this show already because everyone is now in the game with their ante on the table. Reality shows will have nothing on this one, because this one is for real. Good luck, fellas.

Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long TWX, INTC and JNJ.

Endnotes:
  1. BRK.A: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.A
  2. BRK.B: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRK.B
  3. Brett Icahn and David Schechter: http://www.businessweek.com/news/2012-08-14/carl-icahn-hands-son-brett-3-billion-to-prove-his-mettle
  4. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  5. raised their allowance to $4 billion each: http://investorplace.com/2012/07/berkshire-hathaway-gs-brk-a-brk-b-ge-bac/
  6. C: http://studio-5.financialcontent.com/investplace/quote?Symbol=C
  7. JNJ: http://studio-5.financialcontent.com/investplace/quote?Symbol=JNJ
  8. PG: http://studio-5.financialcontent.com/investplace/quote?Symbol=PG
  9. into the oil patch: http://investorplace.com/2012/08/what-does-buffett-see-in-nov-psx/
  10. AXP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AMX
  11. BAC: http://studio-5.financialcontent.com/investplace/quote?Symbol=BAC
  12. GS: http://studio-5.financialcontent.com/investplace/quote?Symbol=GS
  13. WFC: http://studio-5.financialcontent.com/investplace/quote?Symbol=WFC
  14. TWX: http://studio-5.financialcontent.com/investplace/quote?Symbol=TWX
  15. MSI: http://studio-5.financialcontent.com/investplace/quote?Symbol=MSI
  16. YHOO: http://studio-5.financialcontent.com/investplace/quote?Symbol=YHOO
  17. AVP: http://studio-5.financialcontent.com/investplace/quote?Symbol=AVP
  18. GRPN: http://studio-5.financialcontent.com/investplace/quote?Symbol=GRPN
  19. GMCR: http://studio-5.financialcontent.com/investplace/quote?Symbol=GMCR

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