Warren Buffett's annual letter to shareholders, released last Thursday, offered several interesting items, including some new positions for
. Check out the updated holdings on Stockpickr's
Most notably, however, Buffett stated in the letter that he needs to find a younger replacement. The Berkshire Hathaway chairman is 76 years old, and his vice-chairman, Charles Munger, is 83. Lou Simpson, the company's top investment manager, is 70.
"At our October board meeting, we discussed that subject fully," Buffett said. "And we emerged with a plan, which I will carry out with the help of Charlie and Lou. Under this plan, I intend to hire a younger man or woman with the potential to manage a very large portfolio, who we hope will succeed me as Berkshire's chief investment officer when the need for someone to do that arises.
"As part of the selection process, we may in fact take on several candidates. Picking the right person(s) will not be an easy task. It's not hard, of course, to find smart people, among them individuals who have impressive investment records. But there is far more to successful long-term investing than brains and performance that has recently been good."
Over the next couple of days I'm going to survey the top Buffett-esque hedge funds and investors whom I believe have potential to become Buffett's apprentice. My guess is that Buffett will choose from among the top hedge fund managers out there based on their returns, their investment styles and their willingness to work for less pay than they would make if they remained in the hedge fund world. Along the way, by surveying their current portfolios, I believe we can find some good investment ideas.
First off, I called Ken Shubin Stein at Spencer Capital. His entire list of holdings, as of his most recent filings, can be found on the
Shubin Stein began his career not as an investor, but as a doctor. His parents were in the medical field, and it was natural for him to go into it as well. But ultimately he chose his other love, investing, and decided to pursue a more entrepreneurial path in the investment space.
Shubin Stein is a very Buffett-esque investor. He told me, "I've grown up on Buffett's words. Since I was 11, I've read everything he's ever written and I've listened
to or read as many of his speeches as I could get a hold of." Shubin Stein's funds have recently surpassed the $250 million mark, and they've had stellar annualized returns since their November 2000 inception, with no down years.
Shubin Stein's group takes a very focused approach. He owns only nine stocks, and he performs an enormous amount of research on every one. "Everyone in my shop just spent three months researching
. This is now our largest position," Shubin Stein said. "We looked through 10 years' worth of trade magazines, 10-K filings, all of their acquisitions, etc. Tyco is a situation where right now, as opposed to a few years ago when they had a lot more leverage, they are overcapitalized. They have too much cash sitting on the balance sheet."
Shubin Stein's opinion is that, with a pending breakup, Tyco will start returning cash to shareholders through buybacks or dividends and the stock will move higher.
Additionally, at just 8 times cash flow, the stock is cheap. "Our low-side estimate is 50% to 75% higher, and our upside estimate is a double, or even a triple from here."
A lot of quality investors own Tyco stock. For instance,
is a big fan of Tyco. Doug Kass' old boss,
owns it, and finally,
owns the stock.
Spencer Capital's largest position is
. Shubin Stein said that "the gas pipeline business is almost like a monopoly. You get very long-term contracts with customers, and you pretty much know in advance the volume of gas going through the pipelines each year and the prices, etc."
Crosstex distributes gas produced in the Barnett Shales through its pipelines. It has long-term contracts with
. "What's interesting is that recently, other fund managers have been accumulating large positions in Crosstex," Shubin Stein told me.
Another fund that owns Crosstex is
, run by Glenn Greenberg. Bruce Greenwald, who wrote the book,
Value Investing: From Graham and to Buffett and Beyond
, recently said of him:
There's a guy called Glenn Greenberg who absolutely says he's not a value investor and is just about the best value investor out there. ... So Glenn does seven to 10 companies, but he really understands the economics. He's just a brilliant, sort of natural industry economist. And he's just naturally good at judging these franchises, almost unconsciously so. And I think that's the thing I would find most impressive ... I think Glenn Greenberg has it.
on Stockpickr to check out his holdings.
Another holder of Crosstex is Whitney Tilson, through his
Tomorrow I'll continue the survey of whom I consider potential heirs to the Buffett throne. For more on Shubin Stein and his fund, check out the
Stockpickr tip of the day
: In our
portfolio, we regularly post trades from our various systems in the Active Trader section. In particular, we post trades from the 3x2 system. How has this done since 2007 started? The answer: pretty good.
I ran a simulation last Friday of the trades through last Thursday. Using 2% of equity per trade and running on the 200 most volatile
stocks (the full list can be found on Stockpickr's
), the result is that the system is up 7.75% on the year vs. a decline of almost 2% for the
The other systems that we post in the System Trades of the Day are the
, and the
. However, over the next few weeks we will be adding some more interesting fundamentals-based systems.
At the time of publication, Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
to send him an email.
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