Ted Weschler recently became the second of possibly three portfolio managers of Berkshire Hathaway (BRK.A)(BRK.B), part of a group in line to take over the entire equity and debt portfolio of the greatest investor of all time, Warren Buffett, upon his retirement. Prior to accepting the offer, Weschler managed his own private investment firm, Peninsula Capital Advisors, LLC, which he founded in 2000. The fund manager that piqued Buffett’s interest delivered a return of 1,236% over the last 11 years, Reuters reports, but Weschler somehow managed to remain under the public radar in spite of his prowess. He made the acquaintance of Buffett by winning a lunch with him through a charity auction benefitting Glide, a San Francisco homeless charity. Actually, he won twice, paying a total of $5.2 million to dine with Buffett in Omaha in 2010 and 2011.
Though little is known about his investing style, a bio of him from Morningstar says, “Peninsula manages a pool of capital that, on behalf of its clients, makes substantial long-term investments in publicly-traded companies possessing both strong prospects and outstanding management teams.”
Also, like Buffett, he keeps a concentrated portfolio (usually somewhere in between 9 and 17 stocks), and often holds for the long, long term.
Peninsula Capital Advisors commenced with 17 stocks at a value of $153,631,000 in late 2000. Weschler’s most recent 13F shows that he managed almost $2 billion as of August 15.
Some highlights of stock holdings he managed during his career at Peninsula Capital that speak to his investing style are: Davita Inc. (DVA), America West Holdings Corp., WSFS Financial Corp. (WSFS) and DirecTV (DTV).
Davita Inc. (DVA)
Davita is the second largest provider of dialysis services in the United States for patients suffering from chronic kidney failure. In 2001, Davita operated 493 outpatient dialysis centers located in 32 states and the District of Columbia, serving approximately 43,000 patients. In addition, it provided acute inpatient dialysis services in approximately 270 hospitals.
The year Weschler invested in Davita, it had just embarked on a turnaround – previously it had grown primarily through acquisitions, but in 1999 a new CEO implemented a plan to focus on improving financial and operational infrastructure. In 2000, it divested almost all of its operations outside the U.S., improved its billing and collecting operations, reduced debt and restructured credit facilities. It was planning to continue major investments into improvements throughout 2001 and 2002.
Davita traded for over $33 in 1998 (adjusted for splits), but by 2000, it had fallen considerably and Weschler owned 3,476,800 shares at an average price of $17.06.
As of June 30, 2011, DaVita had grown to operate or provide administrative services at 1,669 dialysis facilities, serving approximately 131,000 patients. Its stock price rose 438% since in the last 10 years to $71.78 as of Monday. Davita’s earnings per share has increased almost every year since 2001, revenue and earnings have grown every year since 2001, and free cash flow has been growing since 2008, setting a record $566 million in 2010. On Aug. 29, the company said it has recruited two new executives to help it expand internationally.
Davita is an example of Weschler’s Buffett-like long-term investing. He has held Davita stock since the inception of his fund in 2000. His most recent regulatory filing for the quarter ended June 30 shows that he owns 4,300,000 shares of Davita.
America West Holdings Corp.
America West Holdings was a less profitable investment for Weschler. Founded in 1981, the Arizona-based company’s primary holding was America West Airlines. Weschler owned 1,014,500 shares of America West at an average price of $12.81, according to his firm’s first 13F in 2001. The price dropped to $9.60 by the very next quarter, and it appears that Weschler bought more as it dipped – at quarter end he owned 1,205,300 shares.
The stock failed to recover and by the third quarter of 2003, he had sold a great deal of his holding. He owned 726,500 shares at an average price of $9.73 at that point.
However, Weschler still managed to maneuver a fair outcome for his America West investment. In 2004, the company announced an interest in buying part of ATA Airlines. The stock that quarter rose to around $12, and he sold approximately 488,700 shares, leaving him with 237,800. He ended the next quarter with 101,800 shares as the price fell to $9.52, which he held on to, as a price drop continued.
By April 22, 2005, America West was in talks with US Airway Group about a merger in which its shares would be given to American West Holdings shareholders and US Airways creditors. SEC filings show that Peninsula Capital did not take part in the share transfer – they had sold out their position by the end of the first quarter. The price of their last recorded shares was $6.58.
He later bought into US Airway Group Inc. (LCC) in a venture that was far less profitable. He purchased 3,777,777 shares in the third quarter of 2005 at an average price of $21 a share. The stock fell soon thereafter. In the third quarter of 2008 he had 1,300,000 shares valued at $6.03 per share and sold 1,100,000. In the fourth quarter of 2008 he sold his remaining 200,000 shares at an average of $7.73.
WFSF Financial Corp. (WSFS) & Financials
WFSF is an interesting holding in that it provides insight into Weschler’s handling of financials. It is a long-term holding that he has owned from the beginning of his firm to today.
WSFS Financial Corporation is a multi-billion dollar financial services company. Its primary subsidiary, WSFS Bank, is the oldest, locally-managed bank and trust company headquartered in Delaware with $4.2 billion in assets on its balance sheet and $9.3 billion in fiduciary assets, including approximately $1.0 billion in assets under management. WSFS has 47 offices located in Delaware (38), Pennsylvania (7), Virginia (1) and Nevada (1) and provides comprehensive financial services including commercial banking, retail banking and trust and wealth management. Other subsidiaries or divisions include Christiana Trust, WSFS Investment Group, Inc., Cypress Capital Management, LLC and Cash Connect. Serving the Delaware Valley since 1832, WSFS is the seventh oldest bank in the United States continuously operating under the same name.
Weschler was a director of the bank from 1992 to 2007, and came back in 2009 to serve until his term ends in 2013.
When Weschler first became a director of the bank in 1992, shortly after it went public in 1990, the stock price had dwindled to under $2 per share and the bank was near bankruptcy. That year, under a new board of directors, it embarked on a major turnaround, of which Weschler would have been a part. Soon, the bank strengthened and began expanding.
Peninsula Capital’s first regulatory filing from the fourth quarter of 2000 shows that Weschler bought 899,500 shares of WFSF valued at $12.90 per share. The timing proved excellent – the stock rose approximately 415% from that point to the end of 2006.
From 2003 to 2007, the bank reported four consecutive years of revenue growth and in 2003, reported return in equity of 55.4%.
Weschler demonstrated outstanding prescience going into the financial crisis. In the fourth quarter of 2006, he sold out his 200,000 shares of WSFS at a near-peak average price of almost $70, just before the stock began to fall in 2007.
Then, in the first quarter of 2009, he bought in again with 563,088 shares at the extremely low average price of $22.36. It recovered relatively quickly, for a bank. Since then it has gone up approximately 60% to $35.35, trading for over $40 for much of the interim.
Going into the current down cycle, WSFS was free of some of the things that caused trouble for other banks. In 2008 it did not own any mortgages backed by sub-prime mortgages, bank trust preferred, Freddie Mac or Fannie Mae preferred securities or equity securities in other FDIC insured banks or thrifts.
Peninsula Capital was the largest investor in the company, owning 1,500,000 shares or 17.45%, as of June 31, 2011.
Weschler owned shares of one other financials going into 2008 – Wilmington Trust, a financial holding company that provided banking and other financial services. He held onto the stock until the second quarter of 2008. The corporation was acquired by M&T Bank Corporation (MTB) in May, 2011.
DirecTV (DTV) is Weschler’s top holding as of June 30, 2011. The company is the world's leading provider of digital television entertainment services. Through its subsidiaries and affiliated companies in the United States, Brazil, Mexico and other countries in Latin America, DIRECTV provides digital television service to 19.43 million customers in the United States and 10.6 million customers in Latin America.
DirecTV has had robust financial growth in the last several years. From 2007 to 2010, free cash flow increased from $986 million to $2.8 billion. Revenue has also increased each year for the last 10 years. The company has about $16.5 billion in long-term liabilities and debt on its balance sheet, and about $2.5 billion in cash. The stock price has followed its growth – it rose 118% over the last five years.
Weschler bought the stock in the first quarter of 2009 at an average price of $33.35 per share. By the second quarter of 2010, he owned 10,000,000 shares, and the price has risen to $42.49 as of Tuesday.