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Ted Weschler Begins Closing Down Shop to Join Berkshire Hathaway

December 23, 2011 | About:
Holly LaFon

Holly LaFon

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Ted Weschler, current managing partner of hedge fund Peninsula Capital Advisors LLC, will soon join Berkshire Hathaway (BRK.A)(BRK.B) as one of two newly appointed money managers who will eventually replace Warren Buffett. Weschler’s connection with Buffett came about by an unusual means— the two met when Weschler paid a total $5.3 million to have lunch with him two years in a row through a charity auction. After two more meetings, Buffett offered Weschler the position, which he, already a successful hedge fund manager, accepted just a few weeks later. In his 11 years at his firm, Weschler made a return of 1,236%. Little has been reported about the low-key manager’s investing style, although Morningstar says his firm makes “substantial long-term investments in publicly traded companies possessing both strong prospects and outstanding management teams.”

GuruFocus did an in-depth analysis of Weschler’s investing history here.

As Weschler prepares to begin at Berkshire in early 2012, he is selling some of his holdings to wind down his fund. On December 20, he sold 65% of his holding of W.R. Grace & Co. (GRA) and 56% of his holding of WSFS Financial Corp (WSFS), according to GuruFocus Real Time Picks.

W.R. Grace & Co. (GRA)

W. R. Grace & Co. produces specialty chemicals. They primarily operate through the following two business segments: Davison Chemicals and Performance Chemicals. W.R. Grace & Co. has a market cap of $3.26 billion; its shares were traded at around $44.15 with a P/E ratio of 12 and P/S ratio of 1.3. W.R. Grace & Co. had an annual average earnings growth of 0.4% over the past 10 years.

Before December 20, W.R. Grace & Co. was Weschler’s largest holding, accounting for 32% of his concentrated portfolio of nine stocks. The stock returned 28% year to date, and 2,892% over the last 10 years, a closer duration that Weschler holds his stocks.

Grace has two operating segments. Grace Davison, founded in 1832 by an Irish immigrant, provides specialty chemicals, materials and formulation technologies. Grace Construction Products, formed through acquisitions in 1954, is an industry leader in specialty construction materials, systems and services that strengthen, enhance and protect structures.

From the beginning of the decade, GRA had seven straight years of increasing revenue, but it had been declining from 2008 to 2010 on weaker sales. Net income reached a record of $207 million in 2010, up from $71 million the previous year.

The company in 2010 was still dealing with the overhang from the construction bubble and slowing growth in the U.S. and developed markets. In response, the company has been focusing on expansion into emerging markets, controlling expenses and improving profitability in its core business. About a third of Grace’s sales come from products introduced in the past five years, so it devotes a great deal to research & development, which has likely contributed to keeping its growth steady.

Wsfs Financial Corp. (WSFS) at the average price of $33.96 on 12/20/2011, as reported in the latest 13D filings by Ted Weschler. He owns 650,544 shares. The stock price has changed by 8%.

WSFS Financial Corp (WSFS)

WSFS Financial Corporation is a thrift holding company. WSFS Financial Corp. has a market cap of $316.5 million; its shares were traded at around $36.75 with a P/E ratio of 18.3 and P/S ratio of 1.5. The dividend yield of WSFS Financial Corp. stocks is 1.3%.

Over the last five years, WSFS’s revenue declined at an annual rate per share of 1.9%, and cash flow increased at an annual rate per share of 9.2%. Return on equity, however, has been growing over the last four quarter, rising from 2.3% in the fourth quarter 2010, to 7% in the third quarter of 2011. Return on assets saw a similar uptick, from 0.1% in the fourth quarter 2010, to 0.6% in the third quarter.

Weschler has owned shares of WSFS since his firm’s inception. The multi-billion dollar company offers financial services, and its primary subsidiary, WSFS, is the oldest locally-managed bank and trust headquartered in Delaware. Weschler was director of the bank from 1992 to 2007, and returned in 2009 for a term that was to end in 2013, although the company has not announced his resignation yet.

His bought his first shares of the company at about $1290 per share in 2000, and price increased 415% from that point until the end of 2006. Nearing the financial crisis, Weschler sold all of his shares at an average price of $70, then bought again in 2009 at about $22 per share. The firm weathered 2008-2009 better than many banks as it did not known any mortgages backed by sub-prime mortgages, bank trust preferred, Freddie Mac or Fannie Mae preferred securities in 2008. More on his lengthy investment in this security is here.

Learn more about Ted Weschler’s portfolio here.


Rating: 3.1/5 (17 votes)

Comments

AlphaStratus
AlphaStratus - 2 years ago
Ted Weschler looks like he'll be a great addition to the team. Cloning his 13F holdings would've produced an amazing result

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