Letter #50: Ted Weschler (2022)
Investment Manager at Berkshire Hathaway | Lunch With Warren Buffett, Working for Berkshire Hathaway, and the Future of Investments
Hi everyone! Due to popular request (and a few persistent individuals), I’ll be restarting this newsletter, but with a few changes. Most notably, rather than sending “A Letter a Day”, I’ll be sharing a letter or transcript twice a week, once on Tuesday afternoon (2:22pm) and once on Saturday morning (6:06am). Second, I’m expanding the scope of the newsletter to include a broader range of subjects, but still focused on thought-provoking investors (across venture, hedge funds, and private equity), founders (not just tech), and operators (sales, marketing, product, etc.). Lastly, I’ll be limiting my commentary so it’s a smoother reading experience and you can read the work as is. (If you’d like to see my notes or trade thoughts, shoot me a DM on Twitter!)
Today’s letter is a transcript of a conversation Ted Weschler had with the hosts of the I am Home podcast, a podcast run by three team members of Nebraska Furniture Mart. Ted is one of Berkshire Hathaway's top two investment managers. He got started at W. R. Grace and Company as a Junior Financial Analyst before helping start the private equity firm Quad-C Management, where he was a partner for 10 years. In 1999, Ted went out on his own founding Peninsula Capital Advisors, which was a hedge fund he launched in 2000 above a bookstore in a Charlottesville mall. He joined Berkshire Hathaway in 2011.
In this podcast, he discusses his early days at WR Grace, winning two lunches with Warren Buffett, getting recruited to join Berkshire Hathaway, and how he makes investment decisions.
I hope you enjoy this talk as much as I did!
(Transcription and any errors are mine.)
Transcript
Host(s): And we're on with Ted Weschler. Thank you so much for joining us today.
Ted Weschler: Thank you, Tyler. Happy to be here.
Host(s): Oh, it's gonna be so fun. At this point, Amy, I'd love to hand the moderator duties off to you. Would you like to introduce Ted to our audience?
Host(s): I will. And thank you for joining us. We really appreciate you coming and giving us your time. So it's awesome. So to introduce Ted, Ted Weschler is one of Berkshire Hathaway's top two investment managers. You got started at WR Grace and company as a junior financial analyst, and then helped start the private equity firm Quad-C Management, where you were a Partner for 10 years. Then in 1999, he went out on his own, founding Peninsula Capital Advisors, which was a hedge fund you launched in 2000, above a bookstore in Charlottesville mall. And before that shuttered in 2011, you joined Berkshire Hathaway, and the $2 billion fund has returned 1,236% for investors. Ted and his wife Sheila live in Charlottesville, with your two daughters. How old are your daughters?
Ted Weschler: 20—well, one will turn 21 in just a few weeks, and the other's 23.
Host(s): Okay, oh, close to mine. So yeah, I know that life. I have boys.
Ted Weschler: They should meet!
Host(s): Super excited to have you talk to us. But this particular time of year, going into the Berkshire Hathaway meeting, actually being live and not virtual, it's been a couple of years for us. It's just a super exciting time, and high energy, and for the tens of thousands of people that come through. But what's it like? What's it like for you, being on the inside of Berkshire Hathaway?
Ted Weschler: Yeah, it's terrific, because it's something that I think we all draw energy from. And the closer we get, the more energy we get. And the last two years, they were fine, we did the remote thing. But there's something about bringing tens of thousands of people together, and I kind of describe it as a big wedding because you've got this common link of one way or another, you're connected to Berkshire Hathaway. And so anybody that you meet during that weekend, that's wearing the credentials, whether it's up here at the [Nebraska Furniture] Mart or anywhere in town, you got something to talk about. It's just like at a wedding where you know that you're somehow connected to the bride or groom, you're somehow connected to Berkshire. And so it's always fun to meet those people. And then, just the energy that builds at the office. I mean, I'm always amazed at the amount of paper and phone calls and emails and others that—we've got a very small staff, but it just, it flies out of there in a really, really efficient way. And it's fun. And Warren gets progressively excited as well, because he you really, he both adds energy to it and he draws energy from it. And that's something that's just contagious for everybody.
Host(s): Oh, I like the way you said that. Draws energy from it, too. I think we feel the same way. We have to bring a level of energy but—yeah, you definitely come out of it feeling energized and excited. I got my credentials this weekend and I'm excited! I'm wearing them already—
Ted Weschler: It's real! Yeah. I was going to wear mine here today but I was like ehh haha.
Host(s): So I'm gonna jump to one of my favorite, and you're, it's a famous story, for you, and it's the, how you had your first lunch meeting with Warren Buffett and your donation to the charity organization that was raising funds to have lunch with Warren Buffett. Because what I was thinking about when I was just thinking about that story is, you had your own firm. You were already running a super successful firm. So when you went into that meeting—it ended up being life-changing. It was life changing for your career, life changing for—
Ted Weschler: I didn't plan on that, but—
Host(s): Well, and that was my question. Was this like, your goal? Were you going into it thinking, Man, I'm going to make this happen? Or did it end up going a whole different direction than you thought? Or...
Ted Weschler: Oh boy, yeah, it's kind of an involved thing. Because, first, I went to school in Philadelphia, college. And in 1979, when I started, there was a good friend of mine who—we were both in the business school there, and he said, You know, if you're really interested in business, there's this guy, Warren Buffett, who you just should read anything that he writes. I had never heard of Warren Buffett in 1979. But I respected this guy. And I started reading this stuff. And it's like, Wow, there's tremendous clarity to what he says and it makes sense. And between taking the corporate finance classes and accounting, and all that, you had this—it was kind of practical, applied experience. So here's a guy who really was a hero of mine from an investing standpoint—
Host(s): From back when you were in college.
Ted Weschler: Yeah, from 1979. So I'm reading all this stuff. And then, I experienced some decent success in investing, and my Fund had had a good track record. And I knew that Warren did this auction. And it benefits GLIDE foundation in San Francisco, wonderful charity. And I happened to be a chair of a trust that met twice a year, once in San Francisco, and once in Shanghai every year. And it gave me a good reason to kind of travel the world and get to know some folks. But I wanted to understand more about GLIDE before I did anything that was a big ticket that I was going to write if I was going to do something like this. And so I was out at a Trust meeting, and my assistant had reminded me that I wanted to visit the people at GLIDE and understand the thing, and she set the thing up. I finished my Trust work, I spent half a day with the folks at GLIDE, and it just happened to be the last day of the auction that year. So it was going on while I was there. And I went down to—they invited me down to the closing thing. They didn't know I was registered to bid on it. And I actually ended up winning the thing. And was like, Wow, this is this is something. And it really, after I'd spent half a day with the folks at GLIDE, I mean, just again, great, great operation there. So that was terrific.
Host(s): What is the organization?
Ted Weschler: GLIDE. They give hope to the otherwise hopeless. I mean, they—it's a wonderful organization, hundreds of volunteers that run both a soup kitchen and a healthcare clinic in the toughest part of San Francisco. And it's known to everyone in the city, very efficiently run, and touches a lot of lives. And Warren's wife Susie had been very active in the thing, and so that was where the interest came from. But I ended up winning this thing. And I wasn't sure what was going to happen. But I am back at my office, and I get this phone call on a Tuesday morning and pick up my phone. And it's Warren on the other end. And it's like, Oh, geeze. This is something! This is my hero! And it was—he was terrific. And I had said the one thing that I wanted—I had wanted it to be anonymous. I didn't want my name attached to it. And I also wanted to do it in Omaha instead of in New York. It was set up to be in New York lunch at Smith and Wollensky, a great steakhouse in New York.
Host(s): So very public.
Ted Weschler: And yeah. And he said, That's fine. And then he said, When would you like to do it? And I was like, Well, your schedule will dictate, Mr. Buffett. And I mean, he's such a—you really—it was unbelievable. Because then he says, Well, I could do tomorrow night, I could do Wednesday, I could do Thursday. And he rattles on four days in a row! And I was like—uhhh. And I think it was—I picked the day two days later. And so I flew out to Omaha, and I met him in his office, and it clicked. I mean, it really clicked. And it was kind of interesting, because I think there's a bookends my career. My first job at WR Grace, I was an analyst, and then I happened to have a job as the aide to the CEO there, who's a guy by the name of Peter Grace. And he and I, Peter and I had a great relationship, but I viewed him more as a, almost a monarch, than a CEO. I mean, he had all the trappings of being the high and mighty CEO of a Fortune 50 company. He had to go through six doors to get to his office, and everything was maximum intimidation and all the rest of that. And then, Warren's just like, I show up at headquarters, and he bounces out in the hallway and says, Great to meet you, Ted, come on in. Grab a seat on the couch. And immediately put me at ease. And it was just great. We visited at the office for—maybe 45 minutes, an hour. There were a number of connections. He'd actually met Peter Grace a couple of times, so we had some Peter Grace stories that we connected over. And then we ended up having like a three hour dinner at Piccolo’s. And it really, really clicked. Then I actually bid on it the following year, and won it again, for $1 more. And this time, I had a little bit more time to think about questions, and—
Host(s): How did you [crosstalk] the first time? Because you’d only have a few days, you didn't expect to win. How do you plan questions for Warren Buffett?
Ted Weschler: Yeah, you know, my mind was kind of racing. And... but again, he's got this wonderful way of putting you at ease, and it was just conversational. And I had a lot of questions about investing and lessons learned, and philanthropic dispositions, that kind of thing. And, there's a lot of natural topics that came out. I wish I would have had more time to buff and polish, but that's okay. But another year later, and I've got it again. And then, that one, I did have a few weeks to think about. And I put together a legal pad of dozens and dozens of things that I wanted to hit on. And we did the same deal. We went to Piccolo’s. And it was terrific. But I had, probably, three pages of of questions. And toward the end of the the dinner, I think I've hit everything just naturally off of my checklist, but I just want to look at my notes. Do you mind? And you can ask me anything, if you want, Warren. And he—so I'm looking down at my notes, checking stuff off. He says, You know, I think you'd be a pretty good fit out here. Would you have any interest in working at Berkshire? I just absolutely panicked. You know, this was like, this was absolutely not what I was thinking.
Host(s): So it didn't come up the first year?
Ted Weschler: Oh no, no, not at all, not at all. And I—my immediate reaction was, there's no way this works. I got this good gig back in Charlottesville, Virginia, I'm running a $2 billion fund, it's just me and two other people. But you can't just dismiss it. I mean, this is your hero. And so I was like, Wow, that's not what I expected, but thank you. I got to think about that. So he drives me to the airport, right after dinner, and drops me off. And he gets out. We both get out. And he says, Yeah, that thing I mentioned at dinner, he said, you don't have to decide now, but I mean, if you feel it in like 2, 3, 5 years, just let me know. And I'm like, Wow. You know, at the time, he had just turned 80. And I'm like, That's really something. To have that... And I, I really was still like, there's no way. This just does not make sense. And I got back to Charlottesville, and I gave a lot of thought to it, and I sent him a note that basically said, It just doesn't work because my kids at the time were in grade school and my family, they had roots in Charlottesville. And I was running a large bankruptcy, actually, for WR Grace. It was one of my investments in Peninsula and it was a bankruptcy that I'd worked on for 10 years. And so I said, I really need to see this through. There's probably another three years. And so I sent him a carefully worded letter, sent it off. And within an hour, I've got this response from him that's an email letter on his letterhead that says Thanks for the note. And it was something to the effect of You can manage money from the moon as far as I'm concerned. So you can stay in Charlottesville. And I liked the fact that you want to finish up this bankruptcy. You can do that on our watch. That's not a problem. So like, Oh. And then I started thinking more and more. And he, maybe a day later, he sent me a proposal that kind of laid out how the mechanics would work and all the rest and then I though, You know, I had been doing this fund at Peninsula for 12 years. And once a while, you just want to scrape the plate clean and do something new. And so I decided, Yeah, that'll work. The only thing I asked was that I wanted to commit that I would come out to Omaha two days a week, and be part of the team in Omaha. So I'd commute from Charlottesville, but Charlottesville would still be my home. And it's worked out beautifully. So I've been doing that for a little over 10 years now.
Host(s): So you still—you come out two days a week?
Ted Weschler: Yeah. Two, three sometimes, yeah.
Host(s): Do you have a place here?
Ted Weschler: Yeah, I've got a condo in Midtown Crossings, fully outfitted by NFM. Absolutely. Every piece. It's beautiful. It was perfect.
Host(s): Did you agonize over what to wear going into this dinner?
Ted Weschler: I did, I did. Yeah. And that's one of those... It's funny. I absolutely did. And then I decided that I should go in—I remember that well. I decided I should go in with a suit coat and open shirt. And of course, he's wearing a tie. I was like, Ohhhh. I fumbled it right out right out of the block. But it's okay.
Host(s): Was it desert at Dairy Queen afterwards?
Ted Weschler: We had the root beer float, which was terrific. Both times.
Host(s): So how fast was that? Like the second meeting—because it sounds like it moved pretty quickly.
Ted Weschler: Yeah, I mean, it was no more than three weeks after that second dinner that I said, Yeah. And then I had to send a letter to all my investors that I was gonna shut down shop and send them their capital back. And, yeah, it came together very quickly.
Host(s): So can we jump back a little?
Ted Weschler: Oh, yeah, we can go anywhere you want.
Host(s): We're gonna kind of flip back to your first job. So you're coming right out of school, and you were a junior financial analyst.
Ted Weschler: That's indeed what my title was.
Host(s): What kind of caught my eye on that is that, I mean, you're starting entry level into the company. And then, like, within seven years, you're leaving with a Vice Chair to start a company. And when you talk to people about—
Ted Weschler: That's good research!
Host(s): When you talk about career path, I mean, to have that sort of visibility and trajectory to your career, and that quickly, I'm just kind of fascinated by—what do you look back and say—How did you prove yourself that quickly? What would you recommend to people?
Ted Weschler: Lucky, lucky, lucky. I mean, it was just—life's so funny in that stuff. Because I joke about the junior financial analyst, but that was a big deal, because I was hired in as a test case into this department that did mergers and acquisitions at WR Grace, and I was the first undergraduate that they hired. It was otherwise just MBAs, and they were all called financial analysts. And so I had the business card that said, "Junior Financial Analyst". And that's fine. But it was a good gig. I didn't make much money, but if you stayed until eight o'clock working, you got free taxi home and free dinner. And that made a big difference. So you know I was there till at least eight every night. And it was fun. I like working a lot more than studying. And through... really, happenstance—I worked there for two years, had never even seen Peter Grace, the CEO of the company, and I got a phone call two years into it, and I had been working on a transaction, a leveraged buyout of a medical company, and I'd been working on it for probably two months, and I get this phone call. And it's one of Mr. Grace's assistants saying that Mr. Grace wants to be briefed on the National Medical Care acquisition and your boss boss boss is not in the building, your boss boss isn't in the building, and your boss isn't in the building. And I'm like, Oh, no. What does that mean? And he said, We'd like you to come up to the 48th floor, it was the top floor, and brief Mr. Grace on this project. And I'm like, No! I can't do that. I mean, I'm 23, I look like I'm 12. This is not what I signed up for. And I go up there, had no choice. And they—again, I get ushered through door after door after door and then into this conference room that's an enormous horseshoe that could sit probably 55, 60 people. And there's a dozen other people there. And I get ushered into the center of the horseshoe—all senior leaders, all the top people at the company. And then once we're all seated, this door opens and His Holiness comes through—and Peter comes through. And he always smoked a pipe, and he looks down, and he looks at me, and he says, Who are you? I'm Ted Weschler, I'm here to brief you on National Medical Care. And you could see him getting a little bit agitated, because he'd never met me and didn't know anything about this. And he said, Where'd you go to school? I said, I went to University of Pennsylvania, Wharton undergraduate. He said, You don't have an MBA? And he says it in a really biting way. And I'm like, Oh, this has not started out well. And his pipe starts to shake a little bit. He really was getting quite worked up and he just gets going off about This is the biggest acquisition we've ever done, my grandfather founded this company, and you're sending this kid up to brief me on this thing! And then he starts going down the line, You know, Chuck, where did you go to graduate school? Yale, Peter, you know. And then it's like, I'm just... I'm gonna join the Peace Corps. This is horrible. Absolutely horrible. And then—it actually was this guy Chuck, who was the vice chairman. He said, You know, Peter, just let the young man at least answer some of your questions. And Peter listened to him, Mr. Grace. And he starts asking me questions. And yeah, I've been doing 100 hour weeks on this deal. And I knew the deal well. And it ended up being like an hour and a half meeting. And it was painful to start, but once it got rolling it, I felt like I did okay. I felt like I did okay. And then at the end of it, Mr. Grace looks over, and he says, You know, there's two people in this room that don't have an MBA. You and me. I still felt like hell, but that's okay. Then literally, the next day, I got a phone call saying that Peter always had three assistants that traveled the world with him, either as advanced people or financial types to do analysis while we're traveling. And she said, He let one of his assistants go this morning, and he'd like you to join him in Boston tonight. And pack for three weeks. So it's like, You know, let me talk to my boss. And she said, No, you don't have to talk to your boss, just be in Boston. And so in the next few years, I was traveling aide to Mr. Grace, which was really fascinating. And it was just—and he was one of these guys, you really couldn't say much when you're in the room with him in business meetings, but you were the proverbial fly on the wall. He'd let you sit in on anything. It was really, really powerful. And just very interesting. And his management style was a little bit different, but it was interesting. And a ton of fun. And I guess I did a decent job on that. And then in 1987 came along, and there's this crash in October. And I actually had, at that point, just before the crash, I had accepted a job with an arbitrage shop that did investment in takeovers, and Mr. Grace was very upset that I was leaving, but he... till the crash happened. And then he called me and he said, You're basically an idiot—he used much rougher language than that—for leaving, and there's got to be some way that you'd like to stick around here. So he starts sending in these senior folks with different ideas for me, and what have you, and I ended up becoming the aide to the next heir apparent to Peter. Peter was, at that time, maybe 75. And this was probably heir apparent number four or five. There had been several people who looked like they might take over for him, and so I did that because this was a guy that I had a great relationship with, and I worked with, and we'd done some leveraged buyouts. And that was another great experience. But that's the gentleman that I started the private equity firm with. And he and I set up a completely new company. And I was going to leave Grace and start a money management firm. He wasn't sure what he was going to do. And over a dinner, we hatched this idea of setting up our own private equity firm, and he was a gray haired guy with gravitas, and I was the maniac in the back room who knew the tax code and knew how to use a computer, and it worked. And that firm still is very successful in Charlottesville, it's got 30 professionals, manages several billion dollars. And that was a good thing. But then I wanted to set up, truly, my own shop. And that's what took me to setting up my hedge fund.
Host(s): So there was the bit of luck with getting the exposure, but then your preparation and... I'd be curious your reputation in the company, because I think that would be interesting—watching someone take that move.
Ted Weschler: It was an odd time. And I wasn't... big corporations tend to be very political. And I wasn't political because I didn't know anything about corporate life. I didn't know that it wasn't right to CC this person or CC that person. And I think I got a lot of byes because of that. People didn't view me as some kind of clever—I was just sort of like, I'm here to do a job. I want to make this company better if I can. And it worked out.
Host(s): That's a good story. I love that. Yeah. So then I'm gonna kind of skip, you sort of started talking about this, but you were at Quad-C, it still exists to this day. You were there 10 years, built it. What was the impetus for doing your own thing? Was that always the ultimate goal? Or...
Ted Weschler: It's interesting. Because when we first set up Quad-C, it was this amalgamation of my partner's idea that we wanted it to have control investments, where we actually bought companies. And my preference was I wanted to do investing in publicly traded securities.
Host(s): Are those typically two different worlds?
Ted Weschler: Yeah, yeah. And one of is buying things listed on the stock exchange, and just were, in effect, you own a small percentage of the business, whereas the other stuff that he was good at was we actually owning the businesses and making the operational decisions. And so we created this hybrid where we said, Okay, we're going to set up a vehicle where we'll ask folks that we know that have some money to put money in, and I would invest it in public securities while we were looking for control investments. And I kind of wore both hats where I—and when you're studying... if somebody shows you a business that's in furniture manufacturing, first thing you're going to do is look at everybody in furniture manufacturing and how they're valued in the marketplace. And once in a while, you'll see something and say, Boy, this just doesn't make sense. This is really cheap. There might be an opportunity to invest a little bit in this publicly traded company. And maybe we'll do the acquisition as well, or not. And that was fun. I liked that. Because I could look at it from both angles. And it—there's a pretty high bar for doing something in the public securities. So it wasn't like I was a trader. It was like, is there something really compelling? And there's a great quote of Warren's about, We'd all be better investors if we had a punch card that every time we made an investment, we had to click it, and that punch card had only 20 punches available to you. So you really had to have this high bar to make an investment. Well, lo and behold, in the six years that we did this, I made exactly 20. Exactly. Which is really weird how that worked out. And 19 of the 20 worked out really well. And I had a nice track record because of that. But we had reached the six year mark at Quad-C, we reached this point where we wanted to raise money, not just from individuals, but from institutions. So like, the Harvard endowment and Brown University, and what have you. And they're wonderful investors, but they tend to have checklists that they want to see. And they want you to be exactly this slot or that slot. They don't want you to be a hybrid that does both control investments and little things off to the side. And I worked on setting up the private placement memorandum and working with the investment bank and how to put this thing together. And I concluded that, Boy, I've got this nice track record, but it's not going to fit in this institutional model. So I said, Okay, fine, we'll just take that out, and we'll raise this institutional fund—which we did, and it was a successful raise, we got a ton of money. But then I realized, it wasn't exactly what I loved. And the firm had grown a bit, I was doing more people management than investing in businesses. And I mean, the thing that—I'm an analyst. I mean, I still want to have a business card, I want it to say Analyst—not Junior Financial Analyst [laughs]. And I was getting away from that. And how many employment agreements can you negotiate? I mean, that's what it came down to. It's like the learning curve had just flattened out. And I saw a window of opportunity that if I could take the private equity mindset where you're buying the business and you expect to own it for 5-10 years, and do that with publicly traded securities where I'd buy 3 or 4% of a business, but I'd have a very long term view, I thought that might be something that would work and would be appealing to some investors.
Host(s): Is that a little bit different from—because the turnover is typically quicker?
Ted Weschler: Yeah. The average holding period for a share of stock on the New York Stock Exchange is less than a year. There are far more people that are trading than are actually buying a piece of the business and holding it for the long term. And I wanted to do it in a way that—I wasn't in any way hostile or negative toward management, but if you're in something with a 5-10 year view, you've got a better chance to build a relationship with the management team and have credibility. And so there were several of these things that—they were small companies, but they didn't necessarily have a great connection to Wall Street or to capital markets. And not that I necessarily did. But I at least knew the way around, and I would never go in and say, I know this stuff better than you. I'd just say, Here's some ideas. It may be helpful to you. And over time—I call it MAD investing, M-A-D, Make A Difference investing. If you can potentially change the outcome by being actively involved in some part of the process—and that's where this WR Grace bankruptcy came along, where I was like, Wow, I know this company well. It was in bankruptcy because it had over 100,000 lawsuits against it relating to asbestos exposure of some of their products. And I'd done a lot of work in bankruptcy, for whatever reason, and I just thought it was something that I might be able to make a difference there by getting involved. And I bought about 15% of the business. And again, it took 13 years, but it ended up ended up being a very successful restructuring that I was involved in. But the short answer your question is, I wanted to get back into just investing in in public securities. Because that's, that's something—in private equity, where you're looking at control investments, you're relying on investment bankers coming to you and giving you a book. And that book's 120 pages of all this wonderful stuff about these businesses. But you open it up, on the first page it says Book #132, or something? So it's like they're selling everything. And then you end up feeling bad if you don't at least bid on it, because guess what, they stop sending you books, and you got to keep the books coming in, or you can't do it. But on public securities, if you don't buy something, guess what? The Wall Street Journal still shows up at your doorstep every day, or your computer, as the case may be. You don't have that, in effect, moral obligation to move on anything. You can just wait for the right opportunity to come along. And that was always appealing to me.
Host(s): Alright, I have to ask you this. You got 19 out of 20. What was the one you missed? I'm too curious, I'm sorry. I know you know it.
Ted Weschler: Yeah, I do. It's funny, because we went by the name of TW holdings at the time, and my initials are TW, so it's like, just, of course, I should have stayed away from here. And it was a big restaurant operator at the time, it owned Denny's and several other things. It was—and, you know, sometimes things don't work out. But it did not work out.
Host(s): But there had to be something you thought in your original assumptions...
Ted Weschler: Yeah, no...
Host(s): It was the initials.
Ted Weschler: Yeah. Vanity took me.
Host(s): So, one thing—I saw an interview of Warren Buffett, and he said that you are one of the few people he's met that reads as much as he does.
Ted Weschler: Oh! I didn't see that.
Host(s): And I read something else where you said that your job really is reading? And would just love to hear kind of what you read and how that kind of informs... Because, a lot of the times, you think, people are all reading the same thing, right? You're reading the trade journals and... is your success more about that you're able to interpret it or that you're reading more so you're pulling more information, but just...
Ted Weschler: No, you hit on it. And it's a great question. The way you ask it is just right. Because I think one of the great mistakes of investing is that people do end up reading the same thing. And the only way you're going to have success in the stock market is if you've got what's referred to as a variant perception, something that's different from the masses. Because if everybody says, Wow, this Facebook is hot, well, everybody jumps in. Do you really have that—and I'm speaking 10 years ago, not not right now. So one of the things that I—and Warren and I have this in common—we both love newspapers. And I really enjoy newspapers, and I grew up with them in the house, and there was kind of always—the morning—almost a competition with my mother, because she always read it before I did, and it was like, who picked up more from the newspaper? All in good fun, but it's one of those habits that you get into. And what's really great about newspapers, though, is there's a randomness about them, just by definition. There's different sections to it. And I read a bunch of different ones. But it's a random set of stories that come together because an editor says, Geeze, this might be interesting or what have you, or is top of mind. It's very interesting to see how a given political story is portrayed in USA Today versus The New York Times. What will be front page, above the fold in the New York Times may be on page three of USA Today. Much deeper reporting in the New York Times, but you really want to understand where it's positioned. And then, how's the Financial Times in London gonna play the thing? Because you do need to keep all the different perspectives, take them into account. But it is random. And if I can come up with one decent investment idea a year, boy, that is great. And it is a game of, I call it a game of connect the dots, where you want to build up a terrific data set, and maybe you'll be able to say, Ooh, I read this here, I read this here, I read this here, and make a connection, such that you get a little bit different perception of where a business is going to be five years from now than where the market does. And a game I always like to play is—do work on a company and say, without knowing what the price is in the stock market, study it and say, this is where I think it'll be. And then you do the uncovering thing, you say, I think this should trade at $82 a share. And it's like, Oooh, it's at 40. Oooh, this is interesting. Usually it means I missed something really bad. But it's always been a game that I've played, and it keeps it interesting. But then, trade journals, they're really powerful. And there's a lot of investors that don't subscribe to those. And then I—actually, Furniture Today, I've been a Furniture Today subscriber for the last, geeze, over 30 years now. And it's interesting, because it is one of those things that—it's a 10 minute read once a week. But if you read it with regularity, you do see the different names and how they're evolving, and who's doing what. And that's where I got to know Nebraska Furniture Mart was—I actually didn't even make that connection with Berkshire. But I used to always read about that. And I've been involved with furniture in a bunch of different ways over the years. But I always do want to be able to look myself in the mirror and say that I'm reading enough weird stuff that nobody else is reading the same stuff that I am. And if you're just reading the New York Times in the Wall Street Journal, there's just no way you're gonna beat other people. You're just reading the same thing.
Host(s): So there's other just peripheral stuff that you're pulling in?
Ted Weschler: Yeah. And so, I read... I read Furniture Today and Uranium Weekly. I'm not sure there's a lot of people that subscribe to both. You're looking at one of them.
Host(s): And the the investments you do at Berkshire are different than what you were doing—or maybe, I mean, I should ask that.
Ted Weschler: Well, yes and no. They're different in that it's just a much bigger pool of capital. And that's a not insignificant factor. Because we do have a very large pool of capital. And when I was running Peninsula, at its largest, it was $2 billion. And I typically would have that invested in 10 different ideas, which would be about $200 million per idea. And there's 1000s of companies out there that would let you deploy $200 million in them, that are big enough to do that. But when you get up into the Berkshire size, I essentially need ideas that I can deploy at least a billion dollars into, which narrows it, because I generally, except in exceptional cases, I generally don't want to own more than 10% of a business, because once you go over 10%, you have additional filing requirements with the SEC. In effect, every trade you do, you need to publicly declare within 72 hours of making the trade. And that's just, it's a hassle. And so, you work into the math. And if you got to put a billion dollars to work and you don't want to be more than 10%, it means you got to only invest in companies that have at least a $10 billion market capitalization. So that cuts out a big chunk of the market. But my primary job is looking for ideas like that, public securities. But I also work on acquisitions, so if deals come along that might be interesting to buy 100% of, similar to what I did in my Quad-C days, or WR Grace, it's something I'm very comfortable with. I've been doing those kinds of analysis for a lot of years. And, again, I'm just here to help out wherever I can.
Host(s): Any books that you have read recently that you'd recommend highly?
Ted Weschler: Well, yeah, let's think about that. I must say, the vast majority of stuff I read are the periodicals. I'm in the middle of one that is quite good. It's called Trillion Dollar Triage that is the detailing the, in effect, the bailout of the system from COVID in March of 2020. And it's a gripping read, because it really goes through how quickly COVID became a global issue and the ramifications for the global economy and the US economy and how interdependent the US economy is with the rest of the world and what very brave people like Jay Powell had to do on a moment's notice to make sure the wheels didn't fly off the train. And it is quite the read, quite the read.
Host(s): How did COVID affect your day to day, Berkshire Hathaway's, from investment and strategy?
Ted Weschler: Well, there's the kind of the humanistic side, where all of a sudden everybody's like, at home. And I think Warren and I had in common, we were like, This was not going to work. I like sitting at my desk, it's space that I'm comfortable with, whether it's Charlottesville or Omaha. I think Warren worked out of his house for maybe a week or two. And he was like, he didn't say he was gonna work. And so, we—there's only 26 people at headquarters. And most of the folks went remote. We went very careful with the masking. And I started—I did come out pretty much every week, though. I took a test every time I came out, I didn't want to be the one who's bringing a nasty bug from Virginia to Omaha. So that was a big impact. But then, it was a tough one from an investing standpoint, because... all of us, I mean, it's Warren, Todd Combs is the other investment manager. We looked at each other and were like, Wow, just not seen anything like this. Not sure how this is going to play out. And we had a lot of very good information, but we didn't have a relative edge.
Host(s): Did you have those conversations, just like what you just said, they're like, how is this going develop?
Ted Weschler: Oh yeah, no, we were sitting there over quarter pounders with cheese, saying like, What do we think? And then it was like, geeze, just don't know. It was brilliant work on the part of the Fed and Jay Powell in fixing everything. But the moment they came in, I think it was March 20th of 2020, that the Fed effectively put a floor under everything. And the moment they did that, the opportunities that would have been there for Berkshire, they weren't there anymore. I mean—
Host(s): What does that mean?
Ted Weschler: Well, it means that—historically, the best times for Berkshire have been when there's been difficulties out there. Where people needed capital and banks weren't lending because there's a banking crisis going on. And so we'd say, Wow, we like your business. We'll effectively lend you money, or we'll buy 15% of your business in a negotiated transaction—good for you, good for us. In 2000, we did several of those—Warren did several of those kinds of trades that were very, very good. They built on Berkshire's reputation, they helped the companies involved. Done one with General Electric, one with Harley Davidson Motorcycles, one with Tiffany's. I mean, there's just a bunch of these—but they all were very good transactions, relatively low risk. And we thought, like, maybe this is... we can do this, this time around. But the window closed very quickly, and with all of a sudden—the view was the banking system was going to effectively shut down and there wasn't going to be lending available for institutions. But in actual fact, there was plenty of money available. The Fed came in and said, Open that open the vault. Whatever you need. Even Berkshire can't compete with that.
Host(s): And then so how has that kind of transitioned versus where we are now?
Ted Weschler: Yeah, well then, then you get to kind of watch the cards play out. In a way it really was quite interesting, because one of the indirect beneficiaries was NFM. The nesting phenomenon that all of a sudden people are spending a lot more time at their house and they're like, Wow—
Host(s): They didn't like their sofa!—
Ted Weschler: Yeah, it's like, time for a new one! And it's played out very differently in the different businesses, but on balance, it's actually played out very, very well. And, we've got just a great mix of operating businesses that make up Berkshire. And it was rocky for that March, April, but all of a sudden then it was like, Wow, this could work out. And people got into the cadence of a different way of doing business. But it really has been all good. And we've found some ideas in the public marketplace. This last go round, the tragedy of Russia, Ukraine, that really did rattle the markets. And that's the sort of thing that I think we're in a better position to assess. Because there has been similar things that have happened in the last 125 years that you can say, How does this play out? And what are the probability adjusted—what sort of outcomes could you have? And we've made some public announcements in the last 30 days of things that we're investing in. So we've moved some money in the last couple of months.
Host(s): What are you thinking a lot about right now?
Ted Weschler: Oh, wow.
Host(s): Besides uranium today.
Ted Weschler: I let that lapse, now. I'm feeling bad. I got to resubscribe. The things I think a lot about, but I don't have any influence over is inflation. It's real—how long is it going to last? How does it impact different businesses? The strength of the US dollar, or the weakness on any given month. China-US relations. These are big picture things that are going to impact the long term. And they shape our thinking. But they're all background things. But again, what's interesting about this business is you kind of have to have a little bit of background knowledge on all this stuff to have the right lens to look at investment opportunities.
Host(s): You feeling positive?
Ted Weschler: Oh yeah, I'm feeling positive. I always feel positive. I mean, it's a system that works. And there's always going to be some negativity out there. But, again, the world of investing, as long as you take a long term view—we've got the right incentives, particularly in the United States of: entrepreneurs are encouraged, new technologies develop. New things and positive things happen every day, every week, every year. And so, yeah, I can't help but be optimistic.
Host(s): No, I was just gonna say—thinking about your point earlier about reading and consuming all of this information, I imagine that's the best way to kind of stay informed on all of that.
Ted Weschler: No it is. Yeah, because it is... It's not just one specific thing. It is all these different flows of information. And it's also where it's important to read a paper from Europe and a paper from Canada and a bunch of stuff in between, because it does give you a little bit different perspective.
Host(s): Yeah, certainly. And rather than being overwhelmed by all of the information, just view it as another opinion or perspective on it. And variant perception [laughs]. Well, we always like to come back and talk about home. And now to kind of reset on what we do. So a couple of questions for you about, just, home. You've moved a few times, and you've got your place here in Charlottesville. What makes the house feel like home to you? What are—are there key pieces, or things you have to have?
Ted Weschler: Oh, it's interesting. Growing up, my father was at A&P food stores, and we moved pretty much every three or four years from when I was 0, 4, 8, 12...
Host(s): So you're parents had to rebuild home...
Ted Weschler: Yeah. And there's those pieces that always moved house to house that defined the house. And I have a—I don't know, do they still sell naugahyde—that name, naugahyde, does that ring a bell?
Host(s): The name sounds familiar, but...
Ted Weschler: It was one of the first faux leathers, and it was very popular in the 40s, 50s, and 60s. It was called Naugahyde. And actually, in the 60s, they had a very successful—I thought it was funny as a kid. It was a advertising campaign about how Naugahyde came from the Nauga, which is this mythical animal. And they said that the nice thing about the Nauga is it shed its skin and they didn't have to...
Host(s): We have to file that away! That is amazing!
Ted Weschler: Basically, it's vinyl on top of fabric. And it cleaned up nice and it was great in the house with kids. But got my-I call it my father's Naugahyde Archie Bunker chair, and it's another—
Host(s): You still have it?
Ted Weschler: Oh, absolutely! And it's just as beautiful. I mean, this stuff lasts forever. I mean, I'm sure if an interior designer came in, they'd say you got to get rid of that chair. And I'd be like No! It' s my dad's chair. But then, there's just—we always did get something new growing up, each house that we went to. I think one of the things—and this is kind of interesting, because I'm always kind of a student of inflation and products and what have you, and—furniture has gotten relatively much less expensive over the last 50 years. And the, the example I use is, the couch that my mom and dad bought in 1965, when I was four years old, they would have spent like four weeks of the average earnings of a—and now, that four weeks now is closer to one week. And this combination of much more efficient manufacturing and much more efficient distribution. If something like NFM, it would just—really, incredible. Because when we bought something, it was going to the neighborhood furniture store, and it was nice, it was relationship driven, but boy, it was very, very expensive. And the idea that—I've looked at these numbers recently—inflation for furniture, since 1965, when I was four years old, about 2% a year for the last, whatever, 50, 55 years, and overall inflation is about 4%. And that, over a long period of time, that's got huge implications. And it really is quite something that now, you can get fresher stuff and funner stuff, and if you get tired of that sofa, or what have it—I'm not gonna get tired of the naugahyde though. Maybe that'll come back big, maybe it'll come back big. But we always did make a point of getting something new. And I still have a lot of fun items from my house growing up. And I love my apartment here, because it was a chance to just start with a blank slate, and got a bunch of stuff. And if I was doing again, there's probably some things that I wouldn't have bought. It's funny. I bought a—I outfitted this probably six years ago-and I bought two nice TVs that I don't think I've turned down in the last year. What I want to watch, I watch on my iPad now. But that's also what's fun about the world is it changes so quickly.
Host(s): So which daughter's buying for the chair? The naugahyde chair? Or are they the opposite, like I'm not taking that!
Ted Weschler: I don't think there’s gonna be any fighting? I think they might have to buy an extra large funeral vault just to put that with me.
Host(s): That's amazing. Well, a couple of—we're getting down to the end of the time. A couple of final questions. You're a runner—a marathon runner. You've missed not very many days. Do you run today?
Ted Weschler: I did. One day, one day in the last 40, whatever, 38 years?
Host(s): What is it about running? And any lessons that go into your investing from that?
Ted Weschler: It's a good question. My mindset is very different when I'm running. And I think there's some clinical stuff on this. I mean, if you have increased blood flow, your brain works a little bit differently. And to the extent I hit something that's a difficult conceptual issue, and I'm reading or analyzing something, I mentally like to like, put it off to the side, and say, I want to think about this again when I'm running. And it's a great clear-your-head—not only there's time to just run, and I don't think about anything, but the discipline aspect of doing it every day, it's a great way to wake up and kind of—
Host(s): You're a morning runner?
Ted Weschler: I used to be a night runner and now it's absolutely the first thing I do. And it helps me wake up. But it's something that I really—I just, I've never felt worse after a run. I can have the flu, feel awful, I'm like, how am I gonna get out running? But I always feel better. I may still feel bad, but I always feel better after going for a run.
Host(s): And then, final, what excites you about the future? Investment, personal...
Ted Weschler: Yeah. It just, the investing business is, I just find it so interesting. And if you're intellectually curious—and that's something, kind of really a common element among Warren and myself and Todd is—there's nothing better. Because if you get—if you're studying the banking industry in the morning, you may say, Geez, okay, I've had enough of this. Well, then you can study the home furnishings business, and then go back to uranium in the evening. It's just fun. And the fact that things are changing, change is constant, there's always going to be new things out there. And so the idea that—I didn't even know what streaming was 10 years ago, and now it's just kind of dominating the—
Host(s): Now you don't want your TV—
Ted Weschler: Yeah, right, yeah. And that's the sort of thing that—it just keeps it interesting. And then you overlay healthcare and these vaccines that we would come up with, and the science that got done over the last 24 months, just incredible. I mean, really exciting stuff. And to be fortunate enough to be on the earth while all these things are accelerating, and all these new developments. And yeah, there's some issues and the conflicts are terrible, but there's—it's on balance, more than swamped by the good stuff that's going on out there.
Host(s): Well, I learned a ton. Yeah, thank you.
Ted Weschler: Oh, I'd be happy to. Let's go for a couple more hours!
Host(s): We have more questions! We didn't get to the yes-no section. You have to come back and share more of these stories. It'd be a blast. Thank you.
Wrap-up
If you’ve got any thoughts, questions, or feedback, please drop me a line - I would love to chat! You can find me on twitter at @kevg1412 or my email at kevin@12mv2.com.
If you're a fan of business or technology in general, please check out some of my other projects!
Speedwell Research — Comprehensive research on great public companies including Constellation Software, Floor & Decor, Meta (Facebook) and interesting new frameworks like the Consumer’s Hierarchy of Preferences.
Cloud Valley — Beautifully written, in-depth biographies that explore the defining moments, investments, and life decisions of investing, business, and tech legends like Dan Loeb, Bob Iger, Steve Jurvetson, and Cyan Banister.
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Compilations — “An international treasure”
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