Buffett’s stock-picking lieutenant has a proven track record, but his hands are tied at Berkshire

Published Sat, Sep 11 20218:47 AM EDT

Ted Weschler, one of Warren Buffett's two investment lieutenants, grew his retirement account from $70,000 to more than $260 million in less than 30 years. The astronomical returns were achieved by investing in stocks of under-the-radar small-cap firms and other underappreciated opportunities. However, when it comes to managing money for Berkshire Hathaway , Weschler is limited as to what he can achieve even with his stellar stock-picking skills. It was recently reported that Weschler, now 59, managed to pull off a whopping 300,000% gain in his personal retirement account from 1983 when he started his first job to the end of 2018, according to IRS information that ProPublica obtained. Speaking to Washington Post's Allan Sloan, Weschler revealed that there isn't a direct overlap between his personal investments and opportunities he looks for at his day job for Berkshire. He told Sloan that his picks for the conglomerate tend to have a minimum value of $500 million without giving Berkshire a stake of 10% or more. Weschler, who joined Berkshire Hathaway in 2012, managed $13 billion in the conglomerate's $300 billion equity portfolio as of early 2019. A $500 million stake would represent less than 5% of a $13 billion portfolio. In other words, a bet below $500 million would be too small to have a meaningful impact on the overall portfolio. This minimum requirement effectively excludes Weschler from the entire small-cap universe where he found his some of the winning bets for his personal investments. "The best bargains over the past year and today are in smaller and mid-cap companies that used to be large and got crushed. He has too much capital to do that," said Bill Smead, chief investment officer at Smead Capital Management and a Berkshire shareholder. "[Buffett] effectively tied Weschler's hands behind his back. He couldn't do for Berkshire Hathaway what had made him successful as one of the all-time great investors," Smead said. Weschler declined to comment. In October 2020, Weschler disclosed a near 6% personal stake in department store Dillard's , which has a $4 billion market cap. The stock has surged more than 200% this year on the back of the economic reopening. Weschler also personally bought Optical Cable Corporation in recent years, according to regulatory filings. The company, with just a $27 million market cap, gained 35% this year so far. At Berkshire, the smallest company it invests in is EW Scripps , which has a market cap of $1.3 billion. In the first quarter of 2021, the conglomerate took a 30% stake in the media company, which required regulatory approval. "His bets need to be large enough to have an outsized impact on the performance of the portfolio, but also small enough for the portfolio to withstand a catastrophic loss," said James Shanahan, Berkshire analyst at Edward Jones. Although Weschler might not be able to go bargain-hunting freely for Berkshire, he did help pick stocks that drove growth in Berkshire's portfolio. It's widely speculated that Weschler, or Buffett's other investment lieutenant, Todd Combs orchestrated many bets that break with Berkshire tradition in recent years. The conglomerate added a slew of IPO and pre-IPO investments , including Brazilian fintechs StoneCo and Nubank, Snowflake and India's largest digital payments start-up Paytm. These stakes are all around Weschler's sweet spot of half a billion. Berkshire's investments in Apple and Amazon were also likely due to Weschler and Combs' influence, holdings which played a key role in generating alpha and reaped billions of dollars in return.

Ted Weschler, Berkshire Hathaway

Source: Berkshire Hathaway