We have argued for years that the biggest mistake was made by Berkshire Hathaway (BRK.A,, Financially) (BRK.B,, Financially) did not give shareholders access to the thinking and investment discipline of their two talented stock pickers, Ted Weschler and Todd Combs. After all, Buffett calls shareholders “partners” and has not allowed his partners to understand anything about the strategies and results of the $ 30 billion share capital increase.
Thanks to Allan Sloan from Washington Post, we learned more about Ted Weschler from the footnotes on the ProPublic page and Sloan’s phone call Mr. Weschler than we ever learned from Berkshire’s annual reports or Berkshire Hathaway’s annual meetings. Where was any of this in the footnotes of Berkshire Hathaway? Weschler became a millionaire from his personal investments in his Roth IRA. These funds came from converting his traditional IRA and paying a whopping $ 26 million in taxes to keep future revenues tax-free. Here is how Sloan explained these circumstances:
I came across Weschler’s investment ability reading an email he sent to ProPublic in response to questions about his Roth account, which was worth $ 264.4 million at the end of 2018, according to Tax Administration data obtained by ProPublica.
Reading the ProPublic story, parsing Weschler’s email, and 15-minute research, I realized that unless my calculator crashed, his IRA outperformed Berkshire stocks by about 120 to 1 from 1989 to 2012, and nearly 90 to 1 from 1989 to 2018
Sloan continued to contact Weschler, who was happy to demystify what he had done in his Roth IRA to gain such wealth. Weschler explained that he managed a very concentrated portfolio with his “metal pedal,” similar to what Buffett did in Omaha in his limited partnerships and in the early years of running Berkshire. Here is how Weschler described his aggressive approach:
Weschler said he was still rocking behind fences despite that huge loss because, “One of my personal investment mantras is that there is no loss, it’s just a non-monetized lesson.”
Buffett not only did not allow Weschler and Combs to share their investment philosophy with “partners,” but they were to some extent bound by the shackles of the constraint that Berkshire placed on their discipline. Here is how Weschler described the current limitations:
“I think it’s safe to say that my retirement account got a lot less attention after I joined Berkshire,” Weschler said. “For the past 22 years, there has been a direct overlap between the things I was looking for for my day job and the potential investment opportunities for my retirement account. Once I joined Berkshire, that just wasn’t the case.”
For Berkshire, he is looking for investments that can absorb at least $ 500 million without giving Berkshire a stake of 10 percent or more.
This interview for the Washington Post reveals something we wrote about in May 2020 after a tumultuous virtual meeting of Berkshire Hathaway. Buffett was supposed to give a huge portion of “partner” capital to invest in a sell-off on the stock market that fell in the spring of 2020 due to the COVID-19 pandemic. Instead of drawing courage from his leased weapon, which could “swing for fences,” Buffett decided to stay in a customer coma and allow shareholders to share his PTSD from the aviation business.
At the time, we argued that it was a Ben Graham value-buying environment, and this Washington Post article reveals that Weschler is a big buyer of Ben Graham’s value. However, Buffett and Munger were preoccupied with a number of “partners” who have 90% of their net worth tied up in Berkshire Hathaway shares. Should I, as someone over the age of 60, be a public company like Berkshire so concerned about preserving wealthy people who have never paid capital gains tax? With all the “greasy terrain” in the spring of 2020 that was out there, no one in the company was “rocking the fences”. Fear of stock market failure.
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