By John Chudley
A long time ago, I learned that style counts for absolutely zero points in investing. Investing is all about results.
Borrowing a great investment idea from someone else is just as good as coming up with a great idea on your own. All that matters is compounding your investments at as high a rate as possible while minimizing your risk.
I'd even argue that it would be smarter to use ideas from successful investors because that adds one more layer of due diligence to your own -- a layer that happens to have been performed by a respected investor.
A couple of years ago, Warren Buffett hired two portfolio managers to take over part of Berkshire Hathaway
) investment portfolio. Each of the men was originally given about $2.5 billion (subsequently increased to $4 billion) to manage. With Buffett now 83 years old, the plan was and still is for these two men to eventually handle the investing duties for the bulk of Berkshire's enormous portfolio.
One of those portfolio managers is Ted Weschler, who before joining Berkshire in 2011
managed a hedge fund called Peninsula Capital Advisors. From 2000 through 2011, Weschler's hedge fund delivered a total gain of 1,236%. That is an astounding number in its own right, but it's even more incredible considering the broader stock market barely increased over that period.
Weschler's success comes from the application of a value investing style to an extremely concentrated portfolio. Weschler picks few new stocks and tries to invest only in opportunities that are truly exceptional. If an idea makes it into Weschler's concentrated portfolio, chances are it is a good one -- one that the rest of us should pay attention to.
That brings me to DaVita HealthCare Partners
Weschler has been analyzing DaVita for more than a decade and is still buying shares. Since joining Berkshire, one stock Weschler keeps buying quarter after quarter is DaVita. Berkshire's most recent quarterly Form 13F filing with the SEC
shows that Berkshire is currently sitting on almost $1.8 billion of DaVita stock.
When you consider that Weschler is managing only $4 billion of Berkshire's money, that means he has almost half of his share of the portfolio in DaVita. (I said he was concentrated!)
Weschler has been analyzing this company for more than a decade and is still buying shares.
He owned DaVita shares for his hedge fund as far back as 2001. If you stroll through the historical SEC filings for Peninsula, you'll find Weschler had at least 20% of his fund invested in DaVita from 2001 through 2011.
The thesis behind the DaVita investment seems to be a play on America's aging population. The company provides kidney dialysis services for patients in the U.S. who are suffering from chronic kidney failure or end-stage renal disease.
As people continue to live longer, the need for these services is only going to increase. (My colleague Joseph Hogue explored this investment theme in his "Graying of America"
series this summer.)
The potential for growth is nice, but what likely really turns this into a high-conviction investment for Weschler is that DaVita basically operates in a duopoly with Fresenius Medical Care
). These two companies serve about two-thirds of all U.S. dialysis patients.
That duopoly puts a moat around DaVita's business. It's virtually impossible for a newcomer to make inroads against these two dominant companies.
DaVita is currently trading at roughly 10 times 2013 cash flow, a pretty attractive price for a company that likely has years of growth ahead of it and operates in a duopoly business that is virtually immune from recession.
I likely wouldn't jump into DaVita based on just my own analysis, but with Weschler's stamp of approval, I think I would. For me, it boils down to his knowledge of the company history as a shareholder: Not only does Weschler have an impressive investment track record, but he's willing to invest almost half the money Warren Buffett has entrusted to him in this company.
Risks to consider: The health care industry is susceptible to government intervention. It has to be considered a real risk any time there is potential for the government to affect a business.
Action to take: DaVita has the Weschler/Buffett stamp of approval, so it rates a buy in my book. The valuation is attractive, the growth prospects are excellent, and the moat around the business is strong.
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