Buffett Owns Coke and Candy, New Manager Brings Gruesome Synergy: Dialysis

Warren Buffett’s announcement earlier this month that Ted Weschler, a hedge fund manager, will be joining Berkshire Hathaway (BRK.A) to help manage equities, prompted articles about Weschler’s reverence for all things Buffett. That includes the fund manager’s paying more than $5 million to win the right to dine with Buffett on two occasions in recent years.

Articles also noted Weschler’s very Buffett-like contemplative style of investing; sitting and reading and thinking are among his big activities. And his Peninsula Capital Advisors LLC, like Berkshire, holds a relatively few stocks for its $2 billion size. A comparison of Buffett’s and Weschler’s major holdings, however, finds no overlap. What companies and investment themes did they gossip about when they ate at Piccolo’s in Omaha in 2010 and 2011?

We may never know, but one possibility is overconsumption of sweet food and drink by Americans and others, and the resulting health problems it can lead to. Buffett, after all, is a huge owner of Coca-Cola (KO). And he also owns a big stake in Kraft (KFT), owner via a takeover of Cadbury, the candy bar maker. These are among the items that are leading to record obesity rates in the U.S. and elsewhere. That condition, in turn, can lead to diabetes, and sufferers of that disease, in later years, can wind up with kidney failure and needing dialysis to survive. Weschler’s fund, in turns out, owns a big stake in DaVita (DVA) one of two dominant dialysis center operators.

Buffett is a famous Cherry Coke fan. But unlike so many millions of Americans, he has kept his weight steady all his life. In fact, as one reads in the Buffett biography, “The Snowball,” Buffett was somewhat obsessed with his own weight and that of his (now-deceased) first wife Susie and their three children, employing elaborate financial incentives to encourage them to avoid becoming overweight (see pages 285 and 519 in Snowball). Buffett’s daughter, also Susie, once won a weight bet with her father and went on a $47,000 shopping spree, according to the book. Buffett’s older son Howard’s ideal weight was 182.5 pounds, his father felt at one point, and the rent on a Buffett-owned farm was adjusted to encourage Howard to maintain that weight: over the limit, Howard paid his father 26% of gross receipts; under the limit, the Old Man was due only 22%, according to Snowball.

Clearly, Buffett is intimately familiar with the American urge to over-consume sugary, fizzy drinks and sweet snacks. Without over-consumption, it’s doubtful Coke and Kraft – or any purveyor or such items – would have been such fabulous growth vehicles over the decades. The common ingredient is sugar and its equivalents.

US Sugar Futures Contract Price Chart

US Sugar Futures Contract Price Chart by YCharts

A little nibble of chocolate and the occasional 12 oz. soda can isn’t enough to pump Coke’s market cap and Kraft’s market cap up to $155 billion and $59 billion, respectively. No, and to reach maintain those heights, Coke and Kraft need a core group of consumers to habitually wolf down mass amounts of the junk, and one need only peer into fellow shoppers’ carts to see soda pop and sweets being consumed in large quantities. To see the unpleasant result of that consumption, drive over to a strip mall that is home to a dialysis clinic someday, and watch the comings and going; the machines are always busy.

DaVita and its German competitor, which also operates dialysis clinics in the U.S., Fresenius (FMS), have been reliable growth vehicles in recent years, gobbling up lesser dialysis chains and receiving vast amounts of federal funds for their services.

Davita Price Stock Chart

Davita Price Stock Chart by YCharts

Uncle Warren’s holdings seem a little less grim than his new fund manager’s, but it’s all part of the same gruesome picture.

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