My favorite financial reading of the year is out:
Sequoia fund's investor day transcript.
It's gonna be easy for me today because I'm only gonna copy some main ideas about the transcript. These are all facts that I like and that I agree with.
There's a little bit jerking-off here and there in the transcript. But we're all humans. Who never wanted to cum in public?
First of all, on june 30th, Sequoia's top 5 holdings were:
Berkshire Hathaway: 11,3%
US Treasury bills and cash: 8,7%
Between december 2016 and march 2017, Sequoia reduced their stake in Berkshire from 17% to 12%. Berkshire is still a great business but growth shouldn't be spectacular.
They are very focused on owning high-quality companies and they measure it by the return on equity of their portfolio which is significantly higher than the ROE of the S&P.
The PE multiple for Sequoia is about 10% higher than it is for the index. They believe they own first rate companies and management teams, which deserves at least a small premium to the Index.
The market is smart. Business quality is clearly well appreciated. High quality business rarely trade for truly bargain prices. But businesses do periodically trade at a discount to their intrinsec value (INTRINSEC VALUE: A concept as vague as god or love, in my opinion).
Priceline is a kind of duopoly with Expedia (such as Mastercard and Visa). It's expensive but it deserves a premium valuation because the growth rate should continue to be very high for the next years.
O'Reilly has a very sustainable moat on the commercial side of the business. They have by far the most efficient distribution system in the business. The company can deliver a part in a garage in a matter of minutes, which isn't the case at all with Amazon.
Credit Acceptance Corp (CACC) has a different business model than other lenders in the auto industry. Their ROE is high (in the 30's). They also have a very shareholder friendly management team (they bought back more than 50% of the shares since 2005). The founder of the business is the most important shareholder. Personnal note: I like that stock even if analysts seem to hate it.
Mohawk is a cyclical company (related to housing market). It has however changed a lot and is now very well positioned for the future. There is no other flooring company that has the product range, the geographical exposure and the management talent that Mohawk has.
Many home runs for Sequoia have been midcap picks (TJX, Fastenal, Mohawk, Idexx). They mainly look in that space for investment ideas.
And much more about Google, Carmax, Liberty Media and others...