lundi 21 août 2017

Sequoia fund investor day transcript

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%
Alphabet: 6,5%
TJX: 5,9%

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...

4 commentaires:

  1. I like this passage:
    I would note that every great outperformer we
    have purchased during my eighteen years here — from
    Fastenal to Idexx to Mastercard to O’Reilly to Precision
    Castparts to Sirona to TJX — had something in common. And
    it was not a low P/E at the time we first invested. It was a long
    growth runway and, most often, a long organic-growth runway

  2. Thanks for the call on Suprenus Pharma, Angelo. Still buying TCX, SHOP, FIZZ, SIS? How about others? I just added to my Savaria holdings. Probably should wait until things turn higher but I have no plans on selling for a 5% gain and will hold it for at least a year or when their pace of acquisitions & growth slows.

    What are people's plan's through the projected pullback? I'm still holding everything I own and will just add new money in any pullback. Too many people are waiting to get into the market so I don't think a pullback will be long or deep.

    1. I’ve hedged my portfolio since late March when I noticed that the momentum of the NYSE breadth was weakening. In retrospect I guess I was a little early but it was my way of managing my risk. I’m still hedged as breadth continues to weaken. Right now I’m trying to accumulate some stock ideas (DHR-nyse, TCS-tsx, RME-tsx) so I can hopefully buy them at a discount when the market eventually sells off. If it does sell off I think it will be a good investment opportunity to buy things a little cheaper than they are now.

      If the market continues to go up I will have to seriously consider liquidating my hedge as I`m already under water on it. The stock market is always interesting.

  3. I'm still holding TCX , SHOP , FIZZ , SIS and SUPN.
    I'm amazed at how strong FIZZ and SUPN have been lately.
    On page 2 of their latest earnings call transcript, SUPN makes it clear that they will be hiring 40 more sales reps for the 4th quarter. They are not going to do that because revenues will decline. Expect a lot of growth from Supernus Pharma. They hit an all time high today.
    Savaria corrected because of 0.07 eps in last quarter (but that earnings miss in the last quarter was mostly one time costs associated with their American acquisition which will increase earnings down the road). Revenues grew by about 30%.
    Tucows has only two analysts following it and one of them expected $4 per share for next year. He has since conceded that he was way off. Both Savaria and Tucows are solid and will contine to grow in my humble opinion. Both made recent acquisitions to help them to continue growing...(but adjustments and extra expenses from the acquisitions have dented earnings short term). I am not buying or selling anything. I leave you with the wisdom of a legend...

    Here are nine surprising things legendary trader Jesse Livermore said regarding excessive trading:
    1. “Money is made by sitting, not trading.”
    2. “It takes time to make money.”
    3. “It was never my thinking that made the big money for me, it always was sitting.”
    4. “Nobody can catch all the fluctuations.”
    5. “The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money everyday, as though they were working for regular wages.”
    6. “Buy right, sit tight.”
    7. “Men who can both be right and sit tight are uncommon.”
    8. “Don’t give me timing, give me time.”
    and finally, the most important thing:
    9. “There is a time for all things, but I didn’t know it. And that is precisely what beats so many men in Wall Street who are very far from being in the main sucker class. There is the plain fool, who does the wrong thing at all times everywhere, but there is the Wall Street fool, who thinks he must trade all the time. Not many can always have adequate reasons for buying and selling stocks daily – or sufficient knowledge to make his play an intelligent play.”