Giverny Capital - bullish on construction stocks

Giverny Capital have made significant buys and sales during the last quarter. We rarely see that much action with a fund.

We can’t see the movement with canadian stocks (they probably still own Constellation Software, Dollarama and MTY Food Group) but they surely did some transactions there too.  Anyway, here’s how it looks for the american stocks

Top 10 US stocks :

Berkshire Class B : 21,8%

Carmax : 9,6%

Ametek : 6,8%

Visa : 5,2%

Markel : 4,7%

Alphabet : 4,7%

NVR : 4,3% (added 91% more shares)

JP Morgan : 3,9% (added 46% more shares)

Heico : 3,8%

Charles Schwab : 3,6% (added 31% more shares)

Other significant buys and sells :

Union Pacific : 3,5% of the fund (reduced by 30%)

Mohawk : 3,5% (added 89%)

Fortune Brands : 2,9% (added 53%)

Disney : 2,8% (reduced by 36%)

Edwards Lifescience : 2,5% (reduced by 32%)

Bank of the Ozarks : 2% (reduced by 50%)

Here’s my observations :

They’re very agressive on construction related stocks (NVR, Mohawk and Fortune Brands). These 3 stocks now represent almost 11% of the total US portfolio. Even if these 3 stocks are on sale right now, I don’t think that construction is a sector on which we could be very confident for a long period of time. It’s more a momentum thing. Among these three stocks, I like Mohawk (and it’s selling for almost 50% of it’s historical valuation), I’m neutral about NVR and I don’t really like Fortune Brands (their results have been bad for many quarters). These three buys are not bad, but they’re a little too related to the general state of economy for me. But it’s a value play: Giverny is making a defensive move here, with stocks that don’t benefit from a momentum but that have rarely been so cheap on a PE basis. I guess every portfolio should let a little space for that kind of stocks, but not too much.

It looks like Rochon and his friends think that Bank of the Ozarks stinks. They’ve been bullish on that stock for years and it’s been one of their top 5 position in the recent past. Now, they’ve sold about 50% of their position, which means that they probably think that some shit is happening. Actually, 2018 has been a very tough year for the bank and a lot of suspicion was raised over the business, but it turned better with the last results. When it stinks, it’s probably not a bad idea to look elsewhere.

Today, I've seen that the performance of their fund in 2018 was released.  I thought it was gonna be ugly with a lot of their stocks biting the dust (Dollarama, Mohawk, Fortune Brands, Bank of the Ozarks…). But it didn't turn out that bad because they achieved a performance of -3,2%. And they still compare themselves to some fucking adjusted index (taking a part of the S&P, a part of something else and another part of something unknown) which makes absolutely non sense to me. At least, that index has achieved a performance of -2,9%, so Giverny doesn't seem to play with numbers to look great. But everybody should compare themselves to the market (S&P500 or TSX/S&P500 if your portfolio is balanced between US and Canada). If I wanted to look like a fucking genius, I'd take the worst indexes and I'd justify my choices of using that index as a reference because I owned the only good stock of the index.

While I think that this approach doesn’t look fair (perhaps it is, but it doesn't look so), they’re still the most interesting fund managers to follow in Canada. Actually, they’re among the small and select club of fund managers that look almost exclusively on highly predictable stocks according to Value Line, which is the recipe of success for me now.