Arlington Value's Allan Mecham - Q3 Portfolio Updates From The 400% Man

|
Includes: AFI, CBS, IBKR, LBTYK, VIAB
by: Safety In Value

Summary

Concentrated fund with top four positions comprising 75% of portfolio.

Added to large positions - Interactive Brokers and Berkshire Hathaway.

Three new positions this quarter: Armstrong World Industries, Liberty Global and Viacom.

Arlington Value's Allan Mecham took the value investing world by storm (as much as one can being a publicity shy manager from Utah) when this article was published in 2012. It detailed his anti-Wall Street style and exceptional returns. Subsequently, his fund has increased in size rather dramatically. Also, the last year hasn't been as kind to many value investors, with large growth tech stocks leading the way. That being said, I still think it's interesting to follow what a noted value investor is buying, especially when his portfolio is highly concentrated.

In Mecham's case, the top four positions in the fund make up 75% of the reported assets. Those positions are in Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Cimpress (OTCQB:SMPR), Now Inc. (DNOW( and Interactive Brokers (NASDAQ:IBKR). This quarter saw small increases to the Interactive Brokers and Berkshire Hathaway positions, while Cimpress and Now Inc. saw selling. I had a bad case of confirmation bias when I saw that as IBKR and BRK.B are the only two holdings where my portfolio overlaps with Mecham. I have the advantage of managing much less money than him, so I can focus on small and micro-cap stocks where I believe there are more opportunities to find misplaced securities.

Mecham's portfolio as of September 30th appears below.

Company Symbol Values ($000s) Shares
ARMSTRONG WORLD INDUSTRIES AWI 6,726 162,798
BANK OF AMERICA CORP BAC 54,105 3,457,220
BERKSHIRE HATHAWAY INC CL A BRK.A 9,297 43
BERKSHIRE HATHAWAY INC CL B BRK.B 191,313 1,324,241
CIMPRESS N V CMPR 180,899 1,787,898
COPART INC CPRT 6,148 114,805
DESWELL INDUSTRIES INC DSWL 177 100,981
HEICO CORP NEW - CL A HEI.A 1,873 30,961
INTERACTIVE BROKERS GRO-CL A IBKR 74,842 2,121,990
LEUCADIA NATIONAL CORP LUK 111,123 5,836,312
LIBERTY GLOBAL INC-SERIES C LBTYK 1,032 31,251
MOODYS CORP MCO 15,602 144,093
MSC INDUSTRIAL DIRECT CO-A MSM 67,566 920,397
NOW INC/DE DNOW 75,804 3,537,293
RAVEN INDUSTRIES INC RAVN 500 22,739
VALMONT INDUSTRIES VMI 2,834 21,060
VIACOM INC-CLASS B VIAB 8,704 283,283
WELLS FARGO & COMPANY WFC 53,809 1,215,199
Click to enlarge

There were a few additions to the portfolio this quarter, although all are small positions at present.

The first is Armstrong World Industries. The company is the "good" business, post a recent spin-off of Armstrong Flooring (NYSE:AFI). The company has the number one market share in the commercial ceilings business in the US. This is a relatively good business, as it is a key, but relatively inexpensive, portion of a commercial building. The company has earned reasonable returns in the past, and is now separate from the more commoditized flooring business. That being said, shares do not appear especially cheap at their current price. For more on Armstrong, see this article by Seeking Alpha contributor Pluton Research.

The next position added was Liberty Global, which is as you can tell from the name, is one of John Malone's stable of companies. The company is a large international cable player, with operations in Europe (especially the UK) and Latin America. The shares took a pretty big nosedive after Brexit, as they will certainly be affected. At the very minimum, a lower value on the GBP would reduce the value of their profits when translated back into USD. All that being said, the company has operations throughout Europe and Latin America that provide material diversification, and one never knows what John Malone will do next to provide value to his companies. For more on Liberty Global and its current valuation, see here.

The final new position added to the fund this quarter was in Viacom. This is an interesting one as there has been speculation that two Sumner Redstone-controlled companies (Viacom and CBS (NYSE:CBS)) will re-merge. CBS has been by far the better performer of the last few years, so Viacom would not be negotiating any merger from a position of strength. Seeking Alpha contributor Steven Quint argues the company is underpriced on a standalone basis here, which makes nice reading when combined with this piece on why a CBS merger won't necessarily fix Viacom's problems. Viacom interests me because the company is obviously trading at a cheap current valuation. The question is what will the future bring for their businesses.

Arlington Value is a successful value fund, and because they run a concentrated portfolio you can generally be sure that anything that shows up is an idea Allan Mecham holds with some conviction. With three new positions this quarter (one quality business model and two companies with recent price declines) his quarterly SEC filings have once again provided ideas for further research.

Disclosure: I am/we are long IBKR, BRK.B.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.