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Investment Returns Are Not Linear

May 02, 2018 3:39 PM ET2 Comments
Grey Owl Capital profile picture
Grey Owl Capital


  • Spectacular companies are not immune to multi-year periods of under performance of stock price or business fundamentals.
  • Patience may be a successful investor's most important attribute.
  • Berkshire Hathaway has grown book value at an annual compound rate of 19.1% over the last 52 years despite a few bumps in the road.
  • Express Scripts and Leucadia National Corporation both recently announced significant capital transactions.

“If the path before you is clear, you’re probably on someone else’s.”

- Joseph Campbell

“Of all the paths you take in life, make sure a few of them are dirt.”

- John Muir

Two of our largest individual equity holdings announced game-changing transactions at the end of the first and beginning of the second quarter of 2018. On March 8, Cigna (CI), one of the largest health insurance companies, announced that it would acquire Express Scripts (ESRX) for approximately $92 per share in stock and cash; an almost 25% premium to the March 7 ESRX closing price. Then, on April 9, Leucadia National Corporation (LUK) announced the sale of 48% of its largest subsidiary, National Beef, and 100% of its Garcadia auto dealership group. Combined, LUK’s two divestures result in gains of over $1B. With shareholders’ equity of ~$10B prior to the sales, this represents a meaningful increase in per share book value. The ESRX and LUK deals are big transactions for two important Grey Owl holdings and therefore warrant discussion in their own right. In addition, they provide context for examining an important concept – the uneven path of investment returns.

Investment returns are not linear. This is the case regarding broad market aggregates (e.g. the S&P 500) but even more so the case when it comes to individual securities. Before delving into the details of Express Scripts and Leucadia National Corporation, for perspective it is worth reviewing the historical returns of a more widely known company run by the world’s most famous investor – Warren Buffett’s Berkshire Hathaway. Grey Owl’s managed accounts have owned shares in Berkshire Hathaway since inception of Grey Owl in 2009 and continue to own shares today.

Berkshire Hathaway’s Uneven Path to Outperformance

From 1965 to 2017, Berkshire Hathaway has grown book value

This article was written by

Grey Owl Capital profile picture
Grey Owl Capital Management, LLC is a Virginia registered investment advisor whose mission is to provide superior absolute investment returns for clients. Founded in May of 2009 and located in Falls Church, VA, the firm provides a go-anywhere, opportunistic investment process that seeks out the best alternatives for capital appreciation across multiple assets classes. The firm’s principals both hold the Chartered Financial Analysts (CFA) designation. You can find out more about Grey Owl Capital Management, LLC at www.greyowlcapital.com or by calling 888-GREY-OWL (888-473-9695).

Analyst’s Disclosure: I am/we are long BRK.B, ESRX, LUK, BKNG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (2)

Kiisu Buraun profile picture

Thank you.

I'm not familiar with the specific companies you referenced, but I agree with your thesis.

Best wishes,

Charlie's Munger profile picture
BRK going to lose money in current quarter?
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