Tracking Ruane, Cunniff & Goldfarb's Portfolio - Q2 2018 Update

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Includes: AABA, AMZN, BKNG, BLDR, BMCH, BRK.A, BRK.B, CACC, CNSWF, COF, FB, FCAU, FWONA, FWONK, GOOG, GOOGL, GTT, JD, JEC, KMX, LBRDK, MA, MHK, NPSNY, OMC, PRI, RYCEY, SBGI, SCHW, SEQUX, TJX, V, VIVHY, W, WFC, WUBA
by: John Vincent
Summary

Ruane, Cunniff & Goldfarb’s 13F portfolio value increased from $10.91B to $11.16B. The number of positions increased from 59 to 62.

They increased Altaba and Berkshire Hathaway while decreasing Amazon, Omnicom, and Primerica.

The top three positions are Alphabet, Berkshire Hathaway, and CarMax, and they add up to ~35% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Ruane, Cunniff & Goldfarb's 13F portfolio on a quarterly basis. It is based on their regulatory 13F Form filed on 08/14/2018. Please visit our Tracking Ruane, Cunniff & Goldfarb's Portfolio article for an idea on their investment philosophy and our previous update for the moves during Q1 2018.

This quarter, Ruane, Cunniff & Goldfarb's 13F portfolio value increased ~2% from $10.91B to $11.16B. The number of holdings increased from 59 to 62. 25 of those stakes are significantly large (more than ~0.5% of the portfolio each), and they are the focus of this article. The top three positions are at ~35% while the top five are at ~47% of the 13F assets: Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), CarMax (NYSE:KMX), Amazon.com (NASDAQ:AMZN), and Liberty Media Formula One (NASDAQ:FWONA) (NASDAQ:FWONK).

The firm is best known as the investment advisor of the Sequoia Fund (SEQUX) which has a venerable 48-year track record (July 15, 1970, inception, and ~13.5% annualized return compared to ~11% for the S&P 500 index). In Q2 2018, the fund was up 5.8% compared to 3.43% for the S&P 500 index. Last year, it slightly underperformed S&P 500 - ~20% vs. ~22% for the S&P 500 index. Its cash allocation is currently at ~7%. After new management took over in Q1 2016, the portfolio has seen a significant shift to information and services businesses from asset-intensive manufacturing and retail. The following significant stakes in Sequoia's portfolio are not in the 13F report as they are not 13F securities: Constellation Software (OTCPK:CNSWF), Rolls-Royce Holdings plc (OTCPK:RYCEY), Vivendi (OTCPK:VIVHY), and Naspers (OTCPK:NPSNY). The latter two are new as of Q1 2018.

Bill Ruane was a Benjamin Graham pupil. To learn about Benjamin Graham's teachings, check out the classics The Intelligent Investor and Security Analysis.

Stake Disposals:

Capital One Financial (COF): COF was a very small 1.38% position purchased in Q4 2016 at prices between $71 and $91. Q1 2017 saw a one-third increase at prices between $82 and $96. The position was eliminated this quarter at prices between $88 and $98. The stock currently trades at $99.85.

58.com Inc. (WUBA) and Wayfair Inc. (W): These very small (less than ~0.7% of the portfolio each) stakes were disposed during the quarter.

New Stakes:

GTT Communications (GTT): GTT is a very small 0.69% of the portfolio stake established this quarter at prices between $44 and $57 and the stock currently trades well below that range at $39.50.

Stake Decreases:

Alphabet, Inc. (GOOG) (GOOGL): GOOG is the largest 13F stake at ~17% of the portfolio. It was first purchased in 2008 and that original stake was almost sold out the following year. In 2010, a much larger position was built in the mid-200s price-range. Recent activity follow: Q2 2017 saw a ~15% increase at prices between $823 and $984 and that was followed with a two-thirds increase in the following quarter at prices between $899 and $980. There was another ~20% increase over the last two quarters at prices between $951 and $1176. The stock is now at ~$1,187. This quarter saw a ~6% trimming.

Note: Their Q4 2017 letter covered Alphabet. At the time, they believed Alphabet and Amazon.com as some of the best businesses the world has ever seen. However, earnings are masked by growth spending.

CarMax Inc. (KMX): KMX is a 7.80% of the portfolio position. It was purchased in Q2 2016 at prices between $46 and $56 and increased by ~70% in Q4 2016 at prices between $48.50 and $66. Q4 2017 saw a ~30% selling at prices between $64 and $77 while last quarter there was a ~80% increase at prices between $59 and $72. The stock is now at $78.86. This quarter saw marginal trimming.

Note: They have a ~7% ownership stake in the business.

Amazon.com Inc. (AMZN): AMZN is a top five 7.35% portfolio stake established in Q4 2016 at prices between $719 and $845. The stock is now at $1,995. There was a ~9% trimming in Q2 2017 at prices between $885 and $1,011. Q4 2017 saw the stake almost doubled at prices between $957 and $1,196. There was a ~14% selling last quarter at prices between $1,189 and $1,598 and that was followed with a ~29% reduction this quarter at prices between $1,372 and $1,750. They are realizing gains.

TJX Companies (TJX): TJX is a fairly large ~5% of the portfolio position. It is a very long-term stake and the holding period is over 15 years. The stock has seen a ~15x return over that time frame. 2015 had seen significant selling: one-third reduction at prices between $64 and $73. The pattern continued in 2016: ~45% reduction at prices between $67.50 and $83. The stock is now at $111. There was a ~17% selling in Q3 2017 at prices between $67 and $74 and that was followed with a ~22% reduction last quarter at prices between $74 and $84. Ruane is continuing to harvest huge long-term gains. This quarter saw marginal trimming.

Mastercard Inc. (MA): MA is a large ~5% of the portfolio stake established soon after its IPO in 2006 at a split-adjusted cost-basis of $4.50 per share. The original position was huge at ~2.4M shares (24M shares after accounting for the 10-for-1 stock-split in 2014). It was sold down by ~72% over the next two years. Recent activity follow: There was a ~15% selling in Q3 2017 at prices between $121 and $143 and that was followed with a ~27% reduction last quarter at prices between $152 and $183. The stock is now at $211. Ruane is harvesting gains. There was marginal trimming this quarter.

Fiat Chrysler Auto (FCAU): The 4.15% FCAU position was purchased in Q1 2017 at prices between $9.50 and $11.60 and doubled the following quarter at prices between $9.70 and $11.65. There was another ~25% increase in Q3 2017 at prices between $10.50 and $18. The stock is now at $16.96. Last three quarters have seen marginal trimming.

Charles Schwab (SCHW): SCHW is a medium sized 3.78% portfolio stake purchased in Q2 2016 at a cost-basis of ~$29. There have only been minor adjustments since. The stock is now at $50.52.

Booking Holdings (BKNG): The 3.16% of the portfolio stake in BKNG was purchased in Q1 2017 at prices between $1,477 and $1,789 and increased by ~40% the following quarter at prices between $1,738 and $1,911. The stock currently trades at $1,892. There was marginal trimming this quarter.

Mohawk Industries (MHK): MHK is a very long-term 2.65% of the portfolio position first purchased in 2001. The stake became a significantly large position in Q3 2002 when close to 10M shares were purchased at a cost-basis of around $50. The position was reduced by around two-thirds in the 2012-13 time frame at progressively higher prices. Recent activity follow: Q4 2016 saw a ~25% selling at prices between $177 and $205 and that was followed with another ~28% reduction in the following quarter at prices between $201 and $232. The stock is currently at $191. Last four quarters have seen only very minor activity.

JD.com (JD): The 2.10% JD position was first purchased in Q1 2016. The stake has wavered. Recent activity follow: Q3 2017 saw a one-third increase at prices between $38 and $48 and that was followed with a two-thirds increase in the following quarter at prices between $36.75 and $43. The stock is now at $26.30. This quarter saw a ~10% selling at prices between $35 and $44.

Wells Fargo (WFC): WFC was a minutely small position as of Q1 2016. Over 5M shares were purchased the following quarter at a cost-basis of ~$51. There was another one-third increase in Q3 2017 at prices between $49.50 and $56. Last quarter saw a ~36% reduction at prices between $51 and $66. The stock currently trades at $58.95 and it is at ~2% of the portfolio. There was marginal selling this quarter.

Omnicom Group (OMC): OMC is now a minutely small 0.01% stake. The original position was from 2011 at prices between $36 and $50. It saw a ~80% increase in Q2 2017 at prices between $80 and $86 while last quarter saw a ~50% reduction at prices between $70 and $83. The position was almost eliminated this quarter at prices between $70 and $76 and the stock is now at $68.70.

Primerica Inc. (PRI): The very small 0.83% PRI stake was almost eliminated this quarter.

Stake Increases:

Berkshire Hathaway (BRK.A) (BRK.B): BRK.B is the second-largest position at ~10% of the portfolio. It is a very long-term stake that was already their largest stake in their first 13F filing in 1999. Recent activity follow: Q1 2017 saw a ~30% selling at prices between $159 and $177. The following quarter also saw a ~20% reduction at prices between $161 and $172. Last quarter saw another one-third selling at prices between $191 and $217. The pattern reversed this quarter: ~10% increase at prices between $185 and $201. The stock is now at ~$212.

Liberty Media Formula One (FWONA) (FWONK): Sequoia's Q4 2016 letter disclosed a new stake in Liberty Media Formula One. They participated in Liberty's acquisition of Formula One and acquired the shares at a discounted price of $25. There was a 24% stake increase in Q2 2017 at prices between $30.50 and $37. The position is now at 5.10% of the portfolio. The stock is now at $35.08. Last two quarters have seen very minor increases.

Note: they have a ~7.5% ownership stake in Liberty Media Formula One.

Facebook Inc. (FB): The FB position saw a whopping ~600% stake increase last quarter at prices between $152 and $193. The position is now a medium-sized stake at 4.27% of the portfolio. The stock currently trades at $167. This quarter also saw a ~12% further increase.

Jacobs Engineering Group (JEC): JEC is a 3.69% long-term stake first purchased in 2012. Last major activity was in Q3 2015 when there was a ~50% stake increase at prices between $37 and $44. The stock is now at $72.68. This quarter saw a ~20% increase at prices between $56.50 and $67.

Credit Acceptance Corp. (CACC): CACC is a 3.48% stake established in Q1 2017 at prices between $185 and $221 and increased by ~12% the following quarter at prices between $186 and $263. It currently goes for $445. There was a marginal increase this quarter.

Note: They have a ~5.5% ownership stake in Credit Acceptance Corp.

Liberty Broadband (LBRDK) and Altaba Inc. (AABA): These two positions were established last quarter and increased this quarter. LBRDK is a 3.16% portfolio position purchased at prices between $86 and $97 and increased by ~20% this quarter at prices between $69 and $85. The stock currently trades at $80.76. The 2.63% AABA stake was established at prices between $69 and $80 and increased by around one-third this quarter at prices between $67.50 and $82. It is now below those ranges at $65.65. For investors attempting to follow Ruane, LBRDK and AABA are good options to consider for further research.

Visa Inc. (V): The 2.46% Visa stake saw a 53% increase in Q2 2017 at prices between $89 and $97 and that was followed with a ~13% increase in the following quarter. The stock is now at ~$143. It is a very long-term stake first purchased soon after the IPO in 2008. There was a ~30% selling last quarter at prices between $114 and $126. This quarter saw a marginal increase.

Builders FirstSource (BLDR) and Sinclair Broadcast (SBGI): These two very small (less than ~1% of the portfolio each) stakes saw increases this quarter.

Note: They have a ~7% ownership stake in BLDR.

Kept Steady:

BMC Stock Holdings (BMCH): BMCH is a very small 0.75% portfolio position that was kept steady this quarter.

Note: They have a ~6% ownership stake in BMC Stock Holdings.

As a percentage of the portfolio, the remaining positions are all below 0.5% of the portfolio each and so have limited portfolio performance impact.

The spreadsheet below highlights changes to Ruane, Cunniff & Goldfarb's 13F stock holdings in Q2 2018:

Ruane, Cunniff, & Goldfarb

Disclosure: I am/we are long JD. 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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.