Tracking Ruane, Cunniff & Goldfarb's Portfolio - Q3 2018 Update

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

Ruane, Cunniff & Goldfarb’s 13F portfolio value decreased from $11.16B to $10.87B this quarter. The number of positions decreased from 62 to 61.

They increased Facebook, JD.com, and Builders Firstsource while decreasing Amazon, Mastercard, and Liberty Media Formula One.

The top three positions are Alphabet, Berkshire Hathaway, and CarMax and they add up to ~38% 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 11/14/2018. 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 Q2 2018.

This quarter, Ruane, Cunniff & Goldfarb’s 13F portfolio value decreased ~3% from $11.16B to $10.87B. The number of holdings decreased from 62 to 61. 23 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 ~38% while the top five are at ~49% of the 13F assets: Alphabet, Berkshire Hathaway, CarMax, Amazon.com, and Mastercard.

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, ~13.5% annualized return compared to ~11% for the S&P 500 index). In Q3 2018, the fund was up 4.01% compared to 7.71% for the S&P 500 index. Last year, it slightly underperformed S&P 500 - ~20% vs ~22% for the S&P 500 index. 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), Naspers (OTCPK:NPSNY), Hiscox Limited (OTC:HCXLF), and Koninklijke Vopak NV (OTCPK:VOPKY). 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:

None.

New Stakes:

None.

Stake Decreases:

Alphabet Inc. (GOOG) (GOOGL): GOOG is the largest 13F stake at ~18% 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 follows: 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 two quarters thru Q1 2018 at prices between $951 and $1176. The stock is now at ~$1049. Last two quarters have seen minor trimming. For investors attempting to follow, GOOG is a good option to consider for further research.

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.

Berkshire Hathaway (BRK.A) (BRK.B): BRK.B is the second-largest position at ~11% 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 follows: 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. Q1 2018 saw another one-third selling at prices between $191 and $217. The pattern reversed last quarter: ~10% increase at prices between $185 and $201. The stock is now at ~$211. This quarter saw a ~4% trimming.

CarMax Inc. (KMX): KMX is a ~8% 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 next quarter there was a ~80% increase at prices between $59 and $72. The stock is now at $63.67. Last two quarters have seen marginal trimming.

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

Amazon.com Inc. (AMZN): AMZN is a top five 6.38% portfolio stake established in Q4 2016 at prices between $719 and $845. The stock is now at $1581. There was a ~9% trimming in Q2 2017 at prices between $885 and $1011. Q4 2017 saw the stake almost doubled at prices between $957 and $1196. There was a ~14% selling next quarter at prices between $1189 and $1598 and that was followed with a ~50% reduction over the last two quarters at prices between $1372 and $2040. They are realizing gains.

Mastercard Inc. (MA): MA is a large (top five) 4.54% 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 follows: There was a ~15% selling in Q3 2017 at prices between $121 and $143 and that was followed with a ~27% reduction in Q1 2018 at prices between $152 and $183. This quarter saw another ~22% selling at prices between $196 and $224. The stock is now at $192. Ruane is harvesting gains.

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 stock is now at ~$30 and the stake is at 4.43% of the portfolio. There was a ~16% trimming this quarter.

Note: they have a ~6.4% ownership stake in Liberty Media Formula One.

Jacobs Engineering Group (JEC): JEC is a 4.42% 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 $65.27. Last quarter saw a ~20% increase at prices between $56.50 and $67 while this quarter there was a ~3% trimming.

Credit Acceptance Corp. (CACC): CACC is a 4.38% 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 $408. There have only been very minor adjustments in the last few quarters.

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

Charles Schwab (SCHW): SCHW is a medium sized 3.69% portfolio stake purchased in Q2 2016 at a cost-basis of ~$29. Last few quarters have seen marginal trimming. The stock is now at $45.09.

Liberty Broadband (LBRDK): LBRDK is a 3.56% portfolio position purchased in Q1 2018 at prices between $86 and $97 and increased by ~20% last quarter at prices between $69 and $85. The stock currently trades at $79.85. For investors attempting to follow Ruane, LBRDK and AABA are good options to consider for further research. There was marginal trimming this quarter.

TJX Companies (TJX): TJX is a ~3% 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 timeframe. Recent activity follows: There was a ~17% selling in Q3 2017 at prices between $33.50 and $37 and that was followed with a ~22% reduction in Q1 2018 at prices between $37 and $42. There was another ~50% reduction this quarter at prices between $47 and $56. Ruane is continuing to harvest huge long-term gains.

Note: The prices quoted above are adjusted for the 2-for-1 stock split earlier this month.

Booking Holdings (BKNG): The 3.11% of the portfolio BKNG stake was purchased in Q1 2017 at prices between $1477 and $1789 and increased by ~40% the following quarter at prices between $1738 and $1911. The stock currently trades at $1802. Last two quarters have seen minor trimming.

Visa Inc. (V): The 2.24% 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 ~$136. It is a very long-term stake first purchased soon after the IPO in 2008. There was a ~30% selling in Q1 2018 at prices between $114 and $126 and that was followed with a ~22% selling this quarter at prices between $131 and $151.

Mohawk Industries (MHK): MHK is a very long-term 2.20% 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 timeframe at progressively higher prices. Recent activity follows: 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 $129. Last few quarters have seen minor trimming.

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. Q1 2018 saw a ~36% reduction at prices between $51 and $66. The stock currently trades at $52.88 and it is at ~2% of the portfolio. There was marginal selling over the last two quarters.

Stake Increases:

Facebook Inc. (FB): The FB position saw a whopping ~600% stake increase in Q1 2018 at prices between $152 and $193. Last two quarters have seen another ~27% increase at prices between $155 and $218. The stock currently trades well below those ranges at $136. The position is now a fairly large stake at 4.28% of the portfolio. For investors attempting to follow, FB is a good option to consider for further research.

Fiat Chrysler Auto (FCAU): The 3.95% 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 $17.05. There was a marginal increase this quarter.

Altaba Inc. (AABA): The 2.51% AABA stake was established in Q1 2018 at prices between $69 and $80 and increased by around one-third last quarter at prices between $67.50 and $82. It is now below those ranges at $64.37.

JD.com (JD): The 2.08% JD position was first purchased in Q1 2016. The stake has wavered. Recent activity follows: 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 $20.46. Last quarter saw a ~10% selling at prices between $35 and $44 while this quarter there was a ~44% increase at prices between $24.50 and $39.50.

Builders FirstSource (BLDR): The very small ~1% BLDR stake saw a ~36% increase this quarter at prices between $14 and $19. The stock is now at $12.90.

Note: They have a ~9.5% ownership stake in BLDR.

Kept Steady:

BMC Stock Holdings (BMCH), GTT Communications (GTT), and Sinclair Broadcast (SBGI): These very small (less than ~0.7% of the portfolio each) stakes were 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 Q3 2018:

William J Ruane - Ruane Cunniff and Goldfarb - Q3 2018 13F Report

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.