Tracking Allan Mecham's Arlington Value Capital Portfolio - Q4 2018 Update

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Includes: ADS, AN, BAC, BRK.A, BRK.B, CHTR, CMPR, DSWL, GLIBA, HEI, IBKR, JEF, LB, LBTYK, MNRO, RAVN, SAVE, SPB, TAP, XRAY
by: John Vincent
Summary

Arlington Value Capital’s 13F portfolio value decreased from $1.36B to $1.25B. The number of positions decreased from 18 to 16.

Allan Mecham added Spectrum Brands while decreasing Molson Coors, Spirit Airlines, L Brands, and Charter Communications.

The top three positions are Berkshire Hathaway, Alliance Data Systems, and Cimpress NV, and they add up to ~50% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Allan Mecham's 13F stock portfolio on a quarterly basis. It is based on Mecham's regulatory 13F Form filed on 02/14/2019. Please visit our Tracking Allan Mecham's Arlington Value Capital Portfolio article for an idea on his investment philosophy and our last update for the fund's moves during Q3 2018.

This quarter, Mecham's 13F portfolio value decreased ~8% from $1.36B to $1.25B. The number of holdings decreased from 18 to 16. The top three holdings are at ~50%, while the top five are at ~70% of the 13F assets: Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), Alliance Data Systems (NYSE:ADS), Cimpress NV (NASDAQ:CMPR), Spectrum Brands (NYSE:SPB), and Monro, Inc. (NASDAQ:MNRO). To know more about value investing, check out Value Investing: A Value Investor's Journey Through The Unknown.

New Stakes

Spectrum Brands (SPB): SPB is a large (top five) 10.29% of the portfolio stake established this quarter at prices between $41.50 and $75 and the stock currently trades at $55.36.

Note: Arlington Value Capital has a 5.71% ownership stake in Spectrum Brands.

Stake Disposals

Dentsply Sirono (XRAY), Heico Corp. (HEI), Liberty Global (LBTYK), and Raven Industries (RAVN): These minutely small positions (less than ~0.5% of the portfolio each) were disposed during the quarter.

Stake Decreases

Berkshire Hathaway (BRK.A) (BRK.B): BRK.B is a long-term holding that has been in the portfolio for many years. It is currently the largest position at ~20% of the portfolio. The vast majority of the stake was purchased during the five quarters through Q1 2016 at prices between $124 and $152. There was a ~17% trimming in Q4 2016 at prices between $143 and $167 and that was followed with a similar reduction in the following quarter at prices between $159 and $177. Last two quarters had seen a one-third stake increase at prices between $185 and $222, while this quarter saw marginal trimming. The stock is currently at ~$201.

Note: Mecham has had a previous very successful round-trip with Berkshire Hathaway.

Monro Inc. (MNRO) previously Monro Muffler Brake: MNRO is a large (top five) ~9% portfolio stake established in Q2 2017 at prices between $41 and $55 and increased by ~55% in the following quarter at prices between $40 and $56. The stock currently trades well above those ranges at $77.46. Last four quarters had seen minor increases while this quarter saw marginal trimming.

Note: Arlington Value Capital has a ~5% ownership stake in Monro Inc.

Molson Coors Brewing (TAP): The 4.49% TAP position was established in Q1 2018 at prices between $72 and $85 and increased by ~135% next quarter at prices between $59 and $74. Last quarter also saw a ~17% stake increase at prices between $61 and $71. The pattern reversed this quarter: 40% selling at prices between $55 and $66. The stock is now at $60.16.

Note: Molson Coors has had a previous round-trip: it was a 1.73% position purchased in Q2 2017 at prices between $86 and $97 and increased by ~400% the following quarter at prices between $81 and $92. The position was disposed in Q4 2017 at prices between $76.50 and $84.50.

Interactive Brokers (IBKR): IBKR is a 5.81% stake purchased in Q4 2014 at prices between $24 and $29. The following quarter saw a roughly one-third increase at prices between $28 and $34. There was a ~20% selling this quarter at prices between $47 and $58. The stock currently trades at $53.79. Mecham is harvesting gains.

Spirit Airlines (SAVE): SAVE is a 2.28% portfolio position established in Q3 2017 at prices between $32 and $54. There was a 24% selling in Q4 2017 at prices between $33.50 and $45.50. This quarter saw a ~50% reduction at prices between $44 and $65. The stock currently trades at $53.30. Mecham harvested gains.

L Brands (LB) and Charter Communications (CHTR): These two new stakes established last quarter were reduced this quarter. LB was a 3.78% portfolio position established at prices between $26 and $38. This quarter saw a ~75% selling at prices between $24.50 and $37. The stock currently trades at $26.56 and the stake is now very small at 0.88%. The 2.46% CHTR stake was purchased at prices between $275 and $333 and reduced to a minutely small 0.34% position this quarter at around the same price range. It is now at $341.

Bank of America (BAC): BAC position was established in Q1 2016 at prices between $12 and $15 and increased by ~28% in Q3 2016 at prices between $12.74 and $16.19. At the time, it was a large ~6% portfolio stake. Q4 2016 saw an about turn: ~55% selling at prices between $15.50 and $23 and that was followed with another ~20% reduction the following quarter at prices between $22 and $25.50. Q4 2017 also saw a ~55% selling at prices between $25.50 and $30. There was another similar reduction last quarter at prices between $27.75 and $31.80. The stock currently trades at $28.84. This quarter saw marginal trimming.

Deswell Industries (DSWL): The minutely small 0.01% DSWL position was sold down by ~50% this quarter.

Stake Increases

Alliance Data Systems (ADS): ADS is now the second-largest position at ~18% of the portfolio. It was first purchased in Q3 2017 at prices between $210 and $265. There was a ~25% increase in the following quarter at prices between $220 and $252 and that was followed with a whopping ~400% increase in Q1 2018 at prices between $213 and $276. Last three quarters have also seen a ~83% increase at prices between $143 and $250. The stock is now at $168. For investors attempting to follow Mecham, ADS is a good option to consider for further research.

Cimpress NV (CMPR): CMPR is Arlington Value Capital's third-largest individual stock position at ~13% of the portfolio. It is a long-term stake that has been in the portfolio since the firm's first 13F filing in Q4 2012. The bulk of the original stake was purchased in Q1 and Q2 2013 at prices between $32 and $49. The next significant buying was in Q3 2015 when there was a ~90% increase at prices between $64.50 and $84.50. Q2 and Q3 2016 saw a ~40% reduction at prices between $81 and $102. Q1 2017 saw another about turn: ~20% increase at prices between $79.50 and $98 and that was followed with another similar increase the following quarter at prices between $82 and $95. The stock currently trades at $82.18. Q4 2017 saw a ~17% selling at prices between $97.50 and $123 and that was followed with a ~14% reduction next quarter at prices between $120 and $171. There were minor increases in the last three quarters.

Note: Arlington Value Capital has a ~5% ownership stake in the business.

AutoNation Inc. (AN): The large ~9% AutoNation stake was first purchased in Q4 2016 at prices between $40 and $50 and increased by ~60% in the following quarter at prices between $42 and $53. Q2 2017 saw a 285% further increase at prices between $39 and $44. There was a ~17% selling over the next two quarters at prices between $38.50 and $56, while this quarter there was a ~70% stake increase at prices between $33 and $43. The stock is now at $34.43. For investors attempting to follow, AN is a good option to consider for further research.

Jefferies Financial Group (JEF) previously Leucadia: JEF was a very small ~1% position in 2013. During the last two quarters of 2014, the original position was increased by a whopping 15x at prices between $22 and $24.50. Q4 2015 saw a ~60% increase at prices between $16 and $21 and that was followed with a ~35% increase the following quarter at prices between $14.50 and $17.50. Q4 2016 saw a ~30% reduction at prices between $18 and $24. Since then, the activity has been minor. The stock currently trades at $19.54 and the stake is at 5.44% of the portfolio. There was a ~10% stake increase this quarter.

GCI Liberty (GLIBA): The very small 0.78% GLIBA stake established last quarter at prices between $44.90 and $51 saw a marginal increase this quarter. It currently goes for $53.78.

Kept Steady

None.

The spreadsheet below highlights changes to Mecham's 13F stock holdings in Q4 2018:

Allan Mecham - Arlington Value Capital - Q4 2018 13F Report Q/Q Comparison

Disclosure: I am/we are long BAC, TAP. 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.