Tracking Ruane, Cunniff, & Goldfarb's Portfolio - Q4 2018 Update

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

Ruane, Cunniff, & Goldfarb’s 13F portfolio value decreased from $10.87B to $9.08B this quarter. The number of positions decreased from 61 to 57.

They added Electronic Arts while reducing TJX Companies and Wells Fargo.

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 02/14/2019. 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 Q3 2018.

This quarter, Ruane, Cunniff, & Goldfarb’s 13F portfolio value decreased ~17% from $10.87B to $9.08B. The number of holdings decreased from 61 to 57. 27 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 ~45% of the 13F assets: Alphabet, Berkshire Hathaway, CarMax, Amazon.com, and Credit Acceptance Corp.

The firm is best known as the investment advisor of the Sequoia Fund (SEQUX) which has a venerable ~49-year track record (July 15, 1970 inception, 13.29% annualized return compared to 10.66% for the S&P 500 index). In Q4 2018, the fund was down 12.62% compared to down 13.52% for the S&P 500 index. For 2018, the fund outperformed S&P 500 – down 2.62% vs down 4.38% for the S&P 500 index. After new management took over in Q1 2016, the portfolio has seen a significant shift to information & services businesses from asset-intensive manufacturing & 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), Koninklijke Vopak NV (OTCPK:VOPKY), a2Milk, and Melrose Industries plc (OTC:MLSPF). 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:

Electronic Arts (EA): EA is ~3% of the portfolio position established this quarter at prices between $75 and $109 and the stock currently trades at $98.59.

Stake Decreases:

TJX Companies (TJX): TJX is now a minutely small 0.22% of the portfolio position. It was a very long-term stake and the holding period was over 15 years. The stock had seen a ~15x return over that timeframe. Recent activity follow: 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 last quarter at prices between $47 and $56. The position was almost eliminated this quarter at prices between $41.50 and $56. The stock is currently at $51.94. Ruane harvested huge long-term gains.

Note: The prices quoted above are adjusted for the 2-for-1 stock split last November.

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 and the position was almost sold out this quarter at prices between $43.50 and $54.50. The stock currently trades at $49.65.

Alphabet Inc. (GOOG) (GOOGL): GOOG is the largest 13F stake at ~19% 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 two quarters thru Q1 2018 at prices between $951 and $1176. The stock is now at ~$1193. Last three quarters have seen minor trimming.

Berkshire Hathaway (BRK.A) (BRK.B): BRK.B is the second-largest position at ~12% 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. Q1 2018 saw another one-third selling at prices between $191 and $217. The pattern reversed next quarter: ~10% increase at prices between $185 and $201. The stock is now at ~$203. Last two quarters have seen minor selling.

CarMax Inc. (KMX): KMX is a top-three ~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 $60.99. Last three quarters have seen marginal trimming. For investors attempting to follow, KMX is a good option to consider for further research.

Note: They have a 6.77% ownership stake in the business.

Amazon.com Inc. (AMZN): AMZN is a top five 5.48% portfolio stake established in Q4 2016 at prices between $719 and $845. Q4 2017 saw the stake almost doubled at prices between $957 and $1196. Last year saw a ~60% selling at prices between $1170 and $2050. They are realizing gains. The stock is currently at $1673.

Credit Acceptance Corp. (CACC): CACC is a 4.55% stake established in Q1 2017 at prices between $185 and $221. The stock has doubled in the two-year holding period and currently trades at ~$447. There have only been very minor adjustments in the last few quarters.

Note: They have a 5.60% ownership stake in Credit Acceptance Corp.

MasterCard Inc. (MA): MA is a fairly large 4.20% 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 in Q1 2018 at prices between $152 and $183. Last quarter saw another ~22% selling at prices between $196 and $224. The stock is now at $227. Ruane is harvesting gains. There was a ~9% trimming this quarter.

Jacobs Engineering Group (JEC): JEC is a ~4% long-term stake first purchased in 2012. Recent activity follow: Q2 2018 saw a ~20% increase at prices between $56.50 and $67 while last two quarters have seen minor trimming. The stock currently trades at $73.06.

Facebook Inc. (FB): The FB position saw a whopping ~600% stake increase in Q1 2018 at prices between $152 and $193. Last two quarters had seen another ~27% increase at prices between $155 and $218. The stock currently trades at $172. The position is now a fairly large stake at ~4% of the portfolio. This quarter saw minor trimming.

Charles Schwab (SCHW): SCHW is a medium sized 3.73% portfolio stake purchased in Q2 2016 at a cost-basis of ~$29. Last few quarters have seen marginal trimming. The stock is now at $43.99.

Liberty Broadband (LBRDK): LBRDK is a 3.58% portfolio position purchased in Q1 2018 at prices between $86 and $97 and increased by ~20% next quarter at prices between $69 and $85. The stock currently trades at $89.97. For investors attempting to follow Ruane, LBRDK is a good option to consider for further research. There was marginal trimming over the last two quarters.

Booking Holdings (BKNG): The 3.20% 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 $1736. Last three quarters have seen minor trimming.

Visa Inc. (V): The 2.26% 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 ~$152. 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 last quarter at prices between $131 and $151. This quarter saw a minor ~4% trimming.

Mohawk Industries (MHK): MHK is a very long-term 1.74% 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 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 $133. Last few quarters have seen minor trimming.

Sinclair Broadcast (SBGI): The very small 0.38% SBGI stake saw minor selling this quarter.

Stake Increases:

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 ~$34.35 and the stake is at 4.50% of the portfolio. Last two quarters had seen a ~13% selling while this quarter there was a marginal increase.

Note: they have a ~6% ownership stake in Liberty Media Formula One.

Fiat Chrysler Auto (FCAU): The 4.46% 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 $14.49. This quarter saw a ~14% stake increase at prices between $14 and $18.

Altaba Inc. (AABA): The 2.56% AABA stake was established in Q1 2018 at prices between $69 and $80 and increased by around one-third next quarter at prices between $67.50 and $82. It is now at $73.59.

JD.com (JD): The ~2% 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. Q2 2018 saw a ~10% selling at prices between $35 and $44 while last quarter there was a ~44% increase at prices between $24.50 and $39.50. The stock is now at $28.11. This quarter saw a marginal increase.

Alibaba Group Holdings (BABA): The vast majority of the 1.74% BABA stake was purchased this quarter at prices between $131 and $164 and the stock currently trades above that range at $181.

Builders FirstSource (BLDR), GTT Communications (GTT), and Yandex NV (YNDX): These very small positions (less than ~1% of the portfolio each) were increased this quarter.

Note: They have a 7.55% ownership stake in BLDR.

Kept Steady:

BMC Stock Holdings (BMCH): The very small 0.68% BMCH position was kept steady this quarter. Their ownership stake in BMC Stock Holdings is ~6%.

Note: Although the relative size as a percentage of the portfolio is very small, it is significant that they have a ~9% ownership stake in Netshoes (NETS). 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 Q4 2018:

Ruane, Cunnif, & Goldfarb - Sequoia Fund - Q4 2018 13F Report Q/Q Comparison

Disclosure: I am/we are long BABA, 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.