Tracking Allan Mecham's Arlington Value Capital Portfolio - Q1 2019 Update

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

Arlington Value Capital’s 13F portfolio value increased from $1.25B to $1.42B. The number of positions decreased from 16 to 15.

Allan Mecham increased Berkshire Hathaway and Cimpress NV, while reducing Molson Coors and dropping L Brands.

The top three positions are Berkshire Hathaway, Alliance Data Systems, and Cimpress NV, and they add up to ~54% 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 05/14/2019. 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 Q4 2018.

This quarter, Mecham’s 13F portfolio value increased ~13%, from $1.25B to $1.42B. The number of holdings decreased from 16 to 15. The top three holdings are at ~54%, while the top five are at ~76% of the 13F assets: Berkshire Hathaway (BRK.A, BRK.B), Alliance Data Systems (ADS), Spectrum Brands (SPB), Cimpress NV (CMPR), and Monro Inc. (MNRO). To know more about value investing, check out Value Investing: A Value Investor's Journey Through The Unknown.

New Stakes

None.

Stake Disposals

L Brands (LB): LB was a 3.78% portfolio position established in Q3 2018 at prices between $26 and $38. Last quarter saw a ~75% selling at prices between $24.50 and $37, and the disposal this quarter was at prices between $26 and $29. The stock currently trades at $22.51.

Stake Decreases

Alliance Data Systems: ADS is the second-largest position at ~14% 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. The last three quarters had also seen an ~83% increase at prices between $143 and $250. This quarter saw an about-turn: ~23% selling at prices between $150 and $182. The stock is now at ~$145.

Molson Coors Brewing (TAP): The 2.43% 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. The pattern reversed last quarter: 40% selling at prices between $55 and $66, and that was followed with a similar reduction this quarter at prices between $56 and $67. The stock is now at $58.42.

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.

Charter Communications (CHTR): CHTR is now a minutely small 0.02% position. It was a 2.46% CHTR stake purchased in Q3 2018 at prices between $275 and $333. Last quarter saw the position reduced to a small 0.34% stake at around the same price range. The remainder stake was almost eliminated this quarter. The stock is now at $373.

Deswell Industries (DSWL): The minutely small DSWL position was sold down by ~50% each in the last two quarters.

Stake Increases

Berkshire Hathaway: BRK.B is a long-term holding that has been in the portfolio for many years. It is currently the largest position at ~27% 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. Q2 and Q3 2018 had seen a one-third stake increase at prices between $185 and $222. There was another ~55% stake increase this quarter at prices between $192 and $209. The stock is currently at ~$204.

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

Spectrum Brands: SPB is a large (top-three) 12.16% of the portfolio stake established last quarter at prices between $41.50 and $75, and the stock currently trades at $63.85. There was a minor ~3% stake increase this quarter.

Note: Arlington Value Capital has a ~6% ownership stake in Spectrum Brands.

Cimpress NV: CMPR is Arlington Value Capital’s fourth-largest individual stock position at ~12% 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: a ~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 $84.79. 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, and that was followed with a one-third increase this quarter at prices between $74 and $120. For investors attempting to follow Mecham, CMPR is a good option to consider for further research.

Note: Arlington Value Capital has a ~7% ownership stake in the business.

Monro Inc. (previously Monro Muffler Brake): MNRO is a large (top-five) ~10% portfolio stake established in Q2 2017 at prices between $41 and $55, and increased by ~55% the following quarter at prices between $40 and $56. The stock currently trades well above those ranges at $80.31. The last six quarters have seen only minor adjustments.

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

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 last quarter there was a ~70% stake increase at prices between $33 and $43. The stock is now at $39.19. For investors attempting to follow, AN is a good option to consider for further research. This quarter also saw an ~8% stake increase.

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 $18.91, and the stake is at 5.49% of the portfolio. There was a ~10% stake increase last quarter and a ~6% increase this quarter.

Interactive Brokers Group (IBKR): IBKR is a 4.94% 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 last quarter at prices between $47 and $58. The stock currently trades at $55.25. This quarter saw a marginal increase.

Spirit Airlines (SAVE): SAVE is a 1.85% portfolio position established in Q3 2017 at prices between $32 and $54. There was a 24% selling next quarter at prices between $33.50 and $45.50. Last quarter also saw a ~50% reduction at prices between $44 and $65. The stock currently trades at $48.21. Mecham harvested gains. There was a marginal increase this quarter.

GCI Liberty (GLIBA): The very small 0.84% GLIBA stake was established in Q3 2018 at prices between $44.90 and $51. The position has seen marginal increases in the last two quarters. The stock currently goes for $57.92.

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: a ~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 in Q3 2018 at prices between $27.75 and $31.80. The stock currently trades at $28.62, and the stake is now very small at 0.54% of the portfolio. This quarter saw a marginal increase.

Kept Steady:

None.

The spreadsheet below highlights changes to Mecham’s 13F stock holdings in Q1 2019:

Allan Mecham - Arlington Value Capital - Q1 2019 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.