Longleaf Mystery Investments

[vinod1]

Longleaf referred to two investments they made in Q4, 2017 which they did not name:

 

We purchased two undisclosed positions in the quarter.

 

One, like Mattel, was a time horizon arbitrage opportunity where past

mismanagement and a dividend cut obscured the longer term

value and prospects for industry-leading businesses.

 

The other was an example of how complexity often leads Southeastern

to investments. A more traditionally associated segment of the

company was under pressure industry-wide, taking the stock

to a multiple similar to peers within that segment. In the case

of this company, however, its most valuable segment consists

of leading, protected brands that are growing in strength and

demand.

 

I am not able to figure these out and hoping some enterprising board members might be able to fish them out.

 

Thanks

 

Vinod

[Gamecock-YT]

GE for the first one.

[rpadebet]

Longleaf referred to two investments they made in Q4, 2017 which they did not name:

 

We purchased two undisclosed positions in the quarter.

 

One, like Mattel, was a time horizon arbitrage opportunity where past

mismanagement and a dividend cut obscured the longer term

value and prospects for industry-leading businesses.

 

The other was an example of how complexity often leads Southeastern

to investments. A more traditionally associated segment of the

company was under pressure industry-wide, taking the stock

to a multiple similar to peers within that segment. In the case

of this company, however, its most valuable segment consists

of leading, protected brands that are growing in strength and

demand.

 

I am not able to figure these out and hoping some enterprising board members might be able to fish them out.

 

Thanks

 

Vinod

 

Too tough, they didn't disclose much

 

1. business in turnaround...much more valuable if it turns around and that will take time------plenty of names

2. Sum of the parts > market price .... again many names which fit the bill depending on what value you ascribe to which part.

 

All they are saying is they are doing classic value investing....

[AzCactus]

Not to change the subject but hasn't Longleaf performed pretty poorly over the last decade or so?

[EricSchleien]

I think it's weird why they keep the positions secret. If a few people take the ideas for themselves, who gives a shit? I would bet most of the people investing in them are doing so because they don't want to invest for themselves.

[rb]

I think it's weird why they keep the positions secret. If a few people take the ideas for themselves, who gives a shit? I would bet most of the people investing in them are doing so because they don't want to invest for themselves.

+1 on what Eric said.

 

Also I think the complexity name they're talking about is GE. If so what's with the secrecy? Do they really think they're gonna materially move the market for GE?

 

In my view most of the time this stuff about secret positions and secret letters has more to do with the high opinion the managers have about themselves rather than the market.

[JayGatsby]

Annoying how everything now has to be described as an arbitrage. I guess the merger arb guys started that trend, making speculative bets on uncertain outcomes.

[mhdousa]

One of them is is indeed GE. If you look at their 12/31 portfolio, there is an undisclosed position that makes up 1.95% of the fund and that they hold 3,672,615 shares of. That total dollar value and number of shares matches up to the price of GE on 12/31 (17.50).

 

The other position was priced at $163 as of 12/31 in case that helps anyone figure it out.

 

[rb]

Mhdousa, thanks for cranking the numbers.

 

Based on price and descriptions the other position could be Allergan. Price on 12/31 $163.58 per share.

[vinod1]

Thank you!

 

Gamecock-YT, mhdousa, rb -  Very impressive how quickly you guys figured it out.

 

GE and Allergan (industry wide pressure likely means generics segment) fit the description.

 

Vinod

[stahleyp]

Who would trust these guys?

 

They have a stated goal of "10+ inflation". Either I'm misunderstanding their intent or it's pure marketing. None of their funds have achieved this goal. As of Q4 2017, let's look:

 

Partners fund since inception: 10.58% vs 9.91% for S&P 500. This is also before taxes and crazy drawdowns.

 

Small cap: 11.02% vs 9.80% for Russell 2000. Not bad but not meeting their stated goal either.

 

International: 7.89% vs 4.97% for EAFE. Not bad at all. However, a lot of that is due to out-performance when the fund was new  It's under-performed peers and ACWI (close to EAFE but not quite the same) for 15 years.

 

Global 9.61% vs 11.66% against MSCI World.

 

So overall we have no funds meeting the 10+ inflation goal (some being managed over decades) and none with all that superior performance against respective indexes.

[zippy1]

I believe that they had used 10+inflation from around ~2000 when they were ahead of indexes. 

Of course, their recent performance is nothing to write home about.  But I think at least they have been consistent.

[benhacker]

Who would trust these guys?

 

They have a stated goal of "10+ inflation". Either I'm misunderstanding their intent or it's pure marketing. None of their funds have achieved this goal. As of Q4 2017, let's look:

 

Partners fund since inception: 10.58% vs 9.91% for S&P 500. This is also before taxes and crazy drawdowns.

 

Small cap: 11.02% vs 9.80% for Russell 2000. Not bad but not meeting their stated goal either.

 

International: 7.89% vs 4.97% for EAFE. Not bad at all. However, a lot of that is due to out-performance when the fund was new  It's under-performed peers and ACWI (close to EAFE but not quite the same) for 15 years.

 

Global 9.61% vs 11.66% against MSCI World.

 

So overall we have no funds meeting the 10+ inflation goal (some being managed over decades) and none with all that superior performance against respective indexes.

 

would you rather have them change their yard stick if they don't meet it?  This is a funny criticism to me.

 

the logical extension is that you can only state an investment principal on performance *if* you are meeting the criteria?  Seems a little self-referential to me... and dishonest.

 

Criticizing performance is certainly fair game, but criticizing an unchanging and logical goal seems silly.

 

My two cents.

[stahleyp]

ben and zippy thanks for the thoughts.

 

zippy, I didn't know they only started that around 2000. thanks for the additional information.

 

ben, I agree that it's silly for them to change their yard stick (and dishonest). My issue isn't the goal but they fact that they haven't been close to meeting it after 30 years - for any of their funds (even those with shorter time frames).

 

A couple other super annoying things about these guys. When they launched their global fund in 2012. They closed it after like 2 or 3 weeks because they couldn't "find any bargains." Somehow they were finding bargains for all those inflows in 2006 though.  ::)

 

Furthermore, they also charge average to high fees for their funds. So in addition to terrible performance they sock their shareholders for the effort.  Keep in mind that not only do they trail the S&P 500 over the past 15 years but also failed to beat a simple value index during that time.  I do wonder if their early out-performance is due to skill or simply investing in smaller companies at a time when it was beneficial. At least Chou has the decency to waive the management fee.

 

I assume I'm slightly bitter since I suggested my dad invest with them several years ago.

[rb]

Paul, do you trust any investment manager?

[stahleyp]

Paul, do you trust any investment manager?

 

haha. I suppose it depends on what it means to trust one. If trust is that you'll think you'll be treated fairly (they'll work hard but will take a beating along with you and not enrich themselves unjustly) then yes. There are a few (with mutual funds the only I can think of is Chou and Bridgeway) fit in with that.  If by trust, meaning do I think a manager will beat their peers (or S&P 500) after fees and taxes that becomes a harder question to answer. I have some money managed by others (mostly in a 401k since I can't do individual securities in that. I think there are very, very, very few managers worth one's time.

[Guest longinvestor]

I used to own Longleaf funds during the early 2000's. Thanks to OID. My reason for pulling my money out was that I owned some of the same names as they did. Namely LVLT and FFH. I owned them before buying into LLFunds. Then I wondered why I need to pay them and pulled money out to buy more of FFH and LVLT. I liked concentration and they like concentration. It turns out that I was correct in hindsight of course. But it turns out that FFH and LVLT are just a few of the names that worked out for them. They would have gone bust without those? It is tough for value oriented mutual fund managers. I had money in virtually all those value funds: Weitz, Oakmark, etc. OID featured. Complete waste of money and time. My conviction in Berkshire increased manifold after watching these guys. It's very difficult to do the kind of bravado Longleaf put out. Eye catching first but catches you with pants down eventually.