"Tracking Ruane, Cunniff, & Goldfarb’s Portfolio – Q1 2018 Update"
"Ruane, Cunniff, & Goldfarb’s 13F portfolio value decreased ~11% from $12.20B to $10.91B. The number of positions decreased from 66 to 59.They increased CarMax and Facebook while reducing Dentsply Sirona and O’Reilly Automotive during the quarter.The top three positions are Alphabet, Berkshire Hathaway, and Amazon.com and they add up to ~37% 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  filed on 05/15/2018. Please visit our  article for an idea on their investment philosophy and our  for the moves during Q4 2017.This quarter, Ruane, Cunniff, & Goldfarb’s 13F portfolio value decreased ~11% from $12.20B to $10.91B. The number of holdings decreased from 66 to 59. 30 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 ~37% while the top five are at ~48% of the 13F assets: Alphabet, Berkshire Hathaway, Amazon.com, CarMax, and MasterCard.The firm is best known as the investment advisor of the Sequoia Fund (SEQUX) which has a venerable 47-year track record (July 15, 1970 inception, ~13.5% annualized return compared to ~11% for the S&P 500 index). In Q1 2018, the fund was up 1.28% compared to negative 0.76% for the S&P 500 index. Last year, it slightly underperformed S&P 500 - ~20% vs ~22% for the S&P 500 index. Their cash-allocation is currently at ~7.5%. 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 (CNSWF), Rolls-Royce Holdings plc (RYCEY), Vivendi (VIVHY), and Naspers (NPSNY).  The latter two are new this quarter.Bill Ruane was a Benjamin Graham pupil. To learn about Benjamin Graham's teachings, check out the classics  and .Stake Disposals:IAC Interactive (IAC) and Interactive Brokers (IBKR): These small (less than ~1% of the portfolio each) stakes were reduced last quarter and disposed this quarter.New Stakes:Liberty Broadband (LBRDK) and Altaba Inc. (AABA): These two are new positions this quarter. LBRDK is a ~3% portfolio position purchased at prices between $86 and $97 and the stock currently trades well below that range at $71.29. The 2% AABA stake was established at prices between $69 and $80 and it is now at $77.43. For investors attempting to follow Ruane, LBRDK is a good option to consider for further research.Stake Decreases:Berkshire Hathaway (BRK.A) (BRK.B): BRK.B is the second-largest position at 11.48% of the portfolio. The last significant buying happened in 2012 when there was a one-third increase at prices between $76 and $92. The stock is now at $194. Q4 2016 saw a ~10% trimming at prices between $143 and $167 and that was followed with a ~30% selling in the following quarter at prices between $159 and $177. Q2 2017 also saw a ~20% reduction at prices between $161 and $172. This quarter saw another one-third selling at prices between $191 and $217. Ruane is harvesting long-term gains.Amazon.com Inc. (AMZN): AMZN is a top three ~9% portfolio stake established in Q4 2016 at prices between $719 and $845. The stock is now at $1610. There was a ~9% trimming in Q2 2017 at prices between $885 and $1011. Last quarter saw the stake almost doubled at prices between $957 and $1196. There was a ~14% selling this quarter at prices between $1189 and $1598.MasterCard Inc. (MA): MA is a large (top five) ~4.5% 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. Since then, the stake was kept relatively steady as the stock marched higher to the current price of $191 per share. There was a ~15% selling in Q3 2017 at prices between $121 and $143 and that was followed with a ~27% reduction this quarter at prices between $152 and $183. Ruane is harvesting gains.Fiat Chrysler Auto (FCAU): The 4.49% 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 $21.82. Last two quarters have seen marginal trimming.TJX Companies (TJX): TJX is a fairly large 4.36% 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. 2015 had seen significant selling: one-third reduction at prices between $64 and $73. The pattern continued in 2016: ~45% reduction at prices between $67.50 and $83. The stock is now at $88.11. There was a ~17% selling in Q3 2017 at prices between $67 and $74 and that was followed with a ~22% reduction this quarter at prices between $74 and $84. Ruane is continuing to harvest huge long-term gains.Jacobs Engineering Group (JEC): JEC is a ~3% 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 $63.33. There was a ~9% stake increase in Q3 2017 while last two quarters have seen minor trimming.Visa Inc. (V): The 2.20% 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 $131. It is a very long-term stake first purchased soon after the IPO in 2008. There was a ~30% selling this quarter at prices between $114 and $126.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. This quarter saw a ~36% reduction at prices between $51 and $66. The stock currently trades at $54.90 and it is at ~2% of the portfolio.Omnicom Group (OMC): The 1.31% OMC position saw a ~80% increase in Q2 2017 at prices between $80 and $86. The original position was from 2011 at prices between $36 and $50. The stock is now at $71.96. There was a~50% reduction this quarter at prices between $70 and $83.O’Reilly Automotive (ORLY): ORLY is a now a minutely small position. The original stake was first purchased in 2004. Around ~1.9M shares (~3.8M shares after accounting for the 2-for-1 stock split in 2005) were acquired at the time at around $20 per share. H1 2016 saw a ~50% reduction at prices between $232 and $278. Q2 & Q3 2017 saw another ~28% reduction at prices between $173 and $270. Last quarter saw a ~9% trimming and the disposal this quarter was at prices between $238 and $276. The stock is now at ~$268. They harvested huge long-term gains. The stock had a tremendous run (~10 times return) over the holding period.Waters Corp. (WAT): WAT was a long-term stake first purchased in 2011 in the high-70s price-range. The positon was reduced by just over one-third in Q3 2017 at prices between $173 and $190 and almost sold out this quarter at prices between $192 and $219. The stock is now at ~$191.Dentsply Sirona Inc. (XRAY): The large (top five) 4.78% XRAY position was almost eliminated this quarter at prices between $50 and $68. It was established in Q1 2016 as a result of the acquisition of Sirona Dental by Dentsply. They had a 2.79M share stake in SIRO (~5% of the business) for which they received ~5M shares (1:1.8142 ratio) of Dentsply Sirona. Q3 2016 saw a ~75% increase at prices between $59 and $65 and that was followed with another ~12% increase the following quarter at prices between $55.50 and $61. The stock is now at $46.57.Note: The original position in Sirona Dental was from 2011 and the exit realized huge long-term gains.58.com Inc. (WUBA), Builders FirstSource (BLDR), Goldman Sachs (GS), Primerica Inc. (PRI), and Wayfair Inc. (W): These small (less than ~1% of the portfolio each) stakes saw reductions during the quarter.Note: They have a ~5% ownership stake in BLDR and a ~2% ownership stake in Primerica.Stake Increases:Alphabet Inc. (GOOG) (GOOGL): GOOG is the largest 13F stake at 16.44% 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. H1 2016 saw a ~30% reduction at prices between $668 and $767. Q2 2017 saw another reversal: ~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 last two quarters at prices between $951 and $1176. The stock is now at $1076.Note: Their Q4 2017 letter covered Alphabet. At the time, they believed Alphabet & Amazon.com as some of the best businesses the world has ever seen. However, earnings are masked by growth spending.CarMax Inc. (KMX): KMX is a 6.64% 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. Last quarter saw a ~30% selling at prices between $64 and $77 while this quarter there was a ~80% increase at prices between $59 and $72. The stock is now at $67.28.Note: They have a ~7% ownership stake in the business.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 position is now at 4.32% of the portfolio. There was a minor ~3% stake increase this quarter. The stock is now at $29.79.Note: they have a ~7.5% ownership stake in Liberty Media Formula One.Charles Schwab (SCHW): SCHW is a medium sized 3.88% portfolio stake purchased in Q2 2016 at a cost-basis of ~$29. There have only been minor adjustments since. The stock has almost doubled and is now at $57.30.Credit Acceptance Corp. (CACC) and Booking Holdings (BKNG): These two positions were purchased in H1 2017. CACC is a 3.23% 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 $362. The 3.29% of the portfolio BKNG position 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 $2111. There were marginal increases to both stakes this quarter.Note: They have a ~5.5% ownership stake in Credit Acceptance Corp.Facebook Inc. (FB): The FB position saw a whopping ~600% stake increase this quarter at prices between $152 and $193. The position is now a medium-sized stake at ~3% of the portfolio. The stock currently trades at $185.Mohawk Industries (MHK): MHK is a very long-term ~3% 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 stake 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 $213. Last three quarters have seen only very minor activity.JD.com (JD): The 2.44% 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 last quarter at prices between $36.75 and $43. The stock is now at $36.87. There was a marginal increase this quarter.BMC Stock Holdings (BMCH): BMCH is a very small 0.72% portfolio position that saw a minor ~2% increase this quarter.Note: They have a ~6% ownership stake in BMC Stock Holdings.Kept Steady:Capital One Financial (COF): COF is a very small 1.38% position purchased in Q4 2016 at prices between $71 and $91. Q1 2017 saw a one-third increase at prices between $82 and $96. The stock currently trades at $94.81.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 Q1 2018:Regulatory Filings thru 2/24/2018: 13G & 13G/As – 2/14/2018 – BMCH – 3.9M shares – 5.84% of business, CACC – 1.07M shares – 5.54% of business, FWONK – 14.7M shares – 7.3% of business, PRI – 1M shares – 2.28% of business, KMX – 6.63M shares – 3.67% of business, TRUP – 0, MMYT – 0.: Performance: 2017 20.07% vs 21.83% for S&P. Q4 2017 5.57% vs. 6.64% for S&P. Since inception (July 1970) – 13.65% vs 11% annualized. Since new mgmt. after Q1 2016, up 29% vs 31% for S&P. Doesn’t expect correlation with S&P for long. Current PE is high but may be justified because of low-interest-rates. But, even if PE stays high, expected return from now on would only be 7% per year (2% dividend and 5% likely earnings growth). The 22 businesses trades at 21x 2018 estimated earnings – modest premium to index – but they expect per-share earning power to grow 21% in 2018 and 16% in 2019 vs. 11% and 10% for S&P index – also, by their estimates, earnings should be more resilient to cycles than S&P. Recent purchases: Apple & Priceline trades at ~20 multiples but grows organically at much faster rates. The sold ones have around the same multiple but much slower organic growth. Credit Acceptance & Hiscox OTOH has low organic growth but trades at half the multiple of positions they replaced. Portfolio shift to information & services businesses from asset-intensive manufacturing & retail over the last 18 months. 2017 Winners: Credit Acceptance & Hiscox (up ~60%), Mastercard & Waters (up ~50%), Rolls-Royce & Mohawk (up ~40%), and Alphabet, Constellation Software & Formula One (up ~35%). Amazon also up 60% since first investment & up 20% from subsequent purchases. 2017 Losers: TJX, Carmax, O’Reilly, and Omnicom. EXITS: Fastenal, Danaher, Encor, Croda, Tiffany, and Costco. TRIMMED: Berkshire, Mastercard, O’Reilly, Waters, and TJX – mainly based on opportunities we saw to redeploy capital with better growth & similar valuation or similar growth but attractive valuation. The first two were trimmed as the position sizing was large & the trimming better reflects assessment of future potential. Purchases that reduced overall PE: Hiscox, Jacobs, Omnicom, Wells Fargo, Credit Acceptance, Royal Vopak. Purchases that boosted growth rate: Priceline and Alphabet. Believes Alphabet is one of the best businesses the world has ever seen. Amazon is similar as earnings are masked by growth spending. Capital Gains: One of the lowest turnovers in the industry but for two years in a row has had huge realized gains. Discussion on tax deferral – conclusion basically seems that deferral is good but if one can find better return investments after 1-year hold period (long-term gains is lower rate), then it will produce better returns – patience is not always a virtue."