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Just my personal opinion. I like the managers and analysts at Sequoia. I think the two managers are excellent, and they have a team of excellent analysts.
They have an investor day every year, and the document that comes out of it is always very informative regarding the analysts and managers.
I think they are a highly experienced group of stock pickers, whom I trust. And very dedicated. With a storied tradition and history.
If I'm not mistaken, I believe that one of their analysts was or perhaps is seriously considered for the job to take over the main investing role at Berkshire Hathaway after Warren Buffett passes on. [In addition to the 2 former hedge fund managers that Berkshire Hathaway currently has].
Take a look at that Investor Day PDF referenced above. I'm extremely impressed with the depth of the analyst team, and how thoroughly they study the companies they invest in.
I own the fund both in a taxable account and an IRA.
I owned FAIRX for about 11 years. FAIRX is a one man show. It's the Bruce show. Night and day from SEQUX, which is a large team of analysts, each doing work and putting together the efforts in aggregate.
Berkowitz is obviously very smart and talented, but I gave up on him when I wasn't convinced my money was being managed with proper risk management.
When I saw over 50% in one stock [AIG, which is no longer over 50%, but still 42.8%], and generally the most concentrated stock portfolio of any stock mutual fund that I encountered, that concerned me. I was also concerned about Sears, St. Joe, Fannie and Freddie whose fate is in the hands of Congress.....a huge concentration in financials.....I lost my confidence in Berkowitz, and exited.
Also, I read a bunch of articles about Bruce Berkowitz, the sum total of which made me lack confidence in the person I was handing my money to, in FAIRX. Don't know if this is a super rock star mutual fund manager on an ego trip, but didn't want to take the risk, and I suspected it.
I was not making a forecast on the future performance of FAIRX, as that future performance will never be predictable. Warren Buffett suggested to 'keep your eyes on the players, not the scoreboard'. So although the scoreboard of FAIRX was good, I had my eyes on the player, and decided to make a sideways move to another fund.
Finally, although I do like the SEQUX team a lot, their performance over 1, 3 and 5 years is nothing to brag about.....although when I look at it by each calendar year, it looks better to me. Their YTD performance is awful, but who knows, this could be a great time to buy in........or maybe not.
I've been quite impressed by the benefits of just buying a stock index fund, where you don't have performance issues......you just get the market return minus the expenses [plus or minus a tiny tracking differential.] I like VTI and VTSAX. Warren Buffett prefers a low cost S&P 500 index fund, like VFIAX, and has in his will that his wife's portfolio will be invested 90% in a low cost S&P 500 index fund, and 10% in short term government bonds
@Lukemon Why, yes, as a matter of fact, I have thoughts all the time, some of which I consider, too. Thanks for asking. If you think it is well worth the time and energy, then considering this shift is probably a good idea. Feel free to share what comes up, preferably in long form (MFO has no character count restrictions, though apparently your Twitter account does). /sarc
Lukem, take a step back and a deep breath and explain here what your goal and thinking are. Obvs you did not ask about shifting to PONDX or GABSX or PKW or AOM, to name some very different goals. Okay. So what are you trying to do? Chase total return via equities? LC? SEQUX is very different from the Bruce show, as rjb partly explained, or started to. Do you want return with a ride (FLVCX)? Looks like not. Do you want steadiness because tired of Bruce? Why not dive into PRBLX or AMANX instead? What tradeoffs? Do you wish for go-anywhere, or blend, or more LC tilt? Did you look at FCNTX, or FLPSX, or the Yackts? If rejected, why? What's your thinking?
I'd go with SEQUX over FAIRX for many of the reasons that rjb stated. SEQUX is going to be more consistent over time. That's not to say that Berkowitz isn't a talent - and I say that despite lengthy criticism of his Sears investment and portfolio concentration - but Sequoia to me would be a much more "get it and forget it" holding. Yacktman would be another option.
Sequoia to me would be a much more "get it and forget it" holding. Yacktman would be another option.
I also see SEQUX as being much more "get it and forget it", or "set it and forget it". You have so many different analysts each covering different stocks, that you don't have to worry if one of the analysts has "lost it" or needs monitoring.
But if you're concerned that Bruce 'needs monitoring', or that he might possibly be on a rock super star manager ego thing, then you might be kept awake at night.
That's the advantage of a significant pool of highly qualified stock analysts. Maybe the analyst covering Sequoia's xyz stock didn't make a great pick or analysis, but there are a total of 44 stocks, and only 54.67% in the top 10 stocks, versus FAIRX below.
Oops, I made an error:
FAIRX has almost 49% in AIG. I didn't see the stock warrants, below:
Just a note, that there are some big Bruce Berkowitz fans on MFO, and I respect their position. With the exception of a gut wrenching 2011, FAIRX has had a great record.
As I mentioned, I was looking at the players, not the scoreboard, per Buffett's suggestion. The scoreboard for FAIRX has been xlnt, excepting 2011, when it underperformed the stock market by -34.53%. Yikes!
SEQUX has been great in recent years (from late 2009) until this year. As far as I know the problem is Valeant which is the largest position I think(till a few years ago the largest position was Berkshire)Since Feb. Valeant ,which has been in the news alot, is down about 20% By the way can you get into the fund? They closed it late last year to most people.
As of December 10th, 2013, we have adopted a harder close for Sequoia. The Fund is closed to new investors, except for new accounts opened with us directly by existing shareholders of the Fund or existing clients of our firm, or members of their families. The Fund remains open to contributions from existing shareholders, though we reserve the right to reject any order to purchase Fund shares.
SEQUX has been great in recent years (from late 2009) until this year. As far as I know the problem is Valeant which is the largest position I think(till a few years ago the largest position was Berkshire)Since Feb. Valeant ,which has been in the news alot, is down about 20% By the way can you get into the fund? They closed it late last year to most people.
As of December 10th, 2013, we have adopted a harder close for Sequoia. The Fund is closed to new investors, except for new accounts opened with us directly by existing shareholders of the Fund or existing clients of our firm, or members of their families. The Fund remains open to contributions from existing shareholders, though we reserve the right to reject any order to purchase Fund shares.
I've been in SEQUX for very many years, so regarding "can you get into the fund", I read what you posted below, on their website, and assume someone not in the fund cannot get in, unless they meet the very narrow criteria above.
Yes, regarding Berkshire, I remember that for a long time, Berkshire had a weighting of about 30% in SEQUX! I'm sure you know the historical ties between SEQUX and Warren Buffett......when Buffett closed his partnership, he told all his partners that if they were still interested in being in the stock market, he recommends Bill Ruane as the manager to go with. Bill Ruane established SEQUX for that express purpose.
Yes, Valeant is the largest position, and has a larger weighting than I feel comfortable with, at 18%. It never bothered me to have 30% in Berkshire Hathaway, but 18% in Valeant does bother me. Of course, Valeant went up 96% last year, and it sure wasn't bothering me then! But actually, I wasn't tracking the portfolio and wasn't even aware of it at the time.
Here's Valeant's amazing performance on a calendar year basis:
The Sequoia team is very aware of valuations, so it's interesting that their largest holding has had such a performance run up. Normally I wouldn't think SEQUX would hold a stock with such a run up, but Morningstar lists Valeant's forward P/E as only 10.5
Valeant is an interesting animal, gobbling up other companies and attempting to squeeze more juice out of the lemons. It's really almost a private equity company with a healthcare focus. They've been buying up companies right and left.
It's been successful, so far, although its attracted a lot of shorts - most famously, Jim Chanos.
"Mr. Chanos, who is best known for predicting the fall of Enron, has made a bet against Valeant, arguing that it generates growth only by purchasing companies.
“There is a real business there, but there is no growth and the Street is paying up a huge amount for future growth based on acquisitions,” Mr. Chanos, president of the hedge fund Kynikos Associates, said on the sidelines of the Skybridge Alternatives Conference in Las Vegas."
That's fair enough Ted. FAIRX had one of the best performances out there, right out of the gate, upon inception. Bruce was Morningstar's manager of the Decade in January 2010.
Ted, I'm guessing that perhaps you used to watch Louis Rukeyser's show, Wall St. Week With Louis Rukeyser.
He used to say, "What have you done for me lately"?
Looking at the past 5 years as of 8/15/2014, a bull market the whole time:
FAIRX: 12.48% SEQUX: 16.40%
And SEQUX has historically outperformed in down markets and underperformed in bull markets. As you know, the past 5 years has been bull market, so SEQUX was not at its best
Let's look at the $10,000 invested for those 5 years:
FAIRX: $18,004 SEQUX: $21,368
I calculated that using an excel spreadsheet. If someone wants to confirm the data, please do.
Looking back to the current management inception, ~1998, it is impressive but hardly the leader. Even with its low-risk M* rating. GABEX, AMANX, PRBLX, YACKX, and FCNTX all outperform SEQUX, a couple of them considerably. Some of them have almost as low risk ratings too. Its 08-09 dip behavior is okay: there are worse, and better. Bruce is not the right comparison, so I ask again, why the switch, what's the goal?
Probably not what you are looking for and I know I'm going to sound like broken record. FAIRX, SEQUX, MXXVX and a host of other funds. When you by vs What you buy. I bought FAIRX when it was in the dumps. I didn't buy SEQUX and will not until it gets into the dump. I sold MXXVX sometime back, will buy when it goes into the dumps.
I think people simply overthink these funds. Look for heavy manager investment, wait for opportunity, then pounce.
Thank you all for your comments, ironically I got into Fairholme from a Morningstar post roughly ten years ago that was discussing alternative funds to Sequoia, which was closed for the first time back then, the post discussed Fairholme, which was how I came be one of the earlier investors. I have earned very good returns from Fairholme, it is the Goodhaven/Fernandez personnel changes that I still have some concerns with. Sears and St. Joe with time may still play out, though Sears is getting rather old. AIG does not trouble me, Fannie and Freddie are a bit of a wild card with Congress involved, though BOA has proven to be one of the reasons I invested with Fairholme.
I have also considered Cook & Bynum and Seafarer as possible replacements for Fairholme. I like the fact that Sequoia along with Cook & Bynum are building up cash due to high P/E and not being able to find investments that meet their criteria. Side note, Intrepid Small Cap's website has a very interesting article on why they can't find suitable investments.
Jim Chanos is someone I respect deeply, his analyses over the past years are thorough and notable. His recent concerns with China should give one pause. Jim Rogers has made the point that there will be corrections in China, the U.S. has had many over the last century and a half.
On a longer term perspective, there has to be an emerging Warren Buffett out there specializing in China or any market for that matter, finding him or her to invest with will be the difficult but fun part, which is part of why many of us enjoy doing this. Thanks again for all your comments, David your website is one of the best out there, and your readers have interesting observations and comments, Lukemon
I'm with VintageFreak. I try to buy a fund with a great long term record and a great manager I respect when it's been in a period of underperformance, so long as I still respect the manager. For me FAIRX, with its mediocre 5 year record and great 15 year record, is one I'd rather add to than sell at this point. Berkowitz's investing style -- find a few great ideas, then go all-in -- doesn't go out of style, IMHO, precisely because (unlike, say, quant strategies which others can just imitate or which may not change with the markets) one of its key ingredients is courage and boldness.
Lukemon, so this is chiefly a capital-appreciation goal and finding the extremely solid and proven manager? Still can't really make out what your plan is. Why not put most everything into FLVCX and Soviero? If a smoother ride, half into GABEX and half into AMANX? Or a third into each? Yackts are closed, I believe, but PRBLX (Ahlsten) is not.
Vintage freak, expatsp and davidmoran, I have been invested in Fidelity Contrafund with Will Danoff, have enjoyed the fund's performance, though the asset size is considerable. Yacktman is closed, but with the AMG affiliation I am going to wait to see how things play out, if they should re-open like Sequoia did. Matthew 25 is also on my watch list but they took a big hit in 2008-09. We may be overdue for a correction, so it will be interesting to see how they hold up. PRBLX is very interesting especially with the dividend focus, I have not seen much on them before so will research further. Thanks for your observations and suggestions, much appreciated, Lukemon
For your information: SEQUX has 54.47% potential capital gains exposure, which is a lot. So it they sell (which may not happen, or course), one will pay lots of taxes, unless it is in IRA.
For your information: SEQUX has 54.47% potential capital gains exposure, which is a lot. So it they sell (which may not happen, or course), one will pay lots of taxes, unless it is in IRA.
@finder, where do you locate the data about a fund's potential capital gain exposure? Probably somewhere on Morningstar. Can you reference the exact location? thanks
@rjb112: What software are you using to get overlay on M* Fund Snapshot ? Regards, Ted
@Ted, I combined two different screens so they could both be seen. So I'm not seeing the overlay........ First I looked at the "Quote" tab on M*, then took a screenshot. Then clicked on Tax, per your instructions. Then took a screenshot of what you see under Tax. Then combined both screens.
But to answer your question, I'm using Internet Explorer 11 as my browser
For your information: SEQUX has 54.47% potential capital gains exposure, which is a lot. So it they sell (which may not happen, or course), one will pay lots of taxes, unless it is in IRA.
For your information: SEQUX has 54.47% potential capital gains exposure, which is a lot. So it they sell (which may not happen, or course), one will pay lots of taxes, unless it is in IRA.
@finder, 54.47% is a lot of potential capital gains exposure. But it's not hugely more than the market itself. Look at the Vanguard S&P 500 Index Fund's potential capital gains exposure.
So it's more just a result of a huge bull market since the market low on March 9, 2009 at S&P 500 677.
Yes, since 8/08 it is all good and outdone only the closed Yackts x 2.
I did look at my favorite key stress test period, summer 08 to summer 11. It and Gabelli and Parnassus and Amana and TWEIX are all overlay-identical, almost, although GABEX, which I sometimes tout, has a bigger dip. YACKX trounces all.
And to repeat what I posted up higher, looking back to the current SEQUX management inception, ~1998, it's impressive but hardly the leader. Even with its low-risk M* rating. GABEX, AMANX, PRBLX, YACKX, and FCNTX all outperform SEQUX, a couple of them considerably. Some of those have almost as low risk ratings too. Its 08-09 dip behavior is okay: there are worse, and better. Conclusion: Bruce seems hardly the right comparison in hindsight, or maybe even then-real time; again, why not compare with something gogo like Soviero/FLVCX?
And a key quote from that link The mammoth gap between its annualized trailing 10-year total return of 11.7% and its Morningstar Investor Return of 4.5% underscores the fund's knack for rewarding the kind of patience not many investors have.
That comparison seems no less sensible than the starting comparison question of Sequoia or Bruce.
Your second para, which I completely agree with about any capable manager, seems to me totally at odds with your 'pay lots of attention and avoid bear markets.' Why? One ought not to be with Soviero in the first place unless one can set it and forget it. That's the key key key message of fund investing --- still often lost here, with all these traders and switchers. Give someone like Soviero a looooong chance. That's how you do it.
One more fund to buy after correction - SCMFX. Profiled by Mr. Snowball already. FWIW I exchanged posts with Mr. Snowball. I think it is more risky than it has lead on to be. I'm going to wait very very patiently and then add to my Schwab portfolio.
Comments
I like the managers and analysts at Sequoia. I think the two managers are excellent, and they have a team of excellent analysts.
They have an investor day every year, and the document that comes out of it is always very informative regarding the analysts and managers.
http://www.sequoiafund.com/Reports/Transcript13.pdf
I think they are a highly experienced group of stock pickers, whom I trust. And very dedicated. With a storied tradition and history.
If I'm not mistaken, I believe that one of their analysts was or perhaps is seriously considered for the job to take over the main investing role at Berkshire Hathaway after Warren Buffett passes on. [In addition to the 2 former hedge fund managers that Berkshire Hathaway currently has].
Take a look at that Investor Day PDF referenced above. I'm extremely impressed with the depth of the analyst team, and how thoroughly they study the companies they invest in.
I own the fund both in a taxable account and an IRA.
I owned FAIRX for about 11 years. FAIRX is a one man show. It's the Bruce show. Night and day from SEQUX, which is a large team of analysts, each doing work and putting together the efforts in aggregate.
Berkowitz is obviously very smart and talented, but I gave up on him when I wasn't convinced my money was being managed with proper risk management.
When I saw over 50% in one stock [AIG, which is no longer over 50%, but still 42.8%], and generally the most concentrated stock portfolio of any stock mutual fund that I encountered, that concerned me. I was also concerned about Sears, St. Joe, Fannie and Freddie whose fate is in the hands of Congress.....a huge concentration in financials.....I lost my confidence in Berkowitz, and exited.
Also, I read a bunch of articles about Bruce Berkowitz, the sum total of which made me lack confidence in the person I was handing my money to, in FAIRX. Don't know if this is a super rock star mutual fund manager on an ego trip, but didn't want to take the risk, and I suspected it.
I was not making a forecast on the future performance of FAIRX, as that future performance will never be predictable. Warren Buffett suggested to 'keep your eyes on the players, not the scoreboard'. So although the scoreboard of FAIRX was good, I had my eyes on the player, and decided to make a sideways move to another fund.
Finally, although I do like the SEQUX team a lot, their performance over 1, 3 and 5 years is nothing to brag about.....although when I look at it by each calendar year, it looks better to me. Their YTD performance is awful, but who knows, this could be a great time to buy in........or maybe not.
I've been quite impressed by the benefits of just buying a stock index fund, where you don't have performance issues......you just get the market return minus the expenses [plus or minus a tiny tracking differential.] I like VTI and VTSAX.
Warren Buffett prefers a low cost S&P 500 index fund, like VFIAX, and has in his will that his wife's portfolio will be invested 90% in a low cost S&P 500 index fund, and 10% in short term government bonds
Any thoughts?
Why, yes, as a matter of fact, I have thoughts all the time, some of which I consider, too. Thanks for asking.
If you think it is well worth the time and energy, then considering this shift is probably a good idea. Feel free to share what comes up, preferably in long form (MFO has no character count restrictions, though apparently your Twitter account does). /sarc
You have so many different analysts each covering different stocks, that you don't have to worry if one of the analysts has "lost it" or needs monitoring.
But if you're concerned that Bruce 'needs monitoring', or that he might possibly be on a rock super star manager ego thing, then you might be kept awake at night.
That's the advantage of a significant pool of highly qualified stock analysts. Maybe the analyst covering Sequoia's xyz stock didn't make a great pick or analysis, but there are a total of 44 stocks, and only 54.67% in the top 10 stocks, versus FAIRX below.
Oops, I made an error:
FAIRX has almost 49% in AIG. I didn't see the stock warrants, below:
Just a note, that there are some big Bruce Berkowitz fans on MFO, and I respect their position. With the exception of a gut wrenching 2011, FAIRX has had a great record.
As I mentioned, I was looking at the players, not the scoreboard, per Buffett's suggestion. The scoreboard for FAIRX has been xlnt, excepting 2011, when it underperformed the stock market by -34.53%. Yikes!
By the way can you get into the fund? They closed it late last year to most people.
As of December 10th, 2013, we have adopted a harder close for Sequoia. The Fund is closed to new investors, except for new accounts opened with us directly by existing shareholders of the Fund or existing clients of our firm, or members of their families. The Fund remains open to contributions from existing shareholders, though we reserve the right to reject any order to purchase Fund shares.
Yes, regarding Berkshire, I remember that for a long time, Berkshire had a weighting of about 30% in SEQUX! I'm sure you know the historical ties between SEQUX and Warren Buffett......when Buffett closed his partnership, he told all his partners that if they were still interested in being in the stock market, he recommends Bill Ruane as the manager to go with. Bill Ruane established SEQUX for that express purpose.
Yes, Valeant is the largest position, and has a larger weighting than I feel comfortable with, at 18%. It never bothered me to have 30% in Berkshire Hathaway, but 18% in Valeant does bother me. Of course, Valeant went up 96% last year, and it sure wasn't bothering me then! But actually, I wasn't tracking the portfolio and wasn't even aware of it at the time.
Here's Valeant's amazing performance on a calendar year basis:
The Sequoia team is very aware of valuations, so it's interesting that their largest holding has had such a performance run up. Normally I wouldn't think SEQUX would hold a stock with such a run up, but Morningstar lists Valeant's forward P/E as only 10.5
It's been successful, so far, although its attracted a lot of shorts - most famously, Jim Chanos.
"Mr. Chanos, who is best known for predicting the fall of Enron, has made a bet against Valeant, arguing that it generates growth only by purchasing companies.
“There is a real business there, but there is no growth and the Street is paying up a huge amount for future growth based on acquisitions,” Mr. Chanos, president of the hedge fund Kynikos Associates, said on the sidelines of the Skybridge Alternatives Conference in Las Vegas."
http://dealbook.nytimes.com/2014/05/16/short-seller-chanos-turns-attention-to-valeant/?_php=true&_type=blogs&_r=0
FAIRX= $39,020
SEQUX=$28,811
Regards,
Ted
Ted, I'm guessing that perhaps you used to watch Louis Rukeyser's show, Wall St. Week With Louis Rukeyser.
He used to say, "What have you done for me lately"?
Looking at the past 5 years as of 8/15/2014, a bull market the whole time:
FAIRX: 12.48%
SEQUX: 16.40%
And SEQUX has historically outperformed in down markets and underperformed in bull markets. As you know, the past 5 years has been bull market, so SEQUX was not at its best
Let's look at the $10,000 invested for those 5 years:
FAIRX: $18,004
SEQUX: $21,368
I calculated that using an excel spreadsheet. If someone wants to confirm the data, please do.
Of course, YTD, FAIRX is trouncing SEQUX.
the future returns of each: unpredictable
I think people simply overthink these funds. Look for heavy manager investment, wait for opportunity, then pounce.
I have also considered Cook & Bynum and Seafarer as possible replacements for Fairholme. I like the fact that Sequoia along with Cook & Bynum are building up cash due to high P/E and not being able to find investments that meet their criteria. Side note, Intrepid Small Cap's website has a very interesting article on why they can't find suitable investments.
Jim Chanos is someone I respect deeply, his analyses over the past years are thorough and notable. His recent concerns with China should give one pause. Jim Rogers has made the point that there will be corrections in China, the U.S. has had many over the last century and a half.
On a longer term perspective, there has to be an emerging Warren Buffett out there specializing in China or any market for that matter, finding him or her to invest with will be the difficult but fun part, which is part of why many of us enjoy doing this. Thanks again for all your comments, David your website is one of the best out there, and your readers have interesting observations and comments, Lukemon
Probably somewhere on Morningstar. Can you reference the exact location?
thanks
Regards,
Ted
http://performance.morningstar.com/fund/tax-analysis.action?t=SEQUX®ion=usa&culture=en-US
Regards,
Ted
@Ted, I combined two different screens so they could both be seen.
So I'm not seeing the overlay........
First I looked at the "Quote" tab on M*, then took a screenshot.
Then clicked on Tax, per your instructions.
Then took a screenshot of what you see under Tax.
Then combined both screens.
But to answer your question, I'm using Internet Explorer 11 as my browser
So it's more just a result of a huge bull market since the market low on March 9, 2009 at S&P 500 677.
Aside from that, really good thread.
I did look at my favorite key stress test period, summer 08 to summer 11. It and Gabelli and Parnassus and Amana and TWEIX are all overlay-identical, almost, although GABEX, which I sometimes tout, has a bigger dip. YACKX trounces all.
And to repeat what I posted up higher, looking back to the current SEQUX management inception, ~1998, it's impressive but hardly the leader. Even with its low-risk M* rating. GABEX, AMANX, PRBLX, YACKX, and FCNTX all outperform SEQUX, a couple of them considerably. Some of those have almost as low risk ratings too. Its 08-09 dip behavior is okay: there are worse, and better. Conclusion: Bruce seems hardly the right comparison in hindsight, or maybe even then-real time; again, why not compare with something gogo like Soviero/FLVCX?
http://analysisreport.morningstar.com/fund/research?t=FLVCX®ion=usa&culture=en-US&productCode=MLE
And a key quote from that link The mammoth gap between its annualized trailing 10-year total return of 11.7% and its Morningstar Investor Return of 4.5% underscores the fund's knack for rewarding the kind of patience not many investors have.
Your second para, which I completely agree with about any capable manager, seems to me totally at odds with your 'pay lots of attention and avoid bear markets.' Why? One ought not to be with Soviero in the first place unless one can set it and forget it. That's the key key key message of fund investing --- still often lost here, with all these traders and switchers. Give someone like Soviero a looooong chance. That's how you do it.
You need to...
1) be comfortable with its allocation in your portfolio, and
2) believe in the fund manager (and the fund house).
It happens.
And, when it does...
it feels pretty goooood.