Giverny Capital Asset Management Highlights
I read Giverny Capital Asset Management's Q1 shareholder letter over the weekend and some quotes were pretty interesting. First, let me give a bit of context on GCAM.
GCAM is a partnership between Canadian investment firm "Giverny Capital" and David Poppe. David Poppe was President and CEO of Ruane, Cunniff & Goldfarb, a RIA that's best known for managing Sequoia fund. GCAM is fairly new as it started in April 1st 2020. Since inception, the company has managed to provide nice returns (32.2% net) although it has not managed to beat the S&P 500 (34.5%). However, the team's prior track record is one of outperformance.
The company tries to invest in high quality companies where founders have significant stakes (of course, this isn't always possible)
Here's a list of GCAM's top 10:
Let's go with some of the quotes now!
On Q1's performance:
It was a rough quarter. I don't say that because stock prices declined. That happens. Volatility, after all, is what creates occasional dislocations in the market that allow long-term investors to buy great companies at attractive prices.
On commodities or energy cos:
GCAM doesn't own any energy or materials stocks. That's intentional. About 15 years ago, I did a fair amount of work on the emerging Canadian oil sands companies. I learned three lessons from this project that inform my investing at GCAM. First, never bet on any kind of Malthusian thesis about scarcity, as this is essentially a bet against human ingenuity. Second, no one in the oil industry knows what the price of oil will be in a year. Thus, oil companies spend tends of billions of dollars on capital investments with limited visibility into what the future return will be.Third, oil companies are like derivative securities: their success or failure depends more on the price of an underlying asset than it does on their management teams. Are these companies all run by subpar management teams? Of course not. But they are all ultimately hostage to the oil price.
On predictability of returns on capital and management:
What I am trying to do at GCAM is align with fantastic managers who control their own destiny. Or at a minimum, have more control of their own destiny. I would much rather invest in a business that earns predictably high returns and has a clear growth trajectory than in a business that could earn a superior return if a commodity price remains elevated.
My crystal ball is not better than anyone else's but I'd rather invest in obvious structural growers than probable structural decliners.
On Fed's actions:
The Federal Reserve seems reluctant to do its job, but it is clear that interest rates are going to have to rise at a a much faster rate to tame inflation. The next year or two likely will be bumpy.
On the worst performers of the portfolio:
If there is any good news, I don't believe this group suffered material impairments to their long-term earnings trajectory. Rather, relatively small earnings misses or reductions to ST guidance led to large stock declines.
On $FB spend on RL:
I can't say yet that these investments will pay off, but sales of Meta's Oculus headsets are healthy and reviews are enthusiastic. I feel certain that Meta CEO Mark Zuckerberg won't continue to spend so heavily on R&D if it produces no results.
On $FB health on ad market:
I've heard comments from two large advertising agencies recently that their budgets for Meta Platforms' properties are growing by double digit percentages this year, a signal that Meta remains an important advertising vehicle.
Roughly 2.8 billion people log onto a Meta-owned social media site everyday, and they stay for a while. That makes Meta the best advertising vehicle in the digital world.
Five Below arguably has the strongest growth profile in bricks-and-mortar retail and the stock is more reasonably priced after the recent correction. We're very confident in this business and expect to own it for a long time.
Owning lots of airplanes to support a marginally profitable retail business does not seem as promising to me as trying to build the metaverse.
On portfolio management:
I don't like owning 1% positions as they consume research time and don't add much value to the portfolio when they do well.
On selling Topicus $TOITF:
It was less than 1% in our portfolio and not very liquid, partly because Constellation continues to own 60%. The company had a great first year, trading at a premium to its parent. We didn't think it was more valuable than $CSU.TO so we sold it.
On volatility going forward:
Given the war in Ukraine, soaring inflation, supply shortages and the expectation of sizable rate hikes by the Fed, I expect volatility to continue.
On timing the market:
The war in Ukraine is deeply disturbing, but market timing does not work and geopolitical events rarely create lasting market impacts. In any case, the best defense against economic uncertainty is to own high-quality, productive assets.
While reading the cnbc blog of the $BRK.A $BRK.B AGM, I read a quote from Ajit Jain, the vice-chairman, “there’s no question that recently $PGR has done a much better job than Geico…both in terms of margin and in terms of growth….the biggest culprit as far as Geico is concerned…is telematics”
- He points out clear, honest takeaways of one of their well known earners… and gives shareholders a direction they know they need to head - not all management are so honest and forthcoming in public
- He points out something that #tesla has been working on since it’s early AP days - and why it’s using sensors and video cameras (and neural nets & vector mapping) vs LIDAR (sorry $INTC and $QCOM..!) - Tesla’s AP safety rating currently used to see if you qualify for self driving beta can Be (and probably already is) used easily for insurance ratings and pricing… add to that the fact that $TSLA continues to expand geographies in which it offers car insurance every few months, and it could be a very large income stream in the next 3 years. Could they offer their telematics systems out to other manufacturers as a black box? Maybe…🤷🏾♂️🌟
Note re transparency - Tesla shows you your safety rating…unlike regular insurance companies who just send you a price quote!
Thoughts? Am I way off here? Is there still a lot of growth not priced in today?
Disc: Long both BRK and TSLA
Our newsletter this week:
Our newsletter this week featured quotes from the management teams of the following companies:
$BRK.B $BRK.A $MDLZ $AMZN $V $DAL $MA $MCD $MAN $MC $LAZ $CG $MC $BAC $AXP $DAL $GOOG $DPZ $ROKU $FB $MSFT $AAPL $INTC $KLAC $ROKU $CAT $ABG $SWK $HAL $AA
The Slow Rise of $BOC
While many investors are transfixed on the Oracle of Omaha at this year's Annual Meeting for Berkshire Hathaway Shareholders $BRK.A/$BRK.B I want to investigate another Omaha, Nebraska-based company that, much like Berkshire is putting together an impressive collection of companies.
Boston Omaha $BOC has flown under the radar for the last few years. This is for a number of reasons.
1.) Market Cap is only $620m, so still a fairly small company.
2.) They haven't been around very long. After taking over REO Plus the newly formed Boston Omaha was incorporated in 2015.
3.) Most of the areas the company operates in a relatively low-growth, older industries. Most of their product portfolio consists of Billboards, Broadband, and Insurance Underwriting.
Investors willing to dig a little deeper into the company will find that Boston Omaha has the capacity to be one of the greatest capital compounders since that of Berkshire Hathaway.
$BOC is often referred to as a "Serial Acquirer." This is an entity that grows primarily by making acquisitions. And boy has Boston Omaha made some acquisitions in its short life span.
This chart from their website details all the deals the company has been involved with since 2015 as well as the size of the purchases.
From the very beginning of Boston Omaha, the company has been focused on buying primarily billboards and using the cash flow generated to invest in other lines of business.
In 2016 $BOC would enter its 3rd line of business, Insurance underwriting with the formation of General Indemnity Group - or GIG. Placing Dave Herman as the Chairman of the business segment he was tasked with making great acquisitions to grow that line of business.
Under his leadership, the business has grown nicely.
In 2018 $BOC would invest $19m in Crescent Bank and Trust. This makes Boston Omaha the largest shareholder owning nearly 15% of the bank.
While all of these investments are important on their own none are as important, in my opinion, as their most recent investments. Broadband and Home Building.
Just 2 years ago Boston Omaha entered its 5th line of business, Broadband, with the acquisition of AireBeam and Utah Broadband.
With these purchases, $BOC created Fiber Fast Homes. The stated purpose is to provide Fiber Fast Internet to homes across the country.
Just 6 days after the formation of FIF $BOC announced a $10m investment in Dream Finders Homes. DFH is a fairly small home builder building homes and communities across the country.
Just a few days after this announcement came another announcement. This time a partnership was formed between Dream Finders Homes and Fiber Fast Homes called Dream Fiber Homes. This entity provides Fiber-Fast internet to all homes and communities built by Dream Finders Homes.
And this incredible use of investor capital is just the beginning. In 2021 $BOC formed BOAM - Boston Omaha Asset Management.
Some of the things that have occurred under BOAM include taking Sky Harbour public via SPAC as well as another new operating segment Build for Rent.
In particular Build For Rent is a fund offered by BOAM for investors to allocate capital along with Boston Omaha to build "For-Rent" properties across the country.
All-In-All Boston Omaha is staying pretty busy. I also believe that over time $BOC has the ability to create long-term value for shareholders who are willing to stick with management over the long term.
Speaking of management I want to quickly mention that Boston Omaha has a fairly unique management structure. Instead of the usual one CEO making the majority of the acquisitions there are actually two.
I believe this can lead to fewer mistakes as there are two heads involved in each decision being made.
Overall I think $BOC has a lot of potential. And if want even more information I made an entire Youtube video covering almost every facet of the company I felt was important that you can watch it here:
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Awesome post, very informative!
Also, I watched your Youtube video and left a comment, good stuff!
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I started tracking yield on cost a few months ago. Really cool to see that yield continuing to increase versus the current dividend yield! Maybe one day I’ll be like Warren
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