Monday, July 12, 2010

Sticking to What Works

Found via Simoleon Sense.

This month Sequoia Fund marks its 40th anniversary. It's a milestone rarely achieved in an industry where three years is considered long term.

Even more remarkable is that Sequoia is being run pretty much the same as it was when Warren Buffett's friend and stockbroker, the late Bill Ruane, launched the fund in 1970. It's still a concentrated portfolio with two or three dozen stocks, all heavily researched and bought with the idea that the market is valuing them at less than their true worth. Co-managing the fund is Robert Goldfarb, whose tenure at the New York firm dates back to 1971.

In 2008 the fund re-opened its doors to new investors for the first time since 1982. Some wondered whether the reopening of this exclusive club somehow indicated that it was past its glory days. But its managers at Ruane, Cunniff & Goldfarb Inc. don't seem to be resting on the fund's reputation.

Sequoia's returns have bested the Standard & Poor's 500-stock index over the past three, five and 10 years. In 2008, amid the financial crisis, Sequoia held up better than 97% of the competition in Morningstar Inc.'s large-blend category. As stocks snapped back from the bear market, Sequoia initially lagged, but as of June 30, the fund was three percentage points ahead of the S&P over the prior 12 months with a 17.5% gain, beating 90% of its peers.

Still, Sequoia had its worst year in 2008—a 27% decline. In the wake of those losses, the fund's managers made a concession to recent market developments: While continuing to focus on the prognosis for individual stocks, they decided to pay more attention to "macro" market and economic forces than they have in the past.