Corner of Berkshire & Fairfax Fund - Poll Q2'14

[Ross812]

Above are a collection of 96 companies recently discussed in the investment ideas forum and inclusions receiving two or more votes from board members in the last poll. I am going to continue dropping companies that received 0 or 1 vote in the last poll as ~10% consensus is needed before the idea is added to the portfolio. Each member gets 5 votes. Choose the companies you believe will have the best total return. The 15 companies (cash is an included asset class) with the most votes will be bought in the portfolio (balance stands at $1,196,000). Allocation will be determined by the number of votes each company receives.

The portfolio will be public for anyone to see at the following link:
https://docs.google.com/spreadsheet/ccc?key=0AivVdWOTQE2JdGQzYkFSQUg2eUR3UVRTcThFYWpBelE#gid=21

Since 19 August 2013 the fund with dividends and a 12.5% average cash allocation has returned 19.6% vs the S&P (with dividends) benchmark return of 15.2%.

Q1'14 saw nice gains due to SHLD (+36%), FIATY (+29%), and Packer's contribution of INLOT.AT gaining a respectable 16.5%. The forum failed to predict C would fail their stress test (-11%) and GM would have a major recall (-13%).

Thanks for voting all!

[gary17]

Be interesting to see how the companies not voted into the fund performs in comparison to those that are voted in -- 

Gary

[Ross812]

We need more than 82 votes!

[giofranchi]

Ross,
I am not sure I understand how this actually works: is the poll done on a quarterly basis? I am probably going to vote for the same 5 companies years in a row… What’s the meaning of expressing my vote each quarter?

Gio

[Ross812]

Ross,
I am not sure I understand how this actually works: is the poll done on a quarterly basis? I am probably going to vote for the same 5 companies years in a row… What’s the meaning of expressing my vote each quarter?

Gio

Gio,

The voting is done on a quarterly basis. The 15 companies with the most votes are added to the portfolio and weighted by how many votes they received. Let's say between the top 15 companies there were 100 votes. If Lancashire had 15 of those votes, it would become a 15% position in the fund. This allocation can change each quarter depending on how sentiment changes over time. For instance when we started the poll in August of '13 SHLD was an 8% position. SHLD had a run up and was not as popular after the price had increased and it became a 5% position the next quarter. 3% of the previous position was booked as a profit.

Lancashire may be a company you vote on for the next 5 years regardless of price. I'm willing to bet the board would start to up vote Lancashire heavily if the share price falls to closer to book value. It may be a 3% position now with a core group of LT investors interested but could climb to a 10% position once the rest of the community piles on at a lower price. So far, the fund methodology appears to be working; ex cash the boards' picks are outperforming the S&P 500 by 10%.

[constructive]

Ross,
I am not sure I understand how this actually works: is the poll done on a quarterly basis? I am probably going to vote for the same 5 companies years in a row… What’s the meaning of expressing my vote each quarter?

Gio

If you look at voting trends you'll see that few people are as patient and concentrated as you are.

For example BH went from 7 votes to 2, 3, and 1, despite the success of the investment in CBRL and the acquisition of an insurance company.

Fairfax went from 41 votes to 19, 12 and 7 as the market marched higher.

Your job is to act as a counterweight to all of our votes. 

[giofranchi]

Gio,

The voting is done on a quarterly basis. The 15 companies with the most votes are added to the portfolio and weighted by how many votes they received. Let's say between the top 15 companies there were 100 votes. If Lancashire had 15 of those votes, it would become a 15% position in the fund. This allocation can change each quarter depending on how sentiment changes over time. For instance when we started the poll in August of '13 SHLD was an 8% position. SHLD had a run up and was not as popular after the price had increased and it became a 5% position the next quarter. 3% of the previous position was booked as a profit.

Lancashire may be a company you vote on for the next 5 years regardless of price. I'm willing to bet the board would start to up vote Lancashire heavily if the share price falls to closer to book value. It may be a 3% position now with a core group of LT investors interested but could climb to a 10% position once the rest of the community piles on at a lower price. So far, the fund methodology appears to be working; ex cash the boards' picks are outperforming the S&P 500 by 10%.

Ah! Ok! Now I get it!

Thank you,

Gio

[giofranchi]

If you look at voting trends you'll see that few people are as patient and concentrated as you are.

For example BH went from 7 votes to 2, 3, and 1, despite the success of the investment in CBRL and the acquisition of an insurance company.

Fairfax went from 41 votes to 19, 12 and 7 as the market marched higher.

Your job is to act as a counterweight to all of our votes. 

 

Sounds like I will go broke!

Gio

[constructive]

With the C discount widening relative to BAC, the vote spread between them has narrowed considerably over the last 2 quarters.

74 : 6     12.3x
41 : 4     10.3x
87 : 20    4.4x
54 : 21    2.6x

[Ross812]

The fund was updated today. Thank you to everyone who voted!

The Q2'14 Allocation is as follows:

Company   Allocation %   # of Votes   % of Votes
BAC                 13.59%     56             39%
$ - Cash            11.41%    47             33%
FIATY               8.98%     37              26%
ALS.TO              8.74%    36              25%
BRK.B              7.77%     32              23%
GNMCA              7.52%   31             22%
LRE.L               7.28%    30              21%
SHLD               6.31%    26              18%
AIG                 6.07%    25              18%
C                    5.83%    24              17%
LUKOY             3.64%    15              11%
MKL                3.64%     15              11%
ZINC               3.40%     14              10%
AWLCF              2.91%    12              8%
FFH.TO              2.91%    12              8%