An intriguing billionaire, David Abrams launched his own investment firm Abrams Capital Management back in 1999 in Boston, and he has run it very successfully so far. When we say intriguing, we refer to David Abrams’ low profile and interesting investment strategy. Let’s start from the beginning – David Abrams graduated from the University of Pennsylvania with a Bachelor of Arts in History. Before he decided it is time to make it completely on his own and to form his hedge fund, David Abrams honed his investment acumen at Seth Klarman’s Baupost Group, one of the largest hedge funds in the world. After leaving Baupost Group, he stayed close to Mr. Klarman, who has said about his protégé that he is as “as smart as a whip”, and that he “loves a good puzzle and a good treasure hunt”.
Naturally, as his former boss, David Abrams is also a value investor, which means he looks for the stocks that are for some reason extremely undervalued. For him, this is the only investment strategy that truly works. “I’ve observed a great many investors over the years, and I’ve never seen a consistently successful one whose strategy was not based on a value approach—paying less for something than it is worth, either today or in the future.” David Abrams doesn’t limit his investments to only one industry or region, on the contrary, his portfolio is quite diversified holding both domestic and foreign equity securities, distressed securities, private and illiquid investments, and debt.
David Abrams, who so rarely speaks in public or answers to calls in his office, recently addressed the public at a conference in New York for Project Punch Card and shared his perspective on investing. This “unicorn”, as someone once referred to him alluding at the fact that no one ever sees him, talked about what it means to be too patient in investing. David Abrams, who is known, just as his previous boss, Mr. Klarman, for an extreme patience, holding on to its portfolio without making any changes for months, said that “while a short-term-only focus from investors will only end up hurting a company long-term, managers can actually be too patient” – as reported on Business Insider. According to David Abrams, every investor should be aware of the fact that patience should also have its limits, and that those who wait for 20 years on a stock have a defective strategy. Abrams Capital Management can observe and analyze one company for five years before investing in it, but, “there has to be a point sooner than 10 years where you’re determining whether you are being successful or not successful.” The fund is looking for a minimum return of 15% on its first purchase.
And, usually, it succeeds. Since its inception through 2014, the fund delivered an average annualized return of around 15%, which is almost triple than the S&P 500 Index, counting dividends. David Abrams earned north of $400 million in 2013, on the account of 23% return that one of his funds delivered (this information is based on WSJ estimates). The Wall Street Journal also claimed that he is usually not included in various top-earning hedge fund managers lists, only because his earning numbers are well hidden, but according to estimates in 2013 he should have been “ahead of David Einhorn, Daniel Och and even Mr. Klarman, according to industry publication Institutional Investor’s Alpha.” At the conference, he further disapproved investors who “are always looking for a short, easy solution” in investing, explaining there is no easy answer or algorithm for investing.
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To say that the fund’s performance is impressive could be an understatement, especially if we take into account that David Abrams has only a handful of analysts and office staff while handling around $9 billion in assets. To put this into perspective, another hedge fund of similar assets can easily hire hundreds of staff. Not surprisingly, in spite of a small number of carefully chosen professionals, David Abrams must personally approve all trades. Abrams Capital Mangement is unlevered, meaning it doesn’t make investments with borrowed money, and likes to own an impressive amount of cash. As of August 31, 2017, the fund holds around $9.3 billion in assets under management.
Let’s take a look at the fund’s holdings at the end of the third quarter of 2018.
The fund made a few changes during the third quarter, it has added three new stocks to its equity portfolio and also dumped three positions. The most valuable holding in its portfolio on September 30 was in Shire PLC (NASDAQ:SHPG), which was actually a new position. During the quarter the fund acquired 2.25 million Shire’s shares with a value of $407.34 million. Abrams Capital Management also held a position in the fourth of the 30 most popular stocks among hedge funds in Q3 of 2018, Alphabet Inc Class A (NASDAQ:GOOGL), which counted 124,117 class A shares, worth $149.82 million.
The second largest position Abrams Capital Management held at the end of the third quarter was in The Western Union Company (NYSE:WU), and the fund actually lowered its stake by 1% to 21.17 million shares valued $403.41 million. The number of smart money investors from our database who were long this stock decreased by one during the quarter, and at the end of it there were 20 bullish hedge funds. Over the past six months, the company’s stock price lost 13%, and it is currently trading at $18.14. The third biggest stake the fund held in O’Reilly Automotive Inc (NASDAQ:ORLY) worth around $306.75 million, counting 883,194 shares, and occupying 8.1% of the fund’s portfolio. Over the past 12 months, the company’s stock gained 34%, and at the moment of writing, it is trading at $331.68. Investors from our table are becoming more interested in this stock, as the number of those with long holdings increased by 3, to 43 investors at the end of the third quarter.
Abrams Capital Management added Camping World Holdings Inc (NYSE:CWH) and Akebia Therapeutics Inc (NASDAQ:AKBA) to its equity portfolio during the third quarter, acquiring 2.33 million shares worth $49.64 million, and 1.12 million shares with a value of $9.88 million, respectively. Year-to-date, CWH stock is down by 66%, now trading at $15.21, and AKBA stock price has lost 42.48%, currently trading at $8.61.
As for the holdings the fund decided to sell completely during the third quarter, they were in these three companies: Group 1 Automotive, Inc. (NYSE:GPI), PG&E Corporation (NYSE:PCG), and Quality Care Properties Inc., which was actually acquired by Welltower Inc. The fund said goodbye to 457,301 GPI’s shares and 3.91 million PCG’s shares, and 7.03 million Quality Care Properties’ shares during Q3 2018.
Disclosure: None. This article is originally published at Insider Monkey.
