An equity mutual fund, Sound Shore, recently released its Q1 2019 Investor, in which it has reported 11.88% and 11.91% quarterly return for its Sound Shore Fund Investor Class (SSHFX) and Institutional Class (SSHVX), respectively. You can track down a copy of its letter here. Among its performance, the fund also posted short comments on several stocks in its equity portfolio, including Comcast Corporation (NASDAQ:CMCSA).
“Media giant Comcast is another change beneficiary that performed well for the period, advancing 17%. We restarted our Comcast investment during the volatile fourth quarter of 2018 when it was attractively priced below 14 times earnings with an 8% free cash flow yield.While fierce media competition and the potential for cord-cutting are well known threats to Comcast, these same trends also turn out to be opportunities if managed well. For example, our due diligence concluded that many “over the top” rivals, in fact, need Comcast’s broadband service to supply content to their own customers. Symbiotically, Comcast’s NBC and Universal studios are delivering entertainment programing beyond its own cable system via over the top platforms. Comcast’s first quarter gain was well ahead of both the market and it’s lagging communication peers. Driven by fourth quarter earnings that confirmed broadband and cable subscriber growth, significant free cash, and copious dividends and buybacks, we see further upside potential.”
Comcast Corporation is a Philadelphia-based, telecommunications conglomerate. Year-to-date, the company’s stock gained 25.54%, and on May 10th it had a closing price of $43.15. Its market cap is of $195.85 billion, and the stock is trading at P/E ratio of 16.35.
At the end of the fourth quarter, a total of 83 of the hedge funds tracked by Insider Monkey were long this stock, a change of -10% from one quarter earlier. By comparison, 97 hedge funds held shares or bullish call options in CMCSA a year ago. So, let’s find out which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Eagle Capital Management was the largest shareholder of Comcast Corporation (NASDAQ:CMCSA), with a stake worth $1121.5 million reported as of the end of September. Trailing Eagle Capital Management was Citadel Investment Group, which amassed a stake valued at $448.8 million. First Pacific Advisors LLC, Two Sigma Advisors, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
You can enter your email below to get our FREE report. In the same report you can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12-24 months. We initially share this idea in October 2018 and the stock already returned more than 150%. We still like this investment.
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