In its Q1 2019 Investor Letter, Greenhaven Road Capital said Etsy, Inc. (NASDAQ:ETSY) has managed to drive its revenue growth through revised pricing. If you are intrigued to read more from Greenhaven Road Capital you can track downthe letter here. The fund also reported gaining 16% in the first three months of 2019, and here it the full comment on Etsy from the letter:
“Etsy (ETSY): The two-sided artisan marketplace has spurred revenue growth through improved pricing. Going forward, there is an opportunity to increase frequency of purchase and improve product discovery (search). Etsy is intentionally investing to grow the buyer base, improve the shopping experience, and provide tools for sellers to grow their businesses and run them with less friction. The valuation has become more stretched as the share price is up more than 6X from our initial purchases, but the company has a long runway for growth with no additional capital required.”
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Etsy is an e-commerce website that sells a variety of craft supplies such as handmade and vintage jewelry for example. Year-to-date, the company’s stock is up 46.87%, and on May 6th it had a closing price of $69.03. Etsy has a market cap of $8.29 billion, and it is trading at a price-to-earnings ratio of 113.16.
Heading into the first quarter of 2019, a total of 39 of the hedge funds tracked by Insider Monkey were long this stock, a change of 22% from the second quarter of 2018. On the other hand, there were a total of 29 hedge funds with a bullish position in ETSY a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, Renaissance Technologies was the largest shareholder of Etsy Inc (NASDAQ:ETSY), with a stake worth $325.6 million reported as of the end of September. Trailing Renaissance Technologies was D E Shaw, which amassed a stake valued at $142.8 million. Two Sigma Advisors, Columbus Circle Investors, and Goodnow Investment Group 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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