In its Q1 2019 Investor Letter, Greenhaven Road Capital said that it doesn’t want to hold Fiat Chrysler Automobiles N.V. (NYSE:FCAU) shares through the next recession. On the other hand, expecting earnings growth in the near future, the fund doesn’t want to sell its entire stake at the moment. You can download a copy of this letter here. The fund also disclosed its quarterly return of 16%, and here are the full comments on Fiat Chrysler Automobiles N.V. (FCAU) from the letter:
“Fiat Chrysler (FCAU): This is the first quarter I can remember where Fiat Chrysler is not a Top 5 holding. I replaced our stock holdings with long-term options. These options tie up less capital, but still allow us to benefit if and when Fiat Chrysler is sold and/or gets a reasonable multiple of earnings. Typically, I am happy to hold shares of a company until value is realized. Along time horizon is one of our advantages. However, I don’t love the auto industry–it is low margin, capital intensive, and cyclical, and the manufacturers are unlikely to benefit from electrification as the useful life of the vehicles should be extended dramatically. I don’t want to hold Fiat Chrysler through the next recession, and every day where there is not a sale and/or valuation is not realized, we are one day closer to that time. But, with the special dividend coming, the Jeep Gladiator launch, and earnings growth on the horizon, it is not a company I want to be fully out of either. Our long-dated options allow us to extend our exposure.”
Pixabay/Public Domain
Fiat Chrysler is the eighth largest automaker in the world. It has a market cap of $23.92 billion, and it is trading at a P/E ratio of 6.57. Over the 12 months, the company’s stock lost 32.91%, and on May 7th it had a closing price of $15.23.
At Q4’s end, a total of 34 of the hedge funds tracked by Insider Monkey held long positions in this stock, a change of 3% from the second quarter of 2018. By comparison, 31 hedge funds held shares or bullish call options in FCAU a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings significantly (or already accumulated large positions).
When looking at the institutional investors followed by Insider Monkey, Tiger Global Management LLC, managed by Chase Coleman, holds the most valuable position in Fiat Chrysler Automobiles NV (NYSE:FCAU). Tiger Global Management LLC has a $1.1719 billion position in the stock, comprising 7.8% of its 13F portfolio. Sitting at the No. 2 spot is AQR Capital Management, managed by Cliff Asness, which holds a $240.6 million position; 0.3% of its 13F portfolio is allocated to the stock. Other professional money managers that are bullish comprise Mohnish Pabrai’s Mohnish Pabrai, and Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital.
Disclosure: None.
This article is originally published at Insider Monkey.
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.
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