Not many investors were happy about Twenty-First Century Fox’s deal to be acquired by Disney, according to Yacktman Asset Management. Namely, the fund commented on the new company Fox Corporation (NASDAQ:FOXA) in its Q1 2019 Investor Letter, explaining what caused the company’s weakness in the first period after the acquisition. You can download a copy of theletter herewhile we bring you the full comment:
“Fox, a spin-off we received upon the closure of the Disney transaction, was the largest detractor in the first quarter. We received the shares on March 20, and, as is often the case in spin-offs, there was weakness in the first few weeks as many holders of Twenty-First Century Fox did not want the new entity.”
The Fox Corporation is a television broadcasting company that was formed as a spin-off from 21st Century Fox that was acquired by The Walt Disney Company. The new company started trading on March 19, 2019, and since then its stock lost 7.24%, having a closing price on May 8th of $37.42. The Fox Corporation has a market cap of $23.1 billion, and it is trading at a price-to-earnings ratio of 5.02.
At Q4’s end, a total of 70 of the hedge funds tracked by Insider Monkey were long this stock, a change of -4% from one quarter earlier. By comparison, 50 hedge funds held shares or bullish call options in FOXA a year ago. With hedge funds’ capital changing hands, there exists an “upper tier” of key hedge fund managers who were upping their stakes meaningfully (or already accumulated large positions).
More specifically, Baupost Group was the largest shareholder of Fox Corporation (NASDAQ:FOXA), with a stake worth $2467.7 million reported as of the end of September. Trailing Baupost Group was Egerton Capital Limited, which amassed a stake valued at $1929.3 million. Pentwater Capital Management, Hound Partners, and Yacktman Asset 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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