Giverny Capital 2018 Annual Investor Letter

Giverny Capital is a Montreal, Canada-based hedge fund, launched in 1998 by Francois Rochon. He was inspired by investment strategies employed by some of the greatest investment managers in the world, like Warren Buffett, John Templeton, Peter Lynch, Philip Fisher, and Benjamin Graham. Francois Rochon graduated with M.S. from École Polytechnique of Montreal. Recently, Giverny Capital released its 2018 annual letter, a copy of which you can download below.

The fund reported its RochonUS Portfolio’s return of -8.3 for the full year 2018, while its benchmark, the S&P 500, posted loss of 4.4%, which means that the fund underperformed the S&P 500 by 3.9%. Since its launching 26 years ago, RochonUS Portfolio brought back 2724% or 14.0% on an annualized basis. This compares to the S&P 500’s return for the same period of 821%, or 9.1% annualized.

 “After eight years of consecutive outperformance (a statistical event unlikely to reoccur), the Rochon US Portfolio underperformed the S&P 500 for the third year in a row. Once again this year, a few of the all-star stocks in the S&P 500 contributed in an outsized manner to the performance of the index. Relative to the Russell 2000 (an index composed of smaller cap companies), the S&P 500 was up 6.6% in 2018. In fact, over the last five years, the S&P 500 has achieved an annual return of 8.5% vs. 4.4% for the Russell 2000. “ – Francois Rochon wrote in the letter. And, this is what he forecasted for the current year:

“The prospects for earnings growth could certainly be much lower in 2019 than in 2018. We believe that US companies could increase their earnings per share (EPS) by an average of about 4% this year. Even in the event of a more pronounced slowdown, the growth of corporate profits will eventually pick up again. Over the long run, stocks remain the best asset class to own for the simple reason that corporate profits are always growing (albeit not linearly). If the stock market continues to behave like a manic-depressive entity in the short term (as 2018 so eloquently demonstrated), it nonetheless still always accurately reflects the intrinsic value of companies over the long term. Is this not a good premise for investing our savings?”

You can download a copy of Giverny Capital’s 2018 annual letter below:

Giverny Capital -_Annual_Letter_2018