Lakehouse Capital, an investment management company, released its “Lakehouse Global Growth Fund” September 2022 investor letter. A copy of the same can be downloaded here. September was a volatile month and the fund returned -2.0% net of fees and expenses compared to -10.9% return for its benchmark MSCI All Country World Index. In addition, please check the fund’s top five holdings to know its best picks in 2022.
Lakehouse Capital discussed stocks like Microsoft Corporation (NASDAQ:MSFT) in the September 2022 investor letter. Microsoft Corporation (NASDAQ:MSFT) is a multinational technology company headquartered in Redmond, Washington. On October 11, 2022, Microsoft Corporation (NASDAQ:MSFT) stock closed at $225.41 per share. One-month return of Microsoft Corporation (NASDAQ:MSFT) was -10.63% and its shares lost 23.93% of their value over the last 52 weeks. Microsoft Corporation (NASDAQ:MSFT) has a market capitalization of $1.681 trillion.
Here is what Lakehouse Capital specifically said about Microsoft Corporation (NASDAQ:MSFT) in its September letter:
“During the month, the Fund initiated a new position in Microsoft Corporation (NASDAQ:MSFT), a name that is no doubt familiar to our investors. The company was founded by Bill Gates and Paul Allen in a friend’s garage in 1975 and began dominating the operating system market with MS-DOS by the mid-1980s. The company has come a long way since then and is now widely considered the most critical and indispensable IT mega-vendor for businesses globally. In addition to its well-known Windows operating systems and Office productivity suite, the company has a broad portfolio of strategic products, including a rapidly growing public cloud business in Azure and a sizeable gaming presence.
Microsoft’s foundational products, Office365 and Windows365, are ubiquitous and highly penetrated with circa 90% and 80% market share, respectively. These solutions are deeply ingrained in commercial and personal use globally and across all industry sectors. They serve as stable, high-margin cash flow generators for Microsoft whilst they expand and invest in other growth areas of the business. One particular growth area, which is the most exciting part of Microsoft’s business in our view, is their public cloud service, Azure.
Azure has grown at a rapid clip over the past decade to cement itself as the second-largest cloud service provider globally, behind Amazon Web Services. The business benefits from strong secular tailwinds as cloud adoption continues unabated and there is considerable runway ahead – it’s currently estimated that less than 20% of global IT spend is currently in the cloud. Research indicates that 80% of enterprises use Azure and its market share has grown to 21%, up from 13% five years ago. The mission-critical nature of the product, which is similar to many of Microsoft’s other solutions, is incredibly attractive as it leads to sticky, recurring revenue streams. Something we love to see…” (Click here to read the full text)
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Microsoft Corporation (NASDAQ:MSFT) holds the top position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 258 hedge fund portfolios held Microsoft Corporation (NASDAQ:MSFT) at the end of the second quarter which was 259 in the previous quarter.
We discussed Microsoft Corporation (NASDAQ:MSFT) in another article and shared Carillon Tower Advisers’ views on the company. In addition, please check out our hedge fund investor letters Q3 2022 page for more investor letters from hedge funds and other leading investors.
In this piece, we will take a look at ten recent IPOs in micro cap stocks.
There are a variety of benefits and drawbacks to listing a firm’s equity for trading on the stock market. The single biggest benefit of the process called an IPO, is that it allows management to raise large amounts of funds and investors to potentially profit by seeing their existing stakes multiply in value. At the same time, the IPO process also brings in a variety of constraints. Publicly listed companies are subject to corporate financial reporting requirements of the jurisdictions in which their shares trade. At the same time, share prices can be a volatile affair, and while investors stand to gain significantly if their companies are well received by the market, they also risk equally massive losses should the opposite occur.
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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