Greenhaven Road Capital shared its thoughts on KKR & Co. Inc. (NYSE:KKR) in its Q1 2019 Investor Letter (download here). The fund said that the company has a very strong balance sheet, and a real chance of increasing its AUM and earnings in the future. Aside from sharing its thoughts and analysis on several stocks in its portfolio, the fund also reported its quarterly return, which amounted to 16%. Back to KKR & Co. (KKR), we bring you the part of the letter that examines it:
“KKR& Co. (KKR): This $12.7B market cap alternative asset manager was covered in great detail in the last letter. The company continues to have a very strong balance sheet with two-thirds of the share price covered by cash and investments and a very stable earnings stream from management fees. In fact, excluding the balance sheet, the shares trade on a low single-digit multiple of earnings. Employees own more than 40% of the company and have an excellent track record of generating returns and growing assets. KKR operates in an industry with tailwinds and is growing faster than the industry. While the firm has been in existence for 42 years, they have more than a dozen strategies that are less than 10 years old and still have the opportunity to grow AUM and earnings substantially.”
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KKR & Co. is an alternative investment management company. Year-to-date, the company’s stock gained 23.14%, and on May 6t it had a closing price of $24.26. It is trading at a P/E ratio of 7.98.
At the end of the fourth quarter, a total of 29 of the hedge funds tracked by Insider Monkey were long this stock, a change of -6% from the previous quarter. The graph below displays the number of hedge funds with bullish position in KKR over the last 14 quarters. So, let’s see which hedge funds were among the top holders of the stock and which hedge funds were making big moves.
More specifically, ValueAct Capital was the largest shareholder of KKR & Co Inc. (NYSE:KKR), with a stake worth $995.2 million reported as of the end of September. Trailing ValueAct Capital was Akre Capital Management, which amassed a stake valued at $248.4 million. Pzena Investment Management, Egerton Capital Limited, and Ariel Investments were also very fond of the stock, giving the stock large weights in their portfolios.
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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