Merion Road Capital, an investment management company, released its second quarter 2022 investor letter. A copy of the same can be downloaded here. In the second quarter, Merion Road Small Cap Fund returned -6.0% compared to a return of -17.3% for the Russell 2000 Index. The MRCM Long Only Large Cap returned -20.5% compared to a -16.1% return for the S&P 500 Index. The quarter was challenging for the fund and the market as a whole. In addition, you can check the top 5 holdings of the fund to know its best picks in 2022.
Merion Road Capital discussed stocks like Alphabet Inc. (NASDAQ:GOOG) in the second quarter investor letter. Alphabet Inc. (NASDAQ:GOOG) is a multinational technology company headquartered in Mountain View, California. On September 20, 2022, Alphabet Inc. (NASDAQ:GOOG) stock closed at $101.83 per share. One-month return of Alphabet Inc. (NASDAQ:GOOG) was -11.27% and its shares lost 27.08% of their value over the last 52 weeks. Alphabet Inc. (NASDAQ:GOOG) has a market capitalization of $1.323 trillion.
Here is what Merion Road Capital specifically said about Alphabet Inc. (NASDAQ:GOOG) in its Q2 2022 investor letter:
“The Long Only portfolio was down a bit more than 20% during the quarter. Our largest holding, Alphabet Inc. (NASDAQ:GOOG), was unsurprisingly the largest detractor for the period. GOOG needs no introduction as it likely touches all of our lives multiple times a day. The biggest risk to GOOG is their exposure to advertising budgets, a historically cyclical category spend. While GOOG was able to grow their topline during the 2008-2009 period, they did so by taking share from traditional media. Today digital advertising already accounts for ~65% of total US ad spend; therefore, the potential benefits from further share gains are likely to be outweighed by a shrinking pie. Obviously, this is very short term oriented and will be a footnote 5 or 10 years down the road. But even looking at near-term operating performance, it is possible that advertising might prove to be less cyclical than prior periods. With the growing presence of ecommerce and direct to consumer offerings, the “advertising as the new rent” argument makes sense to me.
While their cash cow (search) is an excellent business that would be hard to displace, other assets like Google Cloud and YouTube are deserving of even higher multiples. Furthermore, the company owns several assets that are under-monetized like maps, Android, and Waymo. Equally as important is the increasingly shareholder friendly posture of the company as exemplified by their improved financial disclosure, increasing share repurchases, and pending share split. At 19x trailing earnings ex. cash on the balance sheet (but inclusive of losses incurred in the fast-growing cloud business as well as other “moon shots”), it is hard to think of a more attractive risk-adjusted return.”
Pixabay/Public Domain
Alphabet Inc. (NASDAQ:GOOG) is in 6th position on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 153 hedge fund portfolios held Alphabet Inc. (NASDAQ:GOOG) at the end of the second quarter which was 160 in the previous quarter.
We discussed Alphabet Inc. (NASDAQ:GOOG) in another article and shared the list of stocks in the portfolio of billionaire Chris Rokos. In addition, please check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other leading investors.
Disclosure: None. This article is originally published at Insider Monkey.
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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