Third Avenue posted 12.60% return for the first quarter of 2019, in its recently released Investor Letter (which you can download here). In the letter, it also shared short comments on several stocks in its portfolio. Among those stocks was Warrior Met Coal, Inc. (NYSE:HCC), for which happens to be the biggest contributor to the fund’s Q1 2019 gains.
Warrior Met Coal, Inc (“Warrior’) – At quarter end, Warrior was the Fund’s third largest position. In early 2018, Warrior provided guidance that it intended to produce between 6.6 – 7.2 million short tons of met coal during 2018 and then successively raised that production guidance throughout 2018. Ultimately, when Warrior report ed operating performance for the full year 2018 this past February, the company had produced 7.7 million short tons. In addition to having produced volumes exceeding most estimates, the company also reported admirable cost performance. With premium hard coking coal prices relatively stable near $200 per metric tonne and possession of a substantial tax asset with which to shelter income, Warrior was able t o produce free cash flow of $458 million during 2018, which compares to a market capitalization of $1.57 billion as of March 31st, translating to a trailing free cash flow yield to shareholders of roughly 29%. Further, in the weeks following its operational results release, Warrior announced a tender offer for a portion of its outstanding bonds, the authorization of a share repurchase program and that it would be in position to dividend up to $229 million to shareholders – roughly 15% of its market cap at the time of the announcement. We purchased Warrior in the fourth quarter of 2017 and, in the period since, the Fund has received approximately $17.99 in dividends, not including the potential $229 million ($4.44 per share) future dividend, which compares to the share price of $30.53 at present. We have a substantial capital gain as well. These positive fundamental developments have led Warrior to become the leading contributor to Fund performance over the most recent quarter as well as over the past year, even while sentiment remains relatively poor and the company relatively obscure.
Warrior Met Coal, Inc. is Brookwood, Alabama-based producer and exporter of metallurgical coal for the global steel industry, running two underground mines in Alabama. Year-to-date, the company’s stock gained 30.61% and on April 26th it had a closing price of $31.02. The company’s market cap is of $1.6 billion, and it is trading at a price-to-earnings ratio of 2.36.
Among funds tracked by Insider Monkey, Martin Whitman’s Third Avenue Management actually held the most valuable position in Warrior Met Coal, Inc, at the the end of the last quarter of 2018. The position was worth $63.16 million, on the account of 2.7 million shares. The second biggest stake in the company held Israel Englander’s Millennium Management, and its stake was valued at $49.21 million, on the basis of 2.04 million shares.
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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Have You Heard of “America’s Nightmare Winter” Scenario?
Has gone public in recent weeks, with his “4th and Final Prediction”… about a scenario he calls: “America’s Nightmare Winter.”
You’ve probably never heard of Bill Bonner–but in addition to owning an interest in businesses all over the globe, he also owns more than 100,000 acres, with massive properties in South America, Central America, the U.S.,… plus three large properties in Europe.
Bonner has come forward today because he says we are about to enter, “A very strange period in America… which could result in the most difficult times we’ve seen in many, many years.”
Bonner has made three similar predictions in his 50+ year career… and each one proved to be exactly right, although he was mocked each and every time.
