Laughing Water Capital, led by Matthew Sweeney, added Camping World Holdings Inc (NYSE: CWH) to its portfolio during the second quarter of 2018. Sweeney – the founder and managing partner – is bullish on Camping World Holdings and has discussed his investment thesis on the outdoor and camping retailer in the fund’s recently-released Q2 investor letter (you can download a copy here). Sweeney believes that CWH “has very high returns on capital, an excellent management team, and a compelling valuation.”
Here is everything that Sweeney said about CWH in the letter.
Camping World is the largest RV dealership in the country. Unlike most of our investments, CWH is cyclical. It also has very high returns on capital, an excellent management team, and a compelling valuation, which justify inclusion in the portfolio, despite the cyclicality. CWH was a growth crowd darling following its IPO a little more than a year and a half ago, with shares more than doubling. However, as is often the case, at the first sign of a few bumps in the road the growth crowd panicked and headed for the exits, causing shares to fall back toward their IPO price, at which point human psychology encourages even more selling as investors try to get out with any profit at all, regardless of price. This is the point at which we made our purchases.
The position is sized appropriately given its cyclicality, and I gained comfort on the valuation after considering historical comps. Warren Buffett purchased RV OEM Forest River and auto dealership Van Tuyl Group at more expensive prices than we paid, and Eddie Lampert first purchased shares of AutoNation (AN) at more expensive prices than we paid. In all cases, these purchases were made at a time when these businesses were near the top of their cycles, yet Buffett and Lampert have done very well. Additionally, I think that CWH has prospects for a brighter future, and may even be a better business than these comps. Perhaps more importantly, demographic and technological changes have likely made this business less cyclical than it has been in the past.
Most importantly, the company’s CEO is Marcus Lemonis, who you may be familiar with through his television show, “The Profit.” I admit to initially being turned off by Lemonis and his high profile persona. However, after doing significant research, I came to realize that Lemonis is someone I want working for us, as his background and track record of success are highly unusual. To reduce it to a soundbite, by the time Lemonis was in his mid 20s, he was making close to $1M a year as a regional manager for AutoNation. However, he quit, and took a job as the CEO of a struggling RV dealership for less than $100k in salary. At the time, his stock in the RV dealership was worth around $80k. Fast forward to today, and Lemonis is a billionaire that pays himself $0 salary, with a track record of successfully growing his business through industry downturns.
To be clear, if we enter a recessionary environment tomorrow, this business will suffer. However, Lemonis has been through it before, and he runs the business with one eye always on the next recession. I am certain that while CWH will suffer during a downturn, the competition will suffer significantly more, and CWH will exit the downturn much stronger than it is today. Our patient capital base allows us to take advantage of situations such as these.
I had originally intended to present CWH at the Value X Vail conference, but I was told I was too late. An anonymous fund manager who goes by @fundiescapital on twitter already planned to pitch. I have known this manager for several years, and am happy to note that he is typically even more skeptical than I am when evaluating businesses, so I think we are in good company.
Pixabay.com
Lincolnshire, Ill.-based Camping World Holdings Inc (NYSE: CWH) offers a range of recreational vehicles for sale, RV and camping gear, RV maintenance and repair. The company has more than 135 retail locations in 36 states and an e-commerce platform.
Now take a look at the company’s performance on the share market. CWH is down 54.99% since the beginning of the year. Over the past three months, the stock has dropped 4.07% while it has fallen 41.78% over the past 12-month period. The stock has the consensus average target price of $35.91 and the consensus average recommendation of ‘BUY’, according to analysts polled by FactSet. On Monday, the stock was closed at $20.50.
Meanwhile, Camping World Holdings Inc (NYSE: CWH) isn’t a very popular stock among hedge funds covered by Insider Monkey. As of the end of the fourth quarter of 2017, there were 20 funds in our database holding shares of the company.
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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Wall Street Legend Warns: “A Strange Day Is Coming to America”
“A massive and surprising new transition could determine the next group of millionaires,” says Chaikin, who predicted the 2020 market crash. “While leaving 99% of the public worse off than before.”
“If you own regular stocks, you’re in for a big surprise,” he adds.
“I grew up in a world where you could do extremely well by investing in ordinary companies,” Chaikin says. “It’s how I spent the majority of my 50-year career on Wall Street.
