RiverPark is a fan of Alphabet Inc (NASDAQ:GOOG), which is the parent company of the world’s most popular search Google. In its Q1 Investor Letter, the fund presented its thoughts on the technology company. RiverPark is concerned about “increased governmental, user and advertiser scrutiny” faced by Alphabet’s core search and YouTube businesses, but the investor believes that “the risk/reward for Alphabet at current valuations is extremely attractive.” Let’s take a look at RiverPark’s comments about Alphabet.
While it is our belief that the portfolio remains in excellent position to continue to generate strong absolute and relative returns, it would be hard to argue that the near-term return potential for Facebook, and to a lesser extent Alphabet, is not a bit worse than we had previously expected.
Similar headwinds [that Facebook is facing] will likely also impact Alphabet as its core search and YouTube businesses are facing similarly increased governmental, user and advertiser scrutiny. As with Facebook, these headwinds are offset, by a business model that remain amongst the most impressive in our portfolio. Alphabet’s core ad revenue growth has ranged between 16-24% annually for 20 straight quarters (in its most recent quarter, gross ad revenue grew 22% to just over $27 billion), its EBITDA margin has hovered around 40% for nearly a decade and the company has nearly $100 billion of net cash on its balance sheet. Growth opportunities globally remain robust and the company’s Other Bets continue to move towards the potential for substantial incremental value creation. As with Facebook, while it may take several quarters for the current increased regulatory noise to abate, we believe the risk/reward for Alphabet at current valuations (about 15x our adjusted earnings estimate for next year) is extremely attractive.
Alphabet (GOOG) is one of the most popular stocks among hedge funds tracked by Insider Monkey. As of the end of 2017, there were 129 funds in our database with positions in the technology giant.
GOOG declined 0.27%, closing its last trading session at $1,120.87. Its opening price on the last trading day was $1,118.18. During the last 12 months, GOOG moved up 19.19%, while its year-to-date performance jumped 5.53%. The stock rose 7.95% over the past six months.
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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Warren Buffet's Secret Recipe
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