| "You raise some good points, and I worry, too, about how bubbly the market's getting. But let me play devil's advocate (sort of).
While Sequoia is lagging, Bill Nygren's Oakmark Select is up more than 16%, more than 3% ahead of the S&P. And that's on the strength of solid citizens like Washington Mutual (up 24%), First Data (up 21%), and, OK, the somewhat speculative Xerox (up 29%). And Nygren did 4% per year better than the Sequoia team over the past three years. Sequoia's no doubt one of the best funds around, but its performance this year may be affected less by its overall growth-on-the-cheap philosophy than the fact that nearly 35% of its assets are in Berkshire Hathaway, and another 19% in cash (which has returned only slightly less YTD than Berkshire). Another view: Bill Miller's Legg Mason Value is up almost 21%, but that's due to very speculative stuff like Amazon (up 88%) and Nextel (up 47%). However, Miller has beaten Sequoia over the past decade by nearly 2% per year. (We'll see about the next ten.) What I'm suggesting is that despite the revival of tech mania, some of the stocks leading the way are actually pretty good ones It's just that Sequoia (and Clipper, for that matter) didn't buy them. Of course, when Amerindo's Alberto Vilar is starting to look like a genius again, it probably is time to worry. Regards, Greg |
| Hi Greg,
Nygren and Miller have achieved good results by taking very different paths; Nygren with less tech/telecom, and Miller with stocks that have traditionally been more tech, growth-oriented volatile stocks like Amazon.com, Nextel, and USA Networks - which are very different from Ruane/Goldfarb and J. Gipson's deep value stocks. It's true that for this very short 6 month period, the stocks chosen for Sequoia fund and Clipper fund have not kept pace with the S&P or Nasdaq, while some value funds have kept much closer. I think it's more a matter of the fact that more money is flowing into speculative stocks again, and making speculative bets on sectors (ie. Amazon and Intel and Cisco are doing phenomenally well this year...sound familiar?). Yes, the rising tide is pulling Nygren and Miller up, they have chosen good stocks for this climate. I think that the stocks in Sequoia's portfolio are not the ones that many people are buying right now...it's that simple. When people start to fear again, then they will dive back into "safe stocks," just as they did after March 2000. Here's something you might find interesting. Here's how Pfizer's stock performed: In 1999: -21.5% In 2000: +43.1% Take a look at the stock of Eli Lilly: In 1999: -24.2% In 2000: +41.9% Were Pfizer and Lilly lousy companies in 1999? No. Was the industry suffering in 1999? No. People were taking money out of drug stocks and pumping it into tech, telecom, and the Internet stocks. So the total returns for these two drug stocks in 1999 were anemic. When things crashed in March of 2000, the money pulled out of tech and all had to go somewhere: And people bought pharmaceuticals, among other things...that's when those deep value funds (like Clipper and Sequoia) did amazingly well - there was the flight to quality. These skilled managers don't jump around a lot. They pick stocks in good companies that they think are cheap and hold on. I think that the market is ignoring them right now (and it's not ignoring Nygren or Miller's stocks). But climates change, and in the long term all of the managers mentioned in your post get to keep more than most. I liked your post. Bendie. |