Is This The Next Warren Buffett? 39% CAGR Returns For 5.5 YearsVW Staff
Via Forbes – Is This The Next Warren Buffett?
A short while ago I was at a wedding in San Francisco when someone came up to me, clasped my hand in both of his, and began thanking me effusively.
He then introduced me to his wife, who also began thanking me.
The reason? Just over two years ago this couple had read an article I had written for Smart Money magazine about a young, unknown college dropout in Salt Lake City called Allan Mecham (The text of that article can be read here). Mecham ran a tiny investment fund, I reported – and was shooting the lights out. After reading the article, the couple had investigated Mecham further, and had then invested a good chunk of their savings with him.
The result? They’ve doubled their money, or better. In two years. Last year alone Mecham was up 52%. After fees.
No wonder they were so happy.
(These numbers are all pretax, of course).
For the past thirty years everyone on Wall Street has been looking for the Holy Grail of money managers, the “next Warren Buffett.” It’s always dangerous to make these kinds of predictions, but if Allan Mecham – currently just in his mid-30s – isn’t the genuine article, he’s doing a remarkably good impression of it.
He’s been crushing his competitors, and the indexes, since launching his investment firm, Arlington Value Management, in the final days of 1999.
The attached chart shows how you would have fared if you had invested a notional $100 in his initial fund at the start of 2000, and then rolled that money over to his new flagship fund, AVM Ranger, when it launched in 2008. The chart also shows how you’d have fared over the same time if you’d invested in Vanguard’s Total Stock Market index fund, which tracks the total U.S. stock market, or Warren Buffett’s investment vehicle, Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), over the same time.
See full article on Is This The Next Warren Buffett? via Forbes
The firm discussed in the article – Arlington Value 2013 letter to investors
We had a great 2013. I’m happy to report for the year ended December 31, 2013, AVM Ranger gained 51.5% (42.6% net) versus 32.4% for the S&P 500. Though a sharply rising market put wind in our sails, we’ll take 51.5% in any year. For us, 51.5% is rarified air, having only topped it a few times over Arlington’s fourteen-year history.
While we’re happy with our 2013 return, we’re thrilled with our returns since inception (five and ½ years ): compounding at 1 39% versus 9% for the S&P 500. Unfortunately, both our one-year and five-year results are certain to come down.
Though returns are sure to decrease, they won’t decline because of poor incentives or lack of engagement—both Ben and I have 99% of our liquid net worth invested alongside yours.
Let’s review the portfolio to see what affected our collective net worths in 2013.
The major theme driving 2013 results—and those of the last fourteen years for that matter—was a lack of major losses. We didn’t have a single holding register a meaningful decline…perhaps not a great feat in a market that rose 32%.
Berkshire Hathaway (BRK)
Our largest holding, Berkshire Hathaway Inc. (NYSE:BRK.A) (NYSE:BRK.B), galloped to a 33% gain in 2013. The business performed well, and the stock followed suit. Though our comfort and enthusiasm has changed only slightly, we opted to pare back our Berkshire Hathaway position in the name of prudence and flexibility as the discount to intrinsic value narrowed. Some managers are pleased with performance in light of their cash holdings; we feel similarly satisfied with our performance considering our huge Berkshire Hathaway position. Berkshire Hathaway is hunting-dog healthy (harboring roughly $50 billion in cash and spitting out $15+ billion annually) and a solid rudder to the portfolio.
Bank of America (BAC)
Bank of America Corp (NYSE:BAC) continued to make steady strides in 2013, executing the plan they articulated over three years ago. Though the legal issues can seem never ending, Moynihan’s efforts have paid off, with BAC now sitting on a solid foundation. Not only is BAC on solid footing, it continues to look cheap based on the thesis we laid out in last year’s letter.
Full letter embedded below