A few years ago Vanguard performed a study to see how the Barclays Aggregate Bond Index would be affected by an overnight 3% rise in interest rates (something that has never actually occurred). They calculated what would happen if rates suddenly rose from 2.1% to 5.1% and showed the impact going out 5 years:
You can see the immediate loss would be around 13% (they also noted that the worst 12 month loss ever in bonds was -13.9% in 1974). But because the yield on bonds would now be much higher, the expected return going forward would now be around 5.1% annually, meaning the breakeven would be just over 3 years. So not exactly a crash of epic proportions.
The fabled fund, known for its intense secrecy, has produced about $55 billion in profit over the last 28 years, according to data compiled by Bloomberg, making it about $10 billion more profitable than funds run by billionaires Ray Dalio and George Soros. What’s more, it did so in a shorter time and with fewer assets under management. The fund almost never loses money. Its biggest drawdown in one five-year period was half a percent.
A split “wouldn’t change the intrinsic value of the company and doesn’t provide any real benefit,”
“we want shareholders who focus on the investment itself, rather than on the currency it’s denominated in.”
Hedge funds that have relied on people to make bets are hiring quants like never before in search of answers to lackluster returns. They’re playing catch-up to firms such as Renaissance Technologies and Two Sigma Investments, among the leaders in using complex mathematical models for investing.
What is your sell discipline?” Okay, and I say. We sell a stock for one of four reasons. The first and of the highest quality reason, is that we bought a stock at X ’cause we thought it was worth X plus 30 or 40 percent, and it goes up 30 percent. Nothing has changed. We sell.
“It is easy to confuse day-to-day noise with actual and significant signals. If you are merely reacting to the latest market action, then what you have is not a plan — you have an instinctual, fear-driven reaction, and it’s the makings of a disaster.”
Our new leadership elected to sell our position in Valeant Pharmaceuticals, exiting completely by mid-June. Valeant was our largest position to start the year and its 80% decline through June 30 badly penalized our results. – Sequoia Fund Shareholder Letter
Sequoia Fund management’s decision to finally exit their stake in Valeant Pharmaceuticals ends a painful almost year long slide in their biggest position and what was at one time their best performing holding.
Sequoia was an early investor in the Mike Pearson era Valeant. A strong believer in what they saw as a savvy manager who took a value approach to buying healthcare assets and wringing efficiency from them. Sequoia started purchasing Valeant in early 2010, probably at prices in the mid teens, and by the end of the year the position accounted for 10% of the funds assets. At year end they already had a gain of 78%. A fantastic return on investment in less than one year and a big boost to the fund’s performance.
The fund managers continued to build a position over the next five years and were enjoying the outperformance the stock added to the fund’s returns. By 2015 the position reached 20% of the fund’s assets and Sequoia also became Valeant’s single largest shareholder.
Then in August of 2015 the position began to lose money. You can’t fault the fund managers for sitting on the position while the stock declined in August along with the rest of the global markets. Continue reading