Our fund gained 3.5% net in July vs. 7.0% for the S&P 500, 7.2% for the Dow and 7.0% for the Nasdaq. Year to date, our fund is up 13.6% net vs. -0.1% for the S&P 500, 1.9% for the Dow and -0.2% for the Nasdaq.
Given our conservative positioning, our fund performed in line with what we’d expect: our long book was up with the market, but our short book dampened our returns somewhat. On the long side, winners of note included BP (up 33.2%), Goldman Sachs (14.9%), Resource America (13.0%), American Express (12.4%), AB InBev (10.5%), CIT (7.4%), and General Growth Properties (5.0%), slightly offset by Berkshire Hathaway (-2.5%).
On the short side, we profited handsomely from VistaPrint (-30.4%) and Gentiva Health Services (-23.6%), but these gains were more than offset by losses on MBIA (up 54.7%) and InterOil (35.1%).
Three of our Favorite Stocks and Thoughts on Time Horizons
Earlier this month we shared with you the attached presentation on three of our favorite stocks, AB InBev, Microsoft and BP. We discuss each of these investments further below, including highlighting the very different time horizons we have for each of these investments and how it affects our analysis.
In the case of AB InBev, we think the beer business is very stable, with slow growth in most of the world’s largest markets, but with high growth potential in certain developing markets like China – comparable businesses in our minds would be Coca Cola and McDonald’s. This type of stable, dominant business gives us the confidence to project earnings and cash flows many years into the future, and we expect that we might hold this stock for a long time.
(Incidentally, one might ask why we don’t also own Coca Cola and McDonald’s. The primary answer is valuation: Coca Cola and McDonald’s, like many big-cap blue chips, are moderately priced, but we think AB InBev is downright cheap, as we show in our presentation. A secondary reason is that we think AB InBev’s management team is among the finest we’ve ever invested alongside and this, combined with a lot of fat in the recently acquired Anheuser Busch business, will lead to substantial cost savings (and a resulting jump in earnings) that isn’t likely for Coca Cola and McDonald’s.)
Below is the full document in scribd. For best viewing view in full screen mode.