Below is video followed by transcript.
Topics included Berkshire Hathaway, Sequoia fund’s concentration, and the fund’s largest holding; valiant pharmaceutical.
meanwhile, the best fund managers in the country are gathered this week in chicago where morning star is hosting its annual investment conference. tyler mathisen is there with a special guest. i, good morning to you. good morning to you. about 2500 of the country’s top mutual fund managers and investment advisers are here in chicago for the morning star conference.and we’re joined by one of the very best, david poppe, thecomanager of the $4 billion plus sequoia fund. it gets five stars.if you had put $10,000 in the fund ten years ago, you would have more than $17,500 today. that’s a proposition that an awful lost investors would love to take. welcome. i know that you’re not the kind of guy who sits there and says oh, my goodness, the market is down six days in a row. the economy this. you are a classic stock picker. but i can’t help but notice that you’ve also got about 20, 21% of our fund in cash. is that because you can’t find things to buy? because you don’t like the prices? because you are concerned about the market? well, ironically we have more positions in sequoia today than we’ve ever had. about 35 positions. we’ve found things to buy. in some cases we’ve ended up with smaller positions and been choosey on the prices we wanted to pay and you end up with smaller positions than arguably we should have. there’s also an element of wehaven’t had the confidence to really jump in and make biginvestmein companies in the last few months. over the last six months, have you been adding massively to any particular positions or pulling money out? we’ve been kicking tires on alot of things and added small positions here and there buthaven’t done anything major since valiant pharmaceutical last year. valiant pharmaceutical is your biggest holding. it has supplanted berkshire hathaway as your number one holding. is that more because you like valiant or is it an implicit knock on berkshire in any way? we’ve owned berkshire for 20 years. for 19 1/2 of those years, it was the largest position in the fund. we did trim the position a little bit last year. why. when it went into the s&p 500. we were 22% berkshire at the time. that seemed too heavy. while i think berkshire has a very good outlook, should perform fine in the future, i don’t think the law of largenumbers weigh against it. i don’t think berkshire is likely to compound at the kind of rates in the future that it did in the ’90s in particular. what was it that you saw or see in valiant pharmaceuticals that makes it your largest holding? valiant is an usual business. the pharma industry heavily invested in r&d and earn monopoly profits on blockbuster drugs. the investments over the last ten years haven’t earned a good return for shareholders. now you’re looking at a lot of large companies with patent expirations and not a great outlook. valiant, they basically are acquiring a lot of smaller drugs, sometimes branded drugs that have lost their patent protection but there’s no genericquiv leapt that’s hit the market. they’ve focused on emerging markets like brazil and mexico and poland to do a lot of their business. why so little technology? your fund?technology is dynamic and there’s just a pace of change that typically we’re not comfortable with. i would rather own beer or soda, where i know the brand name is likely to be good in 20 years than something harder to analyze and more dynamic.why run a why run a concentrated portfolio the way you do? your top ten holdings make up more than 50% of the fund. and you’ve got, you say you have more holdings now than ever.compared with a lot of funds, 50 stocks is not that many. we’re at 35 and that’s a lot for us. if you want to outperform themarket, you have to concentrate on things that you know well and like. and our founderer would say your six best ideas in life will perform better than all your other ideas. where you offend a great business, you need to have the conviction to put your capital into it. otherwise, you’re likely to just mimic the returns of the index. the fund was closed for many, many years. it is open now, minimum investment is about what, $5,000? yeah, it’s low. all right. david, thank you very much. good to see you again. folks, david’s fund is in the top 1% so far this year. if you look at back at all the morning star numbers about the sec aquaia fund, you will see it’s in the top 1%, the top 4%, the top 10% no matter basically what time period you’re looking at.please, guys tell he mohamed el erian i heard from bill grossyesterday. he gave a keynote address yesterday afternoon. bill was, i would just put it this way, mohamed. reverend harold camping looks like an optimist compared with bill. yeah, bill didn’t give a deadline. but it’s just as dire. right? that’s right. let me guess. we’ll see you later. let me guess, tyler, true believers in the pimco mantras get to be taken up into heaven as long as you’re — if you have a pimco mutual fund, you actually are one of the — as far as the rapture, you go up. you don’t go down. they go to heaven, that’s right. exactly. i can hear bill saying thatactually. thanks for coming on, ty. it’s good to see you.