CP&E Partners, LP September quarter letter (check out their track record below)
H/T David
November 3, 2013
Dear Friends,
CP&E Partners, LP was up 6.6% for the quarter ended September 30, 2013 and up 22.3% for the year to date. We are currently 73% long, 27% in cash, and 8% short. Our long portfolio has an estimated average weighted P/E ratio of 10.6 times projected 2013earnings and 9.2 times projected 2014 earnings.
This is the first letter written since February 2012. On March 30, 2012, the fund was restructured into a family partnership with no management fees to avoid the burden of new regulations. (Thank you Mr. Dodd and Frank) I wanted to send a short note to highlight a few observations I have about the state of investing. By no means do I expect these letters to be a regular occurrence.
15 Year Review
| Asset |
3 year |
5 year |
10 year |
15 Years |
| Artisan International Value Fund |
15.54% |
13.16% |
13.26% |
NA |
| Artisan Global Fund |
16.75% |
13.07% |
NA |
NA |
| Fairholme Fund |
10.15% |
8.99% |
11.55% |
NA |
| Federated Prudent Bear Fund (short seller) |
-16.81% |
-12.57% |
-5.33% |
-0.57% |
| Fidelity Magellan Fund |
12.69% |
8.12% |
5.18% |
4.00% |
| Janus Fund |
12.47% |
9.27% |
6.54% |
4.33% |
| Consumer Price Index |
2.32% |
1.32% |
2.43% |
2.32% |
| Schwab Cash Reserves (Money Market) |
0.10% |
0.18% |
1.53% |
2.14% |
| Vanguard S&P 500 Fund |
16.09% |
9.90% |
7.45% |
5.22% |
| Berkshire Hathaway |
11.03% |
5.47% |
7.94% |
7.25% |
| Big Mac Index |
5.73% |
4.20% |
5.18% |
5.06% |
| Pimco Total Return (Bill Gross’s fund) |
3.36% |
7.53% |
5.66% |
6.40% |
| American Century Target Mat 2025 Inv (Long Term Bond) |
5.50% |
8.20% |
6.68% |
8.28% |
| Oakmark Select |
17.59% |
15.87% |
7.65% |
10.82% |
| CP&E Partners, L.P. (20%) |
14.43% |
14.40% |
12.13% |
15.70% |
| CP&E Partners, L.P. (10%) |
15.28% |
15.06% |
13.11% |
17.24% |
| CP&E Partners LP (GP) |
16.16% |
15.88% |
14.24% |
18.94% |
On September 30, 2013, the fund completed its 15th year as a partnership. We list above how we compare for 3, 5, 10, and 15 years versus other benchmarks. For the last 3 to 5 years,both the stock market and a number of actively managed funds (both Artisan funds listed and Oakmark) have either outperformed the partnershipor have had comparable returns.These funds also have greater flexibility. You can get your money out of these funds with one call at any time. On a relative performance, the partnership has been mediocre over the last 3 years. On the other hand, our absolute performance, defined by if we can afford more Big Macs now compared to in 2011, is anunqualified yes. In short, we have increased our purchasing power over any time frame by a wide measure. You will note that I put the three classes of LPs as a comparison: 1) those that were charged fees of 1 % of assets and 20% of profits,2) 1% of assets and 10% of profits, and 3) the returns to my fund in which fees are waived.
Observation #1
You should also note that Big Macs have increased in price much faster than inflation, as measured by the Consumer Price Index over any time period. Things like smartphones, tablets and other great technologies improve our lives and havecontributed to the low CPI growth– on the other hand many everyday items like food are growing faster in price than the pace wageshave risen.
Observation #2
The gains this year are mainly from positions taken in the last bear market of 2008 and 2009. However, for us to make money again requires greater market volatility to make bargains available. Although it remains unclear whether the market is overvalued, the market is clearly not cheap and performance expectations going forward should be modest.
If you would like to see a recent October 2013 YouTube lecture that I gave at the George Washington University MBA program, which is embedded below:
The questions are hard to hear – but hopefully you will find some value from the video.
On October 1, 1998, I started with $2.45 MM of capital. Over the years, a total of$12 MM has been paid in capital. In the last 15 years, we have made over $56 MM where over ~90% were either long-term gains or qualified dividends. I want to thank all my investment buddies who are a constant source of ideas, information, and friendship. I also want to express my gratitude to the partners, both past and present, for allowing me to pursue my passion of finding bargains.
Sincerely,
James Pan
CP&E Partners, LP
