Bill Ruane Resource Page: Bio, Investment Philosophy, Quotes, Books etc

Bill Ruane Resource Page

william ruane Profile

Born on October 4^th 1925, Ruane initially graduated from University of Minnesota with a degree in electric engineering in 1945 and then from Harvard Business School in 1949. Right after graduating from Harvard, he went straight in the world of Wall Street, however, he realized the need to get a better idea of the business world or more specifically the investment world. Thus, Ruane enrolled himself at Columbia University in 1951 to study under the great Benjamin Graham; that is where he met Buffett, who was enrolled there as a student as well.

Warren Buffett recognizes Ruane as one of the ‘super-investors of Graham-and-Doddsville’ (required reading for all Value Walk readers). Buffett has mentioned Ruane in one of his writing acknowledging as the only proficient investor he felt was worthy of being recommended to his investment partners. In 1969, what Buffet faced was an investment dilemma due to the rising prices of the bull market which hinted at the over-pricing of majority of stocks. Buffett was holding a large amount of cash since he was not finding bargains in the overpriced market. Some partners of the Buffett Partnership limited were voicing their dissatisfaction with the relatively lower rate of return due to the high cash allocation. To solve the dilemma, Buffett asked Bill Ruane to set up a fund to handle his partners who desired to stay in the market.

In 1970, Ruane established his own firm Ruane Cunniff with partner Rick Cunniff, and in the same year, at the demand of Warren Buffett, launched a flagship Sequoia Fund, an open-ended mutual fund. Sequoia Funds is one of the very few funds which has for over 40 years managed to out-perform the S&P 500 index with an annual compounded return of 14.5% (while S&P returned 10.6% annually over the same period). As Buffett puts it ‘Size is the anchor of performance’, with the increase in the size of the amount, the harder it gets to achieve good performance. Therefore, as the amount of investments under the management of Ruane grew, he felt the need to protect the rate of return for his existing investors. In 1982, Ruane closed the funds to all new investors and only allowed existing investors to purchase additional shares. This created a flourishing demand for Sequoia shares in the “black market”, with individuals even willing to pay $1000 for a single share of Ruane’s fund. In 2008, however, the doors of Sequoia Funds were opened again to new investors.

 Number of years Number of Years of Underperformance years as of performance Underperformance a % of all years measured
Keynes        18                   6                     33
Buffett       13                   0                      0
Munger        14                   5                     36
Ruane 27 10 37
Simpson       17                   4                     24

Comparison of the Investment Return of the Sequoia Fund (from inception) vs. the Standard & Poor’s 500
Average annual total return:	14.46%	10.62%
Change for the entire period:	24291.48%	5990.04%
Year Ending	Sequoia Fund	S&P 500
3/31/2011	10.44%	5.92%
12/31/2010	19.50%	15.06%
12/31/2009	15.38%	26.46%
12/31/2008	-27.03%	-37.00%
12/31/2007	8.40%	5.49%
12/31/2006	8.34%	15.80%
12/31/2005	7.78%	4.91%
12/31/2004	4.66%	10.88%
12/31/2003	17.12%	28.69%
12/31/2002	-2.64%	-22.10%
12/31/2001	10.52%	-11.89%
12/31/2000	20.06%	-9.10%
12/31/1999	-16.54%	21.04%
12/31/1998	35.25%	28.57%
12/31/1997	43.20%	33.34%
12/31/1996	21.74%	22.99%
12/31/1995	41.38%	37.53%
12/31/1994	3.34%	1.30%
12/31/1993	10.78%	10.06%
12/31/1992	9.36%	7.62%
12/31/1991	40.00%	30.45%
12/31/1990	-3.80%	-3.14%
12/31/1989	27.91%	31.65%
12/31/1988	11.05%	16.57%
12/31/1987	7.40%	5.22%
12/31/1986	13.38%	18.70%
12/31/1985	27.95%	31.76%
12/31/1984	18.50%	6.26%
12/31/1983	27.31%	22.56%
12/31/1982	31.12%	21.59%
12/31/1981	21.49%	-4.93%
12/31/1980	12.66%	32.51%
12/31/1979	12.05%	18.63%
12/31/1978	23.93%	6.51%
12/31/1977	19.88%	-7.20%
12/31/1976	72.37%	23.96%
12/31/1975	61.84%	37.30%
12/31/1974	-15.48%	-26.52%
12/31/1973	-24.80%	-14.72%
12/31/1972	3.61%	18.98%
12/31/1971	13.64%	14.29%
12/31/70*	12.11%	20.60%
Includes dividends, and in the case of the Sequoia Fund, capital gains distributions as if reinvested.

* From July 15, 1970

Bill Ruane passed away on 4^th October 2005. However, his great achievement and his philosophy of investing is forever encapsulated by his Sequoia Fund which has, crushed the market over the past 40 years.

Investment Philosophy

As mentioned before, he studied under Benjamin Graham along with Buffet. His investment style was more similar to that of Warren Buffett’s than of Benjamin Graham’s. Like every other value investor, he believed in buying good stocks at attractive prices. Ruane searched for companies with healthy balance sheet and invested only in those stocks which were traded below their intrinsic value. Similar to Warren, Bill Ruane did not believe in unnecessarily investing in unattractive stocks just to be fully invested, he focused his investment to only those which were under-valued and was not afraid to hold cash or invest in U.S Treasury Bills when the market was over-priced.

In order to preserve considerable margin of safety, Ruane maintained a portfolio which consisted of stocks that he was highly confident about. Berkshire Hathaway, one of Ruane’s earliest investments , made up 30% of his asset portfolio some of the time. Berkshire Hathaway comprised over 20% of Sequoia’s portfolio until very recently. Similarly his portfolio consisted of large portions of other companies with promising growth in value. Therefore, short-term loss could be cushioned with the considerably high margin of safety.

Highlighting the main facts of Bill Ruane’s investment philosophy, he avoided the use of the technical market valuation method and instead focused on the company’s balance sheet analysis and earnings history to determine the true value of investment. Being a long-term investor, his basic principle was to acquire large portions of stocks of companies he was confident in. Moreover, he looked for companies with little or no debt which generated enough cash flow in the future and avoided dependency on markets for funding or financing of operations. Any form of stock, be it domestic or international, which promised high value in the future with attractive purchase prices were considered and without timing the market, as the market is never consistent or completely predictable. Furthermore, having a clear understanding of the exposure to market along with the dependency of stock valuations on consumer or business spending patterns would facilitate in better understanding of the risks involved in that particular investment.

CURRENT PORTFOLIO

The current portfolio of Sequoia Fund can be viewed here, and current stock picks here.

QUOTES

“Staying small is simply good business. It wouldn’t be fair to our customers if we had to spread our ideas too thin. There aren’t that many great companies.”

“What are they doing? Shifting money back and forth without creating value. Most mergers don’t work, but Wall Street trumps them up, and the CEO agrees because he wants to run a bigger operation. And some of those wrap accounts are terrible for clients-fees on fees.”

BOOK

Security Analysis (1934) written by the legendary Benjamin Graham and David Dodd was believed to be the Bible of Wall Street and the greatest book on research ever published. The book brought to life the concept of value investment and is deemed to be the most essential read for nay investor. The book has released 5 editions over the past few years with changes in examples and language according to the time period.

ARTICLES

Kindred Spirits by Forbes

The Superinvestors of Graham-and-Doddville by Warren Buffet

Sequoia Fund Manager, Philanthropist William J. Ruane

NEWS

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2008

Berkshire Hathway vs Sequoia Fund

Legendary Sequoia fund opens its doors to new investors

Growing Sequoia

2007

Buffett wants successor to be paid for results