Giverny Capital annual letter to partners for the year ended December 31, 2014.

Historical Summary

It has been more than two decades since I discovered the writings of Warren Buffett, Benjamin Graham, John Templeton, Philip Fisher and Peter Lynch. I then decided to begin managing a family portfolio based on an investment approach synthesized from these great money managers. By the end of 1998, after five years of satisfactory results, I decided to launch an investment management firm offering asset management services aligned with my own investment philosophy. Giverny Capital Inc. came into existence.

In 2002, Giverny hired its first employee: Jean-Philippe Bouchard (JP for those who know him well). A few years later, JP became a partner and participates actively in the investment selection process for the Giverny portfolio. In 2005, two new persons joined the firm who eventually became partners: Nicolas L’ Écuyer and Karine Primeau. Finally, in 2009, we launched a US office in Princeton, New Jersey. The director of our Princeton office, Patrick Léger, shares in the culture and long-term time horizon inherent to Giverny.

We are Partners!

From the very first days of Giverny Capital, the cornerstone of our portfolio management philosophy was to manage client portfolios in the same way that I was managing my own money. Thus, the family portfolio I’ve managed since 1993 (the “Rochon Global Portfolio”) serves as a model for our client accounts. It is crucial to me that clients of Giverny and its portfolio managers are in the same boat! That is why we call our clients “partners”.

The Purpose of Giverny Capital Annual Letter

The primary objective of this annual letter is to discuss the results of our portfolio companies over the course of the prior year. But even more importantly, our goal is to explain in detail the long-term investment philosophy behind the selection process for the companies in our portfolio. Our wish is for our partners to fully understand the nature of our investment process since long-term portfolio returns are the fruits of this philosophy. Over the short term, the stock market is irrational and unpredictable (though some may think otherwise). Over the long term, however, the market adequately reflects the intrinsic value of companies. If the stock selection process is sound and rational, investment returns will eventually follow. Through this letter, we give you the information required to understand this process. You will hopefully notice that we are transparent and comprehensive in our discussion. The reason for this is very simple: we treat you the way we would want to be treated if our roles were reversed.

The Artwork on Giverny Capital 2014 Letter

Since 2004, we have illustrated the cover of our letter with a copy of an artwork from our corporate collection. This year we selected a recent work by the Quebec artist Nicolas Baier.

For the year ending December 31st 2014, the return for the Rochon Global Portfolio was 28.1% versus 17.8% for our benchmark, which represents an outperformance of 10.2%. The return of the Rochon Global Portfolio and the one of our benchmark include a gain of approximately 9% due to fluctuations in the Canadian currency.

Since our inception on July 1st 1993, our compounded annual growth rate has been 16.1% versus 8.7% for our weighted benchmark, representing an annualized outperformance of 7.3% over this period.

Our long-term and ambitious objective is to maintain an annual return that is 5% higher than our benchmark.

Giverny Capital

Giverny Capital: The Rochon US Portfolio

We have been publishing the returns of the Giverny US Portfolio, which is entirely denominated in US dollars, since 2003. The Giverny US Portfolio corresponds to the American portion of the Giverny Portfolio. In 2014, it realized a return of 18.0% compared to 13.7% for our benchmark, the S&P 500. The Giverny US Portfolio therefore outperformed our benchmark by 4.3%

Since its inception in 1993, the Giverny US Portfolio has returned 2253%, or 15.8% on an annualized basis. During this same period, the S&P 500 has returned 597%, or 9.4% on an annualized basis. Our added value has therefore been 6.4% annually.

Giverny Capital

We outperformed the S&P 500 for a seventh consecutive year. Our objective is to outperform the S&P 500 over the long term. Over a long period of time, the vast majority of managers fail to beat the S&P 500 and those who do typically underperform one year out of three. You will notice that over the 21 years of its track record, our US portfolio has underperformed the S&P 500 on six occasions (or 29% of the time).

We accept the fact that we will sometimes underperform the index over the short term when our investment style or specific companies are out of favor with mainstream thinking. We welcome rewarding periods of portfolio performance with humility—and with joy. While it’s not always easy, we try to remain unaffected by short term results, both good and bad.

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