Archive for April 2016

04/20/16 – SEQUOIA FUND & VALEANT SLUMP

April 20, 2016

04/20/16 . . .  by Bob Karrow

WAVE COUNTS

  • If you aren’t familiar with my unorthodox wave counting method, there is a simple explanation at the beginning of the glossary. The glossary also contains other details that don’t appear in the blog.

TWEETS

  • My tweets are like a frequent two line blog accompanied by charts.

BLOG

  • My blog is published RARELY (if at all).  The only way to keep updated on what I’m thinking is through my tweets.

MY CHARTS

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WHOA, a blog update from Bob.  There must be something wrong, or he actually has something worth saying (???).  Worth saying . . . that’s doubtful and debatable.  But onward we go reading some useless dribble.

SEQUOIA FUND

When I last wrote about Sequoia Fund, they had just closed their fund to new investors.  But that may be changing soon.

Sequoia Fund May Reopen to New Investors After Valeant Dive

Sequoia Fund has done an incredibly great job through the years, but they hit a major bump in the road during the last year.  The bump was called Valeant Pharma.  Sequoia is a no-load fund.

Sequoia Fund had a hot hand in its holdings of Valeant Pharma through recent years.  Sequoia bought Valeant when it was well under $100 per share.

Unfortunately Sequoia forgot some important trading principals. 30% of their assets were tied up in Valeant (this was caused by asset appreciation not by purchase).  Sequoia had bought Valeant long before it began its stratospheric streak upward.  Sequoia bungled it by not rebalancing its Valeant portfolio from 30% back to a more reasonable 8-10%.  8-10% was originally where Sequoia purchased Valeant.  But Sequoia let their 30% ride (off into the valley of death).  Sequoia was and probably is, Valeant’s largest investor.  Valeant will likely rebound further in the future, but not likely to its lofty levels of before.

When Valiant ran into problems, it hit an enormous downdraft and lost 90% of it’s value quickly.

valeant

During Valeant’s slide from $264 to $25, Sequoia bought more Valeant stock around $100 per share.  Now every good investor/trader knows you don’t double down, or buy more of a dying stock (it’s like “never meet a margin call”). It takes time to recover from such a downdraft.  Turns upward after this magnitude slide don’t occur overnight.  But Sequoia threw good money after bad and lost ⅔ of their new investment.   BOOOO!

Without Valeant Sequoia Would Have Had a Stellar Year

VALEANT 2

Well, the good news is the people responsible for Sequoia’s mistakes are now gone from the fund (showed them the door and shoved).  The firm still has excellent management and should be back on track with it’s Warren Buffett principals of investing.  But we’ll let Sequoia prove that over the next few years.

Ruane Cunniff Sold 4 Million Valeant Shares in First Quarter

Sequoia fund lost about $100 per share during the Valeant debacle, sliding from about $287 to a low of $182.

sequoia

History of Sequoia Fund

Ruane, Cunniff & Goldfarb is best known as the investment advisor and distributor of the Sequoia Fund (SEQUX). The history of the Sequoia Fund traces its roots to the late Bill Ruane’s lifelong friendship with Warren Buffett. Bill Ruane first met Buffett at a value investing seminar taught by Benjamin Graham at Columbia University in 1950. When Buffett closed his investment partnership in 1969, he advised his clients to invest with Ruane in the Sequoia Fund. In 1970, William J. Ruane and Richard T. Cunniff founded the Sequoia Fund to take on Buffett’s former investors. Robert Goldfarb joined the firm in 1971.

I own this fund and look at it as a buy it and don’t sell it.  It’s my wife’s single investment should anything happen to me.  Sequoia has an excellent long term record (until recently).  I haven’t put more money into Sequoia recently, but I will likely invest more at the appropriate time (not now).

I’m waiting on confirmation of the market’s primary direction before committing more money to Sequoia.  Are we at Oct 2012 or Oct 2007???

Sequoia’s long term record

Looking at the above link will show you that Sequoia has had only 7 down years and 38 up years.  To me that has always been important, how much do you lose during bad times.  Anyone can make money during a bull market, which always brings up the quote, “Never confuse genius with a bull market”.

How Sequoia Fund’s Valeant Mistake Upended a Top Performance

When Sequoia’s Door Reopens

If you want to get your foot in the door for Sequoia, do it for a minimum investment when Sequoia reopens to the public, because they will close the fund again.  They do this every time they reach their goal of total assets.  I believe this is the 3rd time that Sequoia has been open to the public.  Once you are in, you can commit more money at any time.

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