As the attached article explains, Sequoia Fund (symbol SEQUX) has always been an investment we have been proud to own. Over the decades it has delivered above-market results which have been unusually durable. The management of this mutual fund has delivered superb, consistent, even admirable management.
That may not entirely be the case now, as documented by the attached article. A few months ago, this mutual fund began to fade as its over-allocation to one failing stock, Valeant, dragged it down to a very unusual underperformance. At this point, we are analyzing this mutual fund to determine whether or not to stay, to sell, or even to buy more. Meanwhile, it’s a classic story of how a great mutual fund can go wrong.
There are several conclusions to be drawn from this.
- Even the great mutual fund managers occasionally step on a land mine. This situation, however, is a self-inflicted wound because it resulted from violating the basic rules of investing. They owned too much Valeant, and at too high a valuation. Even the financial wizards need to pay attention to the rules.
- The stock which laid them low was morally questionable anyway. Good investing, long term, is ethical investing.
- Thank goodness we keep our allocations close to 5% for each fund. We haven’t been badly damaged by this because we are diversified.
- Morningstar now ranks this mutual fund as three stars, which means “OK”. All Morningstar rankings are look-back numbers.
- Good investing is painful investing. The truly outsized returns are garnered by people who are willing to set fear aside.
- The two members of the board of directors who resigned performed their jobs superbly. Independent members of the board of directors are supposed to think independently, and that’s what they did.
This is an ongoing story. I’m harvesting all the information before making a decision.