Long Leaf Partners recently came out with their third quarter report to shareholders. CEO Mason Hawkins talks a lot about the economy in the letter. Hawkins notes that many investors have concerns about inflation, deflation, and sovereign debt issues. Hawkins discounts these macro fears by stating that his goal is only to focus on the long term results.
Hawkins still believes that the funds can achieve their goal of inflation plus a 10% returns. He sees returns of 10% alone from the free cash flow that the companies he owns yield. Hawkins is setting the bar pretty high for himself. I doubt with $20 billion AUM it is possible to achieve such high returns.
Below is some of Hawkins commentary followed by the full document in scribd format. For best viewing click on fullscreen mode.
The number of on-deck prospective investments remains higher than normal. Our analysts have presented numerous new ideas for consideration; we are fully invested; our most difficult decisions are choosing between great companies we own and qualified new ones; and we have added ten names across Southeastern’s portfolios over the last six months. Investor fear driven solely by global macro concerns is fueling our research productivity. During the quarter Investors Intelligence reported that the spread between bulls and bears had fallen to the same level as March of 2009. The New York Times noted on October 1 that “fixed income markets have seen greater inflows than equities did during the tech bubble of 2000. Record low interest rates in many developed countries imply macro
concerns about a double-dip recession and/or deflation. Conversely, gold’s record highs and the concomitant“flight to safety” indicate macro concerns about inflation. Evidence of the macro obsession and utter disregard for individual company merits comes in various forms – individual stock movements are highly correlated with overall market moves; macro funds have increased in number and net flows; and perhaps most tellingly, the Wall Street Journal recently quoted one research firm as declaring that “Stock picking is a dead art form".
LongLeaf 3Rd quarter letter