In terms of performance, Century Management boasts of only 3 years of negative returns since inception, 2 of which paralleled the negative loss experienced by the benchmark S&P 500. In terms of their long term performance, they have a 25 year cumulative return of 1036.7%. Their more recent performance has been largely positive, with a 10 year cumulative return at 77.1% vs. the S&P 500 benchmark’s 12.2%. For the year ending in 2010, they returned 12.92% vs. the benchmark 14.79%. Their overall success is in no small part attributed to what some may deem as unorthodox in their core operations.
“We're going to have to cap the practice because it's our feeling that the higher the amounts of dollars you manage, the [more the] universe that's available to you shrink…”
At its very core, Century Management operates under a value investing mantra, very much akin to that of Benjamin Graham. Comprehensive research is poured into prospective companies as they analyzed from bottom up in order to render what is known as “intrinsic” value. Investments are then made into companies that are 45% to 60% below the intrinsic value, thus creating a margin of safety. In addition, a relatively modest diversification strategy is implemented, limiting equity weight to generally no more then 5% of the overall portfolio. In terms of sector weight, each industry generally accounts for no more then 15% of the composite portfolio. Van Den Berg strongly believes in capping the assets under management between $2-4 billion at any given time in order to maximize their flexibility and ability to act upon opportunities.
“We believe the biggest problem in this business for making good decisions is conflicts of interest. Everybody who works at this company has to put all their life savings in the same stocks our clients do. All of my money is in the same stocks. Every time we invest company money, it's in the same stocks. All of our pension and profit-sharing plans are in these same stocks. And nobody is allowed to own any other stocks or investments other than our stocks.”
“The division of labor is that we have a research department that only does research ... about six people. And none of these people are allowed to do clients' presentations, talk to clients or anything else. We don't want them influenced by the clients; we don't want them to hear what the clients are saying.”
To further separate themselves from the crowd, Century Management utilizes two strict policies to maintain the integrity of their firm. First, they mandate all of their employees, including Van Den Berg himself, to invest all of personal investments into the same securities the firm does. As such, this induces an environment where the client interests are aligned with that of the firm. Furthermore, a Chinese firewall is utilized to ensure that their research team focuses all of their energies on their role’s core competency: to research companies.
Century Management’s portfolio composition is shown in the following table. Generally, for the most part, the percent composition remained relatively steady quarter to quarter. Modest reductions in the telecommunications and healthcare sector were counter-balanced by increases in the industrials, consumer goods, and technology sector.
|Overall Portfolio Composition||Q1 2011||Q4 2010||% Change|
|Oil & Gas||8.20%||8.60%||-0.40%|
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As stated earlier, Century Management has a portfolio with over $1 billion under management invested in 62 equities. The following table and chart demonstrates their top five holdings which constitute 24.63% of the overall portfolio. One important note must be gleaned from this information: all of their top holdings were reduced in value ranging between 10-30% each. However, this trend is not unique only to the top five equities held, but for the overall portfolio. As of 2011 Q1, only one new equity, Cisco, was added to the portfolio, while all of the other positions were either reduced in holdings or sold out excluding RTEC and CORE.
|Top Five Holdings for Q4||Symbol||Composition||Shares||Value Q1|
|Wal-Mart Stores Inc.||WMT||5.32%||1,028,212||53,518,000|
|Total Value of Portfolio||1,006,210,000|
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Microsoft is a developer and manufacturer of both software and hardware for their consumers. Their most well known products are household staples, ranging from their Windows operation systems, to their video gaming console, the X-Box. Microsoft is Century Management’s largest holding, with shares trading at $25.37, and a market capitalization of $213.17 billion. It is estimated that the average price Van Den Berg paid for Microsoft is at $29.89 per share, a potential 15.12% capital loss.
Microsoft has a P/E ratio of 10.75, a P/B ratio of 4.81, and a P/S ratio of 3.45. For their most recent fiscal year ending in July of2010, they earned revenues of $62 billion, with a net income of $18.7 billion, yielding a 30% margin. Their earnings were $2.36 per share for the year, with a dividend yield of 2.36%. Historically, Microsoft has grown its earnings by 14.1% annually for the last 10 years.
Microsoft is currently slated to release Q3 earnings later this month. In addition, Microsoft is currently in litigation to attempt to make it easier for companies to challenge validity of patents. This is largely in part due to a patent infringement lawsuit against Microsoft with respect to their Microsoft word program.
GuruFocus rated Microsoft with a business predictability rank of 3 stars.
Wal-Mart is a large “big-box” retailer operating primarily through their Wal-Mart and Sam’s Club brand names. Wal-Mart currently trades at $53.55, with a market capitalization of $186.95 billion, and is the second largest holding of Century Management. Van Den Berg paid an estimated average price of $48.27 for his holdings of Wal-Mart, a potential capital gain of 10.9%.
Wal-Mart has a P/E ratio of 12.75, a P/B ratio of 2.75, and a P/S ratio of .44. Their most recent earnings were $4.20 per share, with a dividend yield of 2.73%. For this same period, they had revenues at $418 billion, and net income at $16.38 billion, a margin of 3.9%. In terms of annual rates, Wal-Mart has grown its revenues and earnings per share in the last 10 years, 10.4% and 12% respectively.
Wal-Mart announced their guidance for their 2012 EPS at 4.43, a 5.47% growth. In addition, they have announced plans to open up 40 supercenters in Canada, and increase the number of “Wal-Mart Express” convenience stores in urban areas.
GuruFocus rated Wal-Mart with a business predictability rank of 5 stars.
Coca-Cola Company (KO)
The Coca-Cola Company is the world’s largest producer and distributor of non-alcoholic beverage drinks. Their flagship drinks range from Coca-Cola, Sprite, Fanta, to PowerAde, and their diet counterparts. Coca-Cola currently trades at $68.01, with a market capitalization of $156.09 billion. An estimated average price of $51.78 was rendered for the current cost of all of his shares, a potential capital gain of 31.3%.
Coca-Cola has a P/E ratio of 13.47, a P/S ratio of 4.40, and a P/B ratio of 4.97. They have a 2.76% dividend yield and earnings of $5.05 per share for their most recent fiscal year ending in 12/10. For the same year, they reported a net income of $11.8 billion on $35.1 billion, a 33.6% margin. Their earnings per share and revenue growth for the last 10 years on a annual basis have been 12.3% and 8%.
The Coca-Cola Company is embracing a green culture, as it is developing a 100% percent recyclable merchandise rack for their products. Furthermore, they are also investing $62 million into their Kenyan operations to expand their juice capabilities and operations there.
GuruFocus rated the Coca-Cola Company with a business predictability rank of 4 stars.
Applied Materials (AMAT)
Applied Materials develops, markets, and services semiconductor equipment and parts for the semiconductor industry. Their shares trade at $14.72, with a market capitalization of $19.42 billion. The average price paid by Van Den Berg for AMAT is estimated at $17.80 per share, a 21% capital loss.
Applied Materials has a P/E ratio of 14.51, a P/B ratio of 2.62, and a P/S ratio of 2.06. Their dividend yield is 2.17% upon earnings of $1.01 for their most recent fiscal year. Their profit margin was 9.8% with revenues at $9.5 billion. Their annual revenue growth rate for the last 10 years has been 7.1%.
In terms of recent developments, Piper Jaffray placed a “overweight” rating on Applied Materials, with a price target of $22. In addition, Applied Materials is launching a venture capital program in China to invest in new technologies to bolster their own core operations.
GuruFocus rated Applied Materials with a business predictability rank of 1 star.
Colgate-Palmolive is a consumer goods company ranging from personal hygiene products such as toothpaste to dietary nutrition for animals. Their shares trade at $81.81, with a market capitalization of $40.12 billion. The average cost per share in Van Den Berg’s portfolio is $66.71, a potential 22.6% capital gain.
Colgate has a P/E ratio of 18.96, a P/B ratio of 15.10, and a P/S ratio of 2.57. Their dividend yield is 2.84%, with their most recent earnings at $4.31 per share. For their 2010 fiscal year, they reported revenues of $15.56 billion with the bottom line income at $2.20 billion, a 14.2% margin. For the last 10 years, their revenue growth and earnings per share has grown on a annual basis of 8.4% and 9.2% each respectively.
Recently, Colgate-Palmolive announced plans to buy the Sanex brand from Unilever for $940 billion in cash.
GuruFocus rated Colgate-Palmolive with a business predictability rank of 4.5 stars.
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