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Chuck is a classic “bottom-up” value investor and employs a “three-legged stool” paradigm, meaning he chooses companies that earn high rates of return, have management teams with proven track records of upholding their shareholders’ best interests, and can reinvest capital at high rates of return.
He is usually interested in companies with a return on owners’ capital over 20% but due to the economic environment, he has been looking at companies in the high teens. The best businesses right now, he says, are those that have very strong balance sheets, with the majority of capital being the owners’ capital and not debt capital.
Chuck’s investment portfolio is quite concentrated and usually contains around 20 stocks, most of which are financial and consumer service companies. His top-five holdings are:
· American Tower Corp. (AMT), which comprises about 8% of his portfolio. American Tower owns and operates wireless towers for cell phone, video and data antennas. [13.98%]
· Markel Corp. (MKL), an insurance company, which he believes is distinguished among its peers because it operates at an underwriting profit which, along with reporting honest evaluations of its reserves, allows it to be more venturesome in its investments. [9.02%]
· Lamar Advertising (LAMR), an outdoor advertising company that has exposure in the United States, Canada and Puerto Rico through billboards, bus shelters, benches and buses. [9.02%]
· Enstar Group Ltd. (ESGR), which acquires and manages insurance and reinsurance companies in runn-off. It also offers consulting services to insurance and reinsurance companies. [8.9%]
· Ross Stores Inc. (ROST), a Fortune 500 off-price retailer with 988 stores in 27 states and Guam. [8.73%]
He has also invested a great deal in retail stores, particularly those that he believes will continue to have high traffic even if consumers have less discretionary income to spend due to economic factors. Other retail stocks he holds are Dollar Tree (DLTR), TJX Companies Inc. (TJX), O’Reilly Automotive Inc. (ORLY), and Carmax Inc. (KMX).
Since the first quarter of 2010, Chuck has been buying shares of the only company Warren Buffett bought in the first quarter of 2011, Mastercard Inc. (MA).
A complete list and history of Chuck’s holdings are available here.
Modified Value Investing Outlook
Chuck hit a speed bump in 2008, losing 42.92%, slightly more than the S&P 500’s 37% loss. This, he said, forced him to rethink his former guideline of ignoring the market and economy and focusing only on valuations – a guideline that had served him well in the past. He told Bloomberg in 2010 that he should have recognized the seriousness of the housing collapse and the effect it would have on the economy. He now takes the macro picture into account far more.
We are thrilled to have Chuck share his investment wisdom and insight with us! He looks forward to reading your questions, which you can post below in the comment section.