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Buffett Ratio Guru Portfolio Analysis - The Portfolio of Robert Bruce Analyzed

January 23, 2012 | About:
The following is an analysis of the most current portfolio of Robert Bruce. This analysis will use a system that I designed that is based on the ratio that Warren Buffet released to the public in 1986, which he coined “Owner Earnings.” For those new to this type of analysis, I would recommend reading an introduction to my system here.

My goal is ultimately to analyze the portfolios of each guru highlighted here on GuruFocus, and then to re-analyze them every quarter when possible as changes are made. My purpose in writing these articles is to show the power of Buffett’s ratio in analyzing stocks, ETFs, Mutual Funds and individual portfolios. If one can fill their portfolios with companies that score high using my system and avoid those which fail, one should be able to increase the probability of becoming a successful investor.

Profile of Mr. Robert Bruce:

Mr. Robert Bruce has been president of Bruce & Company since 1974. His growth-oriented investment style emphasizes capital appreciation and turnaround situations. He holds the Chartered Financial Analyst designation. Since 1983 his Bruce Fund (BRUFX) has achieved an annualized return of almost 13% and for the past 10 years has returned about 16% on an annualized basis. I first learned about Bruce by using the GuruFocus Scoreboard, which you can view by going here

There I clicked on the 12-month performance numbers and No. 1 on the list was Bruce and No. 2 was Mr. Warren Buffett. Here was a man who beat Warren Buffett in performance — I needed to check him out. As I did, I was even more amazed with his performance as you can see in the chart below:

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Then I was lucky enough to find his year-on-year performance since 1984:

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As you can see he has put up some amazing performance numbers over the years, so I couldn’t wait to analyze his portfolio from an owner earnings perspective and see if he was a fan of owner earnings or not. Here a table of Bruce’s current non-financials portfolio:

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As you can see from the table above, Bruce does not follow the crowd when he invests but is what is called in my business a turnaround specialist. He mostly invests in beat up companies and then hopes they will turn around and become profitable. Even though he has a few “3s” in his portfolio, there are a large amount of goose eggs as well, so he is clearly not a big fan of owner earnings. In fact, 16 (57%) out his 28 non-financial picks were “0s.” Therefore, he must have some kind of secret formula for picking winners because most of his stocks are “dogs with fleas” from an owner earnings perspective. But don’t take my word for it; here are the owner earnings numbers for his largest holding, Amerco (UHAL), which is also the worst of the bunch:

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Sure, everyone knows about U-Haul trucks and has probably used them once in their lives, but I can’t figure out why anyone would want to own this stock that generated $183.85 in cash flow per share over the last 18 years but had $321.20 in capital spending in order to do so. That comes out to a negative $-137.35 a share in owner earnings. Multiply that number by 19.61 million shares outstanding and you have a total of $-2.693 billion in negative owner earnings.

On top of that you have $75.40 a share in total debt and a market capitalization of $1.8 billion. Therefore we can conclude that Bruce is not a big fan of owner earnings. My best guess as to why he bought it is maybe because he is a big fan of P/S, as Amerco was selling for one-fifth of its sales in 2009 and proceeded to climb 398% in stock price from its low until it almost equaled its sales by 2010.

There are a million ways to analyze a company in this business, but you can’t expect Bruce to score very high on our GuruFinal Portfolio Score, investing in so many negative-owner earning companies. Here is where he ranks among the other Gurus:

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Bruce, as well as Carl Icahn, have become very wealthy investing with their own methodologies, but I do not have a clue about how they did it. All I do know is that owner earnings had nothing to do with it.

Disclaimer: Always remember that these are the results of our research based on the methodology that I have outlined above and in other articles previously published. This research is provided as an educational tool and should not be considered investment advice, but just the results of our research. There are many ways to analyze a stock and you should never blindly follow anyone’s work without doing your own due diligence or by seeking the help of an investment adviser, if you so need one. As Registered Investment Advisors, we see it as our responsibility to advise the following: We take our research seriously, we do our best to get it right, and we “eat our own cooking,” but we could be wrong. Please note, investments involve risk and unless otherwise stated, are not guaranteed. Past performance cannot be used as an indicator to determine future results. Strategies mentioned may not be suitable for everyone. We do not know your personal financial situation, so the information contained in this communiqué represents the opinions of Peter “Mycroft” Psaras, and should not be construed as personalized investment advice. Information expressed does not take into account your specific situation or objectives, and is not intended as recommendations appropriate for you. Before acting on any information mentioned, it is recommended to seek advice from a qualified tax or investment adviser to determine whether it is suitable for your specific situation.

About the author:

Mycroft Psaras
Mycroft has spent most of his life as an equity analyst studying the works of the masters. He is an expert in Qualitative and well as Quantitative investing and lives by the motto of “Capital Appreciation through Capital Preservation”. He has worked as an advisor for friends and family and worked for The Motley Fool Organization for a while. Prior to starting Mycroft Research, he spent the last decade writing investment newsletters and providing research to a large following of clients.

From his work on free cash flow in the investment process, Mycroft has now decided to bring his theories to the field of money management as well as work as an independent consultant for Hedge Funds, Pension Funds and ...More Institutions in general. His dream is to someday soon open a mutual fund where he can help as many people as he can benefit from what he has learned over the years.



Visit Mycroft Psaras's Website


Rating: 3.4/5 (13 votes)

Comments

becomingbuffett
Becomingbuffett premium member - 2 years ago
Mycroft:

Thanks for sharing your thoughts here. I've been interested in Robert Bruce since reading a great write up about his mutual fund (BRUFX) in Fortune magazine last June. Here's a link:

http://www.forbes.com/forbes/2011/0627/money-guide-11-funds-bruce-fund-heebner-cgm-invest.html

He and his son, Jeffrey, manage the fund and the results they've achieved over the last 10 years are very impressive--according to Morningstar, about 16% annualized over the last decade! The stocks above don't tell the whole story, though. Returning to Morningstar, only 31% of their portfolio is in US stocks; just under 6% in non-US stocks. 32% is in bonds. 15% is in "other". They seem to like convertible bonds and preferreds. And cash.

Read the article. They talk about their approach. They discuss Amerco: they started buying it at $20, and continued buying it through bankruptcy all the way down to $2. As you showed above, UHAL is now trading just under $100.

I like their results, of course, but I also like their "attitude". Here's a great quote from the article:

"I don't think any Morningstar analyst has been able to talk to them," says Morningstar's Janet Yang. "They have basically told us that they're happy to talk to any of their investors if they call, but they're really not interested in talking to analysts or the media. They want their returns to speak for themselves."

After repeated telephone calls from FORBES Jeffrey, 51, finally picked up the phone, saying, "It's just two of us here, and we're not looking for any additional exposure. I don't even care if you write anything at all. We'd rather just increase the assets that we have and expand that way."

In my opinion, too many money managers spend far too much time on TV trying to grow their "AUM" instead of looking after their clients' capital. I also like that the expense ratio is very low--0.82% (no load) and the fund pays a nice dividend. It's a father-and-son team that's invested in their own fund, quietly focused on results, and charging investors a very reasonable fee (especially given the returns).

I'd love to hear your thoughts once you read the article.

All the best!

mycroftpsaras
Mycroftpsaras - 2 years ago
Hi Becomingbuffett,

Thank you for posting that article. I could not understand how a fund with that kind of performance only has, according to GuruFocus, $199 million in stocks?

Portfolio: Bruce & Co.

Last Update: 2011-09-30

Total # of Stocks: 54

# of New Stocks: 5

Total Value: $199 Mil

Type: Mutual Fund

Q/Q Turnover: 16%

It's interesting that they limit their communication with Clients to the bare minimum as I doubt any of my clients would stay with me if I invested like they do, as I report to each client every weekend through an email. The article was very informative and I tip my hat to them for their performance. On my part I hate to lose money more than anything and if I am down 5% on a stock, I am sick for a week or until it comes back. Back in the 1980's I used to do Net-Net Working Capital investing and though I diversified heavily I still could not stomach losing 100% on a stock that went as the Bruce's say "Over a Cliff". You have to admire that they stick to their guns come hell or high water. They are definitely rare in this business.

Thanks for posting that article and warm regards,

Mycroft
Alex Garcia
Alex Garcia premium member - 2 years ago
For what its worth, there AUM has now almost doubled. According to Morningstar, they have $318 million. So it might be a matter of GF updating there numbers.

-Alexg

http://www.valueinvestinghq.com

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