David Winters (Wintergreen) Annual Letter to Investors
Since its inception on October 17, 2005, Wintergreen Fund, Inc. Investor Class (the “Investor Class”) has a cumulative performance of 57.86% (not annualized) which compares very favorably to the Standard & Poor’s 500 Composite Index’s (“S&P 500”) cumulative return of 39.73% (not annualized). A hypothetical investment of $10,000 in the Investor Class on October 17, 2005 through December 31, 2012 would be worth $15,786 compared to a value of $13,973 for a similar investment in the S&P 500. The Investor Class performance for 2012 was 7.51%, underperforming the S&P 500 which returned 16.00%. Wintergreen Fund, Inc.’s (the “Fund”) performance in 2012 was due, in part, to strong returns from holdings in Jardine Matheson Holdings Ltd., Swatch Group AG, and Compagnie Financiere Richemont SA. Securities that underperformed during 2012 included holdings in Canadian Natural Resources Ltd., Birchcliff Energy Ltd., and Anglo American plc. The Fund also utilized forward currency contracts which had a slightly negative impact on performance.
The Fund’s positive performance during 2011 and its underperformance in 2012 are primarily attributable to certain sectors. Banks, Technology, Telecom, and Healthcare are among the sectors that fell the most in 2011 and then rallied the most in 2012, particularly during the first quarter. Wintergreen continues to believe that the best long-term opportunities lie outside of these sectors. During periods of time when the Fund’s security selections are out of favor, it is to be expected that performance will be lower. Those are the times when the Fund accumulates what it believes are quality holdings that are temporarily out of step with the broader market. We believe these investments should benefit long-term shareholders as the true value of these holdings is realized by the markets.
Our investment analysis always includes the quality of management as a critical factor in determining the attractiveness of an investment. On occasion, the core of the company is the personification of its leader and is evidenced by the vision, courage, hard work, dedication, and common sense of that person, partnership, or family. Within our Wintergreen portfolio, we have many examples of excellent leaders.
If opportunity doesn’t knock, build a door.
An example of an individual leader with great vision was Lim Goh Tong, who in 1965 saw a need for a mountaintop resort where the residents of up-and-coming Kuala Lumpur could escape from Malaysia’s oppressive heat. With a dream for a world class resort in his head, but faced with a 6,000 foot jungle covered mountain in the Malaysian countryside, Lim Goh Tong saw opportunity where others saw only obstacles. Over the course of six years, Lim Goh Tong and his family-owned construction company transformed that mountain from wilderness into the Genting Highlands, which today stands as one of the largest and most profitable resorts in the world. Never one to rest on his laurels, Lim continued to expand the Highlands over the decades, adding more hotels, entertainment, and the only casino in Malaysia. In addition to the Highlands, Genting Group currently has an interest in casinos in Singapore, the United Kingdom, the Philippines, and the United States as well as ownership of power plants in China, and oil and gas operations in Southeast Asia.
Although Lim Goh Tong passed away in 2007, his legacy of hard work and never backing down in the face of adversity remains with the company. Having grown up poor in rural China, Lim instilled Genting with a sense of financial conservatism which exists to this day, as witnessed by the several billion dollars of cash and little debt on its balance sheet. Because of the reputation Lim and other Genting managers have built over the decades as a reliable and diligent partner, Genting is often cited as one of the premier casino resort operators in the world. From nothing more than a densely forested mountain and a dream, Lim Goh Tong and his heirs have built Genting into a global company which continues to expand and thrive to this day. Thanks in part to the hard work and foresight of Lim Goh Tong over 40 years ago, we believe Genting’s future is as bright as its past.
I am a success today because I had a friend who believed in me and I didn’t have the heart to let him down.
Perhaps no company is more closely associated with its CEO than Berkshire Hathaway. When people think of Berkshire Hathaway, they think of Warren Buffett, and vice versa. Less well-known but equally important to Berkshire’s long term success is Buffett’s business partner, Charlie Munger. Since Buffett first bought shares in Berkshire in 1962, he and Munger have left an indelible mark on the company and created fortunes for many of its shareholders. Years of shrewd capital allocation amongst shares of public companies and takeovers of entire enterprises turned Berkshire into a compounding machine which currently generates nearly $1 billion per month in free cash flow. Buffett and Munger have recently stated a willingness to purchase Berkshire shares for up to 120% of book value, and have nearly $50 billion in cash at their disposal to back up their words at year-end. With the shares currently trading for approximately 127% of book value and the underlying businesses growing nicely, we believe Berkshire is an example of an asymmetric trade — an opportunity to own a stock where the upside potential should exceed the downside risk.
Warren Buffett’s leadership is viewed by many as the textbook example of good corporate ethics — often chastising companies for excessive pay for executives, steering clear of regulatory problems, and honing his image as an honest and authentic person. This reputation has led to Berkshire being offered many “sweetheart” deals which are not offered to other large investors. When the owners of private companies such as Iscar Metalworking or Marmon Holdings want to sell their company, they often look to Berkshire first because they know Berkshire will provide a strong and permanent home for the company they have painstakingly built. Buffett and Munger have said repeatedly over the years that when Berkshire buys an entire company they will never sell it, and they have remained true to their word. Sometimes finding a good home for their business is more important to sellers than extracting every last dollar from a buyer, and this has led to Berkshire acquiring many high quality companies for reasonable prices. All Berkshire shareholders, Wintergreen Fund included, benefit economically from the reputations that Buffett and Munger have earned over their long careers.
It had long since come to my attention that people of accomplishment rarely sat back and let things happen to them. They went out and happened to things.
Leonardo da Vinci
Schindler is an example of a family whose vision continues to embody the company. When you step into an elevator and see the Schindler name, you have confidence that you will go up or down safely and reliably. Since the founding of the company by Robert Schindler in 1874, the Schindler family has been a leader in elevator and escalator engineering that has kept pace with the soaring human imagination to build higher and higher. Safety, quality, and innovation are the strands of DNA that run through the corporate culture, which has served the company well for close to 140 years. From its humble roots in a workshop in Lucerne, Switzerland, the family has guided Schindler into a global business with over US$9 billion in annual sales.
While many of the developed markets of the world have already urbanized, there lies ahead decades of building construction in China, India, Brazil, and other emerging countries with massive populations. We believe there is no shortage of growth opportunities for Schindler to supply new elevators and escalators in these markets, and in both mature and developing markets the company should always have a significant source of revenues from service and maintenance of its installed base. When we travel the world searching for investments, we are transported through vast airports on Schindler moving walkways, carried up and down modern high-rise office buildings by Schindler elevators, and ported from floor to floor of gleaming shopping centers by Schindler escalators. Seeing that name always makes us smile.
These are just a few examples of companies with strong leadership that comprise the Fund’s portfolio. We continue to believe that this portfolio is the best that we have ever assembled, and we remain optimistic about the opportunities ahead for many of our companies and our long-term shareholders.
Thank you for your continued investment in Wintergreen Fund.
David J. Winters, CFA