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David Rolfe's Wedgewood Partners Q2 2014 Commentary

Holly LaFon

Holly LaFon

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Review and Outlook

Our Composite (net-of-fees) gained approximately +1.5% during the second quarReview and Outlook

Our Composite (net-of-fees) gained approximately +1.5% during the second quarter of 2014. This tiny gain is below both the gain in the Standard & Poor’s 500 Index of +5.2% and the gain of +5.1% in the Russell 1000 Growth Index.

Our worst performers during the second quarter were Coach (-30.6%), Express Scripts (-7.7%) and Perrigo (-5.7%). Our best performers during the quarter were Apple (+21.9%), Schlumberger (+21.4%) and National Oilwell Varco (+18.0%).

The foundation of our investment philosophy is that investing in the stock is most successful when its most business like. Investing through the prism of a “successful business owner” requires the right combination of temperament and behavior. Specifically, success requires, no, demands, the temperament to view booming stock prices as increasing risk and crushing stock price declines as increasing opportunity. Many professional and lay investors profess to possess a contrarian element to their investment behavior and attitude, but far fewer are able to repeatedly execute when the chips of extreme fear or greed are on the table. Furthermore, successful stock market investing requires the preparation and execution of a marathoner, not a sprinter. At Wedgewood we attempt to amplify this “business owner” edge through significantly higher conviction by means of a focused portfolio of just twenty stocks. Such high conviction investing is quite the exception, rather than the norm in the world of institutional investing.

Our “marathon” goal, as it were, is to outperform both the stock market - and our peers - over the course of multiyear investment cycles, and without taking imprudent risk. Lofty goals indeed. Nonetheless, that is our mission at Wedgewood. Critical to our mission ends is the means to which we construct our twenty stock portfolio that by investment process definition must look very different than stock market indices, any related style benchmarks - and the portfolios of our peers. Said another way, the successful focused investor must accept the reality that the return set from a high conviction portfolio will by definition look very different over the sprinted course of a month, quarter, as well as over a year or two. In our view, the most critical attribute of a successful focused investor is not to go wobbly when oneter of 2014. This tiny gain is below both the gain in the Standard & Poor’s 500 Index of +5.2% and the gain of +5.1% in the Russell 1000 Growth Index.

Our worst performers during the second quarter were Coach (COH) (-30.6%), Express Scripts (ESRX) (-7.7%) and Perrigo (PRGO) (-5.7%). Our best performers during the quarter were Apple (AAPL) (+21.9%), Schlumberger (SLB) (+21.4%) and National Oilwell Varco (NOV) (+18.0%).

The foundation of our investment philosophy is that investing in the stock is most successful when its most business like. Investing through the prism of a “successful business owner” requires the right combination of temperament and behavior. Specifically, success requires, no, demands, the temperament to view booming stock prices as increasing risk and crushing stock price declines as increasing opportunity. Many professional and lay investors profess to possess a contrarian element to their investment behavior and attitude, but far fewer are able to repeatedly execute when the chips of extreme fear or greed are on the table. Furthermore, successful stock market investing requires the preparation and execution of a marathoner, not a sprinter. At Wedgewood we attempt to amplify this “business owner” edge through significantly higher conviction by means of a focused portfolio of just twenty stocks. Such high conviction investing is quite the exception, rather than the norm in the world of institutional investing.

Our “marathon” goal, as it were, is to outperform both the stock market - and our peers - over the course of multiyear investment cycles, and without taking imprudent risk. Lofty goals indeed. Nonetheless, that is our mission at Wedgewood. Critical to our mission ends is the means to which we construct our twenty stock portfolio that by investment process definition must look very different than stock market indices, any related style benchmarks - and the portfolios of our peers. Said another way, the successful focused investor must accept the reality that the return set from a high conviction portfolio will by definition look very different over the sprinted course of a month, quarter, as well as over a year or two.

Continue reading Rolfe's commentary here.


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