Unlike with UTX, we got many surprised looks and quite a few questions from clients when Google (GOOG, Financial)(GOOGL, Financial) first showed up in our portfolio. While this investment might have looked like a "tech stock", when it traded at a mid-teens to low double-digit core FCF multiple, it was also right up our alley. Its main business of Search had - and still has - an understandable moat, with a management team that were owner operators with a proven track record, and it traded at a significant discount when we did our work to back out the then-undisclosed losses on non-core businesses. Since then, the company's primary businesses of Search, YouTube, Maps and the Play Store grew profits at double-digit rates, while newer businesses in cloud/software, autonomous driving and healthcare grew their value from very little to over $100bn. CEO Sundar Pichai and CFO Ruth Porat have been good partners. Alphabet is a good example of incorporating lessons learned from past examples of exiting a growing business too early. Our global research team worked together to continually review our case for the business, focusing on future value growth (our appraisal value grew 16% per annum over our holding period) instead of a single point in time price-to-value discount to avoid "cutting our flowers" too early, to quote Warren Buffett (Trades, Portfolio). However, we did not get so carried away that we were willing to hold it forever at any price or pile into other market favorites over the last few years at nosebleed multiples. Ultimately, we reluctantly sold the position after more than five years of ownership and a 222% return, as the price to free cash flow multiple reached a long-term high point, and the threat of economically destructive regulation seems to loom closer. We learned a lot from this investment that we look forward to putting to use in the years to come.
From Mason Hawkins (Trades, Portfolio)' Longleaf Partners Fund third-quarter 2020 commentary.
