Wallace Weitz (Trades, Portfolio), manager of Weitz Investment Management, disclosed on Monday he trimmed his holding of Redwood Trust Inc. (RWT, Financial), according to GuruFocus real-time picks.
Managing an equity portfolio of 76 stocks, Weitz combines Benjamin Graham’s price sensitivity and insistence on margin of safety with a conviction that qualitative factors that allow the company to control its destiny can be more important than statistical values like book value and earnings.
Guru comments on volatile fourth quarter
Weitz said in his shareholder letters that his Partners Value Fund returned -15.90% during fourth-quarter 2018 while his Partners III Opportunity Fund returned -11.80% on several headwinds, including the fear of escalating trade tensions and the view that a “split-controlled Congress” might undermine the “Trump Bump.”
High market volatility continued throughout January: the Dow Jones Industrial Average closed at 24,528.22, down 208 points from last Friday’s close of 24,737.20 on weak results from Caterpillar Inc. (CAT, Financial) and Nvidia Corp. (NVDA, Financial). On Monday morning, the two companies reported weak earnings guidance for the upcoming quarter primarily due to an economic slowdown in China, sending the Dow to an intraday low approximately 400 points lower than the previous close.
Guru reduces holding in REIT
Weitz sold 724,100 shares of the Mill Valley, California-based real estate investment trust, trimming the position 20.45%. Shares were trading for $15.07 per share.
Redwood Trust operates two segments: Investment Portfolio and Residential Mortgage Banking. The company seeks investments in mortgages and other real estate-related assets. Last week, the company announced in a press release it had exercised its option to acquire the remaining 80% interest of 5 Arches, LLC, completing the acquisition it initiated in May.
GuruFocus ranks Redwood’s financial strength 3 out of 10 on several weak signs, including a debt-to-equity ratio of 5 and a Beneish M-score that suggests possible earnings manipulation. Other warning signs include increasing long-term debt over the past three years.
Redwood’s profitability ranks a poor 2 out of 10 primarily due to a three-year revenue decline rate of 0.20%, which underperforms 63% of global REITs.
Disclosure: No positions.
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