(GuruFocus, February 25, 2010) I found this Mckinsey interview with Hedge Fund manager Lee Ainslie of Maverick. The interview happened in 2006, so read it by keeping that in mind.
There is reason to believe that validity of this interview even though almost four years have passed since then. After working for Julian Robertson for a number of years, Lee Ainslie launched Maverick in 1993, long before the interview happened. His investment style has not changed.
Maverick belongs to the “traditional” hedge fund camp in the sense that he does not use leverage, no does he play with currency, commodity, or credit derivative. They take position in stocks, long or short.
The result has been very impressive -- read my recent article in which I included his historical performance for detail.
Get back to the interview. Here is a few Q&A’s I find insightful:
Top Purchases in 4Q09
By regulation, Maverick capital does not have to disclose what stocks they are shorting. But we have a very good idea what stock they are buying and holding.
Here are the top purchases of the most recent quarter:
No. 1: CommScope Inc. (CTV, Financial), Buy: 1.73% of the portfolio - Total: 5,853,571 Shares
Commscope Inc. provides infrastructure solutions for communication networks. Commscope Inc. has a market cap of $2.36 billion; its shares were traded at around $25.14 with a P/E ratio of 12.7 and P/S ratio of 0.5. Commscope Inc. had an annual average earning growth of 2.1% over the past 10 years.
Maverick bought 5.9 million shares in 4Q09. Stock is traded today lower than it was traded at the end of 4Q09.
No. 2: DIRECTV Group Inc. The (DTV, Financial), Add: 1.74% of the portfolio - Total: 7,772,080 Shares
DIRECTV Class A is a provider of digital multichannel television entertainment, broadband satellite networks and services, and global video and data broadcasting in the United States and Latin America. Directv Group Inc. The has a market cap of $32.14 billion; its shares were traded at around $33.59 with a P/E ratio of 23.1 and P/S ratio of 1.5. Directv Group Inc. The had an annual average earning growth of 12.7% over the past 10 years.
This is a company that Maverick Capital has held for quite sometimes. In the recent quarter, the firm upped its position from 3.06 million shares to 7.77 million shares.
No. 3: Express Scripts Inc. (ESRX, Financial), Buy: 2.02% of the portfolio - Total: 2,102,384 Shares
Express Scripts, Inc. is one of the largest pharmacy benefit management companies in North America. Express Scripts Inc. has a market cap of $24.11 billion; its shares were traded at around $87.75 with a P/E ratio of 25.9 and P/S ratio of 1.1. Express Scripts Inc. had an annual average earning growth of 32.8% over the past 10 years. GuruFocus rated Express Scripts Inc. the business predictability rank of 4.5-star.
Maverick Capital bought 2.1 million shares of ESRX in 4Q09.
No. 4: Oracle Corp. (ORCL, Financial), Buy: 2.83% of the portfolio - Total: 10,385,328 Shares
Oracle Corporation is one of the world's suppliers of software for information management. Oracle Corp. has a market cap of $124.13 billion; its shares were traded at around $24.77 with a P/E ratio of 17.2 and P/S ratio of 5.3. The dividend yield of Oracle Corp. stocks is 0.8%. Oracle Corp. had an annual average earning growth of 18.2% over the past 10 years. GuruFocus rated Oracle Corp. the business predictability rank of 3-star.
Oracle is also a new position. Maverick bought 10.4 million shares in 4Q09.
No. 5: Wells Fargo & Company (WFC, Financial), Buy: 1.95% of the portfolio - Total: 6,494,800 Shares
Wells Fargo & Company is a diversified financial service company. Wells Fargo & Company has a market cap of $141.42 billion; its shares were traded at around $27.66 with a P/E ratio of 15.1 and P/S ratio of 1.5. The dividend yield of Wells Fargo & Company stocks is 0.7%. Wells Fargo & Company had an annual average earning growth of 10.8% over the past 10 years.
The Wells Fargo company is also a new position for Maverick Capital.
Conclusion
If we hold Lee Ainslie to his words, these are the companies that he thinks will outperform the market by 20% on average.
Come back and check when he sells or reduces these positions!
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Lee Ainslie for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
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There is reason to believe that validity of this interview even though almost four years have passed since then. After working for Julian Robertson for a number of years, Lee Ainslie launched Maverick in 1993, long before the interview happened. His investment style has not changed.
Maverick belongs to the “traditional” hedge fund camp in the sense that he does not use leverage, no does he play with currency, commodity, or credit derivative. They take position in stocks, long or short.
The result has been very impressive -- read my recent article in which I included his historical performance for detail.
Get back to the interview. Here is a few Q&A’s I find insightful:
Mckinsey on Finance (MOF): Let’s cut right to the question so many executives have on their minds: when Maverick considers investing in a company, what makes you say, “Yes, we want to invest” or “No, we don’t”?
Lee Ainslie: First and foremost, we’re trying to understand the business. How sustainable is growth? How sustainable are return on capital? How intelligently is it deploying that capital? Our goal is to know more about every one of the companies in which we invest than any non-insider does. On average, we hold fewer than five positions per investment professional – a ratio that is far lower than most hedge funds and even large mutual-fund complexes. And our sector heads, who on average have over 15 years of investment experience, have typically spent their entire careers focus on just one industry, allowing them to develop long-term relationships not only with senior management of most of the significant companies but also with employees several levels below.
We spend an inordinate amount of time trying to understand the quality, ability, and motivation of a management team. Sometimes we got very excited about a business with an attractive valuation only to discover that the company has a weak management team with a history of making poor strategic decisions or that is more concerned about building an empire than about delivering returns. We have made the mistake more than once of not investing in a company with a great management team because of valuation concerns – only to look back a year later an realize we missed an opportunity because the management team made intelligent, strategic decisions that had significant impact.
MOF: How do you approach valuation, and what type of returns do you target?
Lee Ainslie: We use many different valuation methodologies, but the most common at Maverick is to compare sustainable free cash flow to enterprise value. But I believe it is a mistake to evaluate a technology company, a financial company, and a retailer all with the same valuation metric, for instance. You have to recognize that difference sectors react to events in different ways and should be analyzed differently. Part of the art of investing is to be able to recognize which approach is the most appropriate for which situation over a certain period of time.
As for returns, we target stocks that we believe will under- or outperform the market by 20 percent on an annualized basis. This can be daunting goal in this lower-volatility, lower return world. Yet even in the past year, 35 percent of all the stocks in the S&P 500 either out- or underperformed the index by 20%. So it’s our job to find the best and worst performers. In the end, our success is driven by making many good decisions rather than depending upon a few big home runs. In the long run, we believe this approach creates a more sustainable investment model.
MOF: What is the typical time frame that you are thinking about when you look at an investment opportunity?
Lee Ainslie: Usually, one to three years. Having said that, we do evaluate each position every day to consider whether the current position size is the most effective use of capital. Certainly, there are times when we are very excited about any investment and take a significant position only to watch the rest of the world recognize the attractiveness of the investment and drive up the share price, which of course lowers the prospective return. Different firms handle this situation in different ways, but at Maverick, if we have developed that longer-term confidence in a business and a management team, we will typically maintain a position – though perhaps not of the same size.
Top Purchases in 4Q09
By regulation, Maverick capital does not have to disclose what stocks they are shorting. But we have a very good idea what stock they are buying and holding.
Here are the top purchases of the most recent quarter:
No. 1: CommScope Inc. (CTV, Financial), Buy: 1.73% of the portfolio - Total: 5,853,571 Shares
Commscope Inc. provides infrastructure solutions for communication networks. Commscope Inc. has a market cap of $2.36 billion; its shares were traded at around $25.14 with a P/E ratio of 12.7 and P/S ratio of 0.5. Commscope Inc. had an annual average earning growth of 2.1% over the past 10 years.
Maverick bought 5.9 million shares in 4Q09. Stock is traded today lower than it was traded at the end of 4Q09.
No. 2: DIRECTV Group Inc. The (DTV, Financial), Add: 1.74% of the portfolio - Total: 7,772,080 Shares
DIRECTV Class A is a provider of digital multichannel television entertainment, broadband satellite networks and services, and global video and data broadcasting in the United States and Latin America. Directv Group Inc. The has a market cap of $32.14 billion; its shares were traded at around $33.59 with a P/E ratio of 23.1 and P/S ratio of 1.5. Directv Group Inc. The had an annual average earning growth of 12.7% over the past 10 years.
This is a company that Maverick Capital has held for quite sometimes. In the recent quarter, the firm upped its position from 3.06 million shares to 7.77 million shares.
No. 3: Express Scripts Inc. (ESRX, Financial), Buy: 2.02% of the portfolio - Total: 2,102,384 Shares
Express Scripts, Inc. is one of the largest pharmacy benefit management companies in North America. Express Scripts Inc. has a market cap of $24.11 billion; its shares were traded at around $87.75 with a P/E ratio of 25.9 and P/S ratio of 1.1. Express Scripts Inc. had an annual average earning growth of 32.8% over the past 10 years. GuruFocus rated Express Scripts Inc. the business predictability rank of 4.5-star.
Maverick Capital bought 2.1 million shares of ESRX in 4Q09.
No. 4: Oracle Corp. (ORCL, Financial), Buy: 2.83% of the portfolio - Total: 10,385,328 Shares
Oracle Corporation is one of the world's suppliers of software for information management. Oracle Corp. has a market cap of $124.13 billion; its shares were traded at around $24.77 with a P/E ratio of 17.2 and P/S ratio of 5.3. The dividend yield of Oracle Corp. stocks is 0.8%. Oracle Corp. had an annual average earning growth of 18.2% over the past 10 years. GuruFocus rated Oracle Corp. the business predictability rank of 3-star.
Oracle is also a new position. Maverick bought 10.4 million shares in 4Q09.
No. 5: Wells Fargo & Company (WFC, Financial), Buy: 1.95% of the portfolio - Total: 6,494,800 Shares
Wells Fargo & Company is a diversified financial service company. Wells Fargo & Company has a market cap of $141.42 billion; its shares were traded at around $27.66 with a P/E ratio of 15.1 and P/S ratio of 1.5. The dividend yield of Wells Fargo & Company stocks is 0.7%. Wells Fargo & Company had an annual average earning growth of 10.8% over the past 10 years.
The Wells Fargo company is also a new position for Maverick Capital.
Conclusion
If we hold Lee Ainslie to his words, these are the companies that he thinks will outperform the market by 20% on average.
Come back and check when he sells or reduces these positions!
GuruFocus provides real time information and insights of Investment Gurus such as Warren Buffett and Lee Ainslie for Premium Members. If you are not a premium member, click here to sign up or upgrade. 7-Day Free Trial is available.
Also check out:
