The late Bill Ruane, who passed away in October 2005, kept his head when most others lost theirs. Ruane had been managing the Sequoia Fund SEQUX since 1970, and with great success. A $10,000 investment in the fund back in 1970 would have been worth $1.7 million at the end of 2004. At many times, Ruane's investing strategy mirrored Warren Buffett's, and not by coincidence. Both of these great investors studied under Ben Graham at Columbia University, and even worked for him for a while. That's why such terms as "intrinsic value" and "margin of safety" often showed up in Ruane's vocabulary. Given this, it's clear to see why, at the time of this writing, Berkshire Hathaway was the largest holding in the Sequoia Fund.
Ruane looked for companies with sound finances and strong franchises, buying only the few whose stocks traded below their intrinsic values. Further, Ruane wasn't afraid to buck traditional money management trends when necessary. For example, while many managers were scrambling to chase hot stocks to fend off underperformance, Ruane's fund would often sit on a pile of cash when he believed stock prices were too high. This strategy certainly served shareholders well over time.
Ruane may have sat on the sidelines when stocks were overheated, but when he believed strongly in a stock, he was willing to bet big. For example, Berkshire Hathaway at times made up around 30% of the fund's assets. Other companies also often made up a big piece of the Sequoia pie. Ruane was usually comfortable with these large positions because of the wide margin of safety he required before investing. Even if things turned bad temporarily, the margin usually acted as a cushion, preventing any significant losses--this is value investing at its best.
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