The Superinvestors of Graham-and-Doddsville: Bill Ruane

The Sequoia Fund

At the time of winding down his early investment partnerships, Buffett asked his friend Bill Ruane to set up the Sequoia Fund to ensure that the partners would have their money well looked after.

Buffett didn’t just pick Ruane’s name out a hat. He chose him because he was taught by and worked with Ben Graham. And since leaving the Graham-Newman partnership, Ruane’s performance had put many other asset managers to shame.

During its first 14 years of operation — from 1970 to 1984 — The Sequoia Fund outperformed the S&P 500 by an average of 8.2% per annum

Large-cap value

Ruane achieved his impressive returns over the years by using a strategy many investors will be familiar with: taking concentrated positions in good businesses that appeared to be trading at attractive valuations. It’s a strategy similar to the one Buffett uses today.

And here are eight key traits of Ruane’s investment strategy that helped him outperform the market consistently during his time running the Sequoia Fund.

1. First of all, forget the level of the wider market. Nobody knows what the market will do today, tomorrow or two years from now. It’s pointless to try and figure out whether the market will go up or down. The only thing that matters is the specific situation having to do with your stocks. The level of the FTSE 100 is not going to affect the everyday business activities of many companies.

2. Secondly, change your perception of the market. Look at the company as a whole, not as a piece of paper or stock ticker on a screen. If you spend your time concentrating on a company’s stock price, you’re a speculator, not an investor. Invest in the underlying business. You don’t need inside information. You don’t need charts and mumbo jumbo. It isn’t about momentum.

3. Use your own research when deciding whether or not to make an investment. This is only way you can truly get to know a company. If you don’t understand how to assess an investment correctly, find someone to manage your portfolio. Your own research is key in developing the positive convictions required to own and hold concentrated investment positions. After conducting your own, detailed analysis you’re less likely to make a silly mistake that costs you money; like selling too early.

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