Ruane, Cunniff & Goldfarb Inc.
9 West 57th Street – Suite 5000
New York, NY 10019
Tel: (212) 832-5280
Fax: (212) 832-5298
April 19, 2016
Dear Clients and Shareholders:
The quarter ended March 31 was both painful and eventful. Valeant Pharmaceuticals began the
year as our largest position and declined by 74% over three months. It was responsible for more
than 100% of our negative return of -11.3%, as the rest of the Sequoia portfolio was up 4.5%. The
S&P 500 Index rose 1.3% during the quarter.
Without minimizing the disappointment we feel over this performance, the purpose of this letter
is to tell you what happens next. One change you already know about. Our brilliant long-time
CEO, mentor and friend Robert D. Goldfarb elected to retire in March at age 71 after an
extraordinary career.
We have spoken to many of you over the past month and Bob’s retirement has been a subject of a
number of those discussions. I think most of you know that we inherited more from Bill Ruane
than a track record. He created a special place that feels more like a family than a firm. We value
collaboration, collegiality and kindness and we have an uncommon approach to investing. The
core of our investment team remains in place and is enthusiastic about the future. I can assure you
our culture will not change, nor will our intense emphasis on bottom-up stock research.
Looking ahead, while I am now the portfolio manager of Sequoia, we have established an
investment committee that will have a meaningful say in portfolio analysis and construction.
Research here has always been a collaborative function, now we’ve formalized it.
I am pleased to report that our colleague of 13 years, John Harris, will be part of the committee.
John, 39, is a brilliant analyst and portfolio manager. He spent several years working closely with
Bob while covering several holdings in the Fund’s portfolio, including Progressive Corp., at that
time our second-largest holding. John runs a private investment partnership under the Ruane
umbrella. He will continue to manage his partnership but will be fully involved in Sequoia’s
research.
Other members of the investment committee will include Arman Gokgol-Kline, Trevor Magyar
and Chase Sheridan, three of our most talented senior analysts. Arman has worked here for 14
years and Trevor and Chase for nearly a decade each, and together they’ve generated many of the
ideas in our portfolio.
I’m happy to say that Greg Alexander will be involved as a resource and investment consultant
whenever we need him. Greg, who joined Ruane Cunniff after graduating from college in 1985,
runs an affiliated investment partnership focused on international stocks. Greg and I have been
speaking daily and his informal involvement will only help Sequoia going forward.
Beyond this group, we have a talented bench of experienced stock analysts. Notable among them
is Jonathan Brandt, who sits on the panel of three analysts that asks questions of Warren Buffett
and Charlie Munger at the Berkshire Hathaway annual meeting each year. Jon has worked at
Ruane Cunniff since 1994 and I like to think of him as the firm’s investing conscience. He will be
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making sure we’re doing what Bill Ruane would want us to do. He’s an incredible asset and
we’re lucky to have him on board. With Bob resigning, Jon and I have taken over the firm’s
research on Valeant.
To provide more frequent communications to you, we will, going forward, write a quarterly letter
with our thoughts on the portfolio. Be forewarned, our thoughts don’t change that much from
quarter to quarter. We will make upgrades in the coming months to our sequoiafund.com
website. We also would like to make it easier for clients to view their account statements online
and expect to offer better online access later this year. We’ve had a number of requests from
investors who would like to get into the Fund at these levels, so we are considering
recommending to the Board that Sequoia reopen in the proximate future. Prospective investors
should keep in mind the Fund has significant unrealized capital gains and should consult with
their tax advisors before investing.
Those are some of the changes. Many things will not change. We will continue to manage
focused portfolios that concentrate on a relatively small number of stocks that we have researched
rigorously. Our top 10 holdings often will amount to more than half of our assets under
management. As an investor, you should remain aware that a concentrated portfolio can deliver
annual results that diverge significantly from the S&P 500 Index. Over many years, we believe
that this focus has generated satisfactory results for shareholders.
We will hold our annual Investor Day meeting on May 20 at the Plaza Hotel in New York City.
Traditionally, we have answered your questions for about two hours. This year, we will give a
formal presentation first and then leave plenty of time for questions. We expect a large turnout
and in order to accommodate our clients, we will be sending a ticket that must be presented to
gain admission. Sequoia shareholders who own the Fund through an intermediary such as Charles
Schwab and therefore do not receive mailings from us, should bring their most recent monthly
statement to verify ownership of the Fund. We expect to turn away people who lack tickets and
cannot document Fund ownership. We apologize in advance, but given space constraints we must
prioritize clients over non-clients.
Another thing that won’t change: we will always try to do the right thing for Sequoia
shareholders. When large shareholders sell their Fund shares, we retain the right to pay them with
securities rather than cash. This reduces the unrealized capital gain in the Fund for what we
believe is a minimal inconvenience to the exiting shareholder. A recent news article attempted to
portray this as unusual. Redeeming in-kind is what we have done for many years, for the simple
reason that it is tax efficient for all Sequoia shareholders.
During the first quarter, we realized capital gains in Sequoia when Precision Castparts was sold to
Berkshire Hathaway. We also took a large short-term loss in March by selling some Valeant
shares that had been purchased last year at much higher prices. At the end of the quarter, the net
realized capital gain at Sequoia was $2.32 per share.
Our basic philosophy—buying stocks at a discount to intrinsic value on the basis of intensive
research and then letting strong management teams create value for us—remains in place. Our
overall performance over the 10-year period ended March 31 is not up to our standard at a 6.0%
net annualized return1 vs. 7.0% for the S&P 500 Index. However, we are at work meeting with
companies and continuing the never-ending search for the kind of ideas that have built our record
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over decades. We look forward to reporting to you on our progress in the months and years
ahead.
On behalf of everyone at Ruane, Cunniff & Goldfarb,
David M. Poppe
Disclosures
Please consider the investment objectives, risks and charges and expenses of the Fund carefully before investing. The
Fund's prospectus contains this and other information about the Fund. You may obtain a copy of the prospectus at
www.sequoiafund.com or by calling 1-800-686-6884. Please read the prospectus carefully before investing. Shares of
the Fund are offered through the Fund’s distributor, Ruane, Cunniff & Goldfarb LLC. Ruane, Cunniff & Goldfarb LLC
is an affiliate of Ruane, Cunniff & Goldfarb Inc. and is a member of FINRA.
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance
Corporation or any other government agency. Shares of the Fund may be offered only to persons in the United States
and by way of a prospectus.
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment):
Management Fees
Other Expenses
Total Annual Fund Operating Expenses
1.00%
0.03%
* 1.03%
* Does not reflect Ruane, Cunniff & Goldfarb Inc.’s (‘‘Ruane, Cunniff & Goldfarb’’ or the ‘‘Adviser’’) contractual
reimbursement of a portion of the Fund’s operating expenses. This reimbursement is a provision of Ruane, Cunniff &
Goldfarb’s investment advisory agreement with the Fund and the reimbursement will be in effect only so long as that
investment advisory agreement is in effect. For the year ended December 31, 2014, the Fund’s annual operating
expenses and investment advisory fee, net of such reimbursement, were 1.00% and 0.97%, respectively.
The performance data for the Fund represents past performance and assumes reinvestment of dividends. Past
performance does not guarantee future results. The investment return and principal value of an investment in the Fund
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will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. The
Fund’s 1-year, 5-year and 10-year average annual total returns through March 31, 2016 were -23.63%, 7.13% and
6.02%, respectively. Current performance may be lower or higher than the performance data quoted. Performance
data current to the most recent month-end can be obtained by calling DST Systems, Inc. at (800) 686-6884.
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