Managing Your Portfolio 169Bill Ruane
Buffett f irst met Bill Ruane in 1951, when both were taking Ben Gra-
ham’s Security Analysis class at Columbia. The two classmates stayed in
contact, and Buffett watched Ruane’s investment performance over the
years with admiration. When Buffett closed his investment partnership
in 1969, he asked Ruane if he would be willing to handle the funds of
some of the partners, and that was the beginning of the Sequoia Fund.
It was a diff icult time to set up a mutual fund. The stock market
was splitting into a two-tier market, with most of the hot money gyrat-
ing toward the so-called Nifty-Fifty (the big-name companies like IBM
and Xerox), leaving the “value” stocks far behind. Ruane was unde-
terred. Later Buffett commented, “I am happy to say that my partners,
to an amazing degree, not only stayed with him but added money, with
happy results.”^17
Sequoia Fund was a true pioneer, the f irst mutual fund run on the
principles of focus investing. The public record of Sequoia’s holdings
demonstrates clearly that Bill Ruane and Rick Cuniff, his partner in
Ruane, Cuniff & Company, managed a tightly focused, low-turnover
portfolio. On average, well over 90 percent of the fund was concentrated
between six and ten companies. Even so, the economic diversity of the
portfolio was, and continues to be, broad.
Bill Ruane’s point of view is in many ways unique among money
managers. Generally speaking, most managers begin with some precon-
ceived notion about portfolio management and then f ill in the portfolio
with various stocks. At Ruane, Cuniff & Company, the partners begin
with the idea of selecting the best possible stocks and then let the port-
folio form around these selections.
Selecting the best possible stocks, of course, requires a high level of
research, and here again Ruane, Cuniff & Company stands apart from
the rest of the industry. The f irm eschews Wall Street’s broker-fed re-
search reports and instead relies on its own intensive company investi-
gations. “We don’t go in much for titles at our f irm,” Ruane once
said, “[but] if we did, my business card would read Bill Ruane, Re-
search Analyst.”^18
How well has this unique approach served their shareholders?
Table 10.2 outlines the investment performance of Sequoia Fund from
1971 through 2003. During this period, Sequoia earned an average