(By Gavin Graham) Our latest recommendation Leucadia National
) is a diversified conglomerate with a long-term approach; indeed, the company could be viewed as another Berkshire Hathaway.
has been run by the duo of Ian Cumming and Joseph Steinberg since 1978.
Over that time, book value has compounded at 18.5% per year, compared
to 8% for the S&P 500 with dividends reinvested. Leucadia's market
price and shareholders' equity have compounded at 19.8% and 19.1%
respectively over that period.
This excellent track record has not come without volatility. Although
Leucadia's stock was up eight out of past 10 years, it fell 58% in 2008,
compared to a 37% decline in the S&P 500, and was down 22% last
year while the index was up 2%.
However, volatility is not the
same as risk. Warren Buffett has famously said he would much rather make
a lumpy 15% than a smooth 12%, especially as the lumpiness of the
return will deter investors who have a low tolerance for volatility.
Cumming and Steinberg fall into the same camp and an examination of
their largest and single most successful investment reveals a great deal
about the reasons for their success.
Believers in the long-term
growth of Chinese demand, in August 2006 Leucadia invested $400
million, or almost 15% of its shareholders' equity, in Australian
start-up iron ore miner Fortescue Metals Group.
has proven to be an enormous success, and Leucadia has taken the
opportunity to crystallize profits. It sold 117.4 million shares last
year for $732.2 million, as well as receiving $193 million in royalties
net of withholding taxes.
It sold another 100 million shares for
$506 million in the first quarter of 2012, leaving it with 30.586
million shares worth $186 million and another seven years on the royalty
note. Leucadia has taken the same bold approach to several of its other
investments. It swapped its interest in a Spanish copper project, Cobre
Las Cruces, for a shareholding in Canadian miner Inmet, becoming largest
Leucadia also owns a 29% stake in
Jefferies, which cost $980 million. Jefferies is a leading U.S. middle
market full-service investment bank and broker, with 30 offices in 11
countries. Messrs. Cumming and Steinberg sit on its board of directors.
increased its position in Jefferies in 2008-09, when investment banks
were probably the least popular sector in the entire market. Its
willingness to take large positions when it is convinced of the
underlying soundness of the business has been a hallmark of its