You may remember Gifford, my hedge fund manager friend, who flits between the East and West coasts while managing a long/short equity fund domiciled in the Cayman Islands. He wrote to me and the other investors in his fund this week and I’d like to share what he had to say.
He describes in some detail the dilemma facing the British administration in Germany after the war over the badly bombed weapons and aeroplane plant at Wolfsburg. No British company was interested so Henry Ford II was invited to inspect the site and turned down an offer to give it to his company for nothing. It then started to build cars under German ownership and export them to the US. By 1972 Volkswagen had sold over 15 million Beetles, more than Ford’s Model T. Today VW is the second-largest producer of cars in the world, just behind Toyota.
Earlier this year its net worth exceeded 90 million euros and it was earning about 12 million euros, before tax, on tangible equity of about 30 million euros. Gifford identified it as a much better investment than Ford but he didn’t expect 60 billion euros of goodwill to be wiped out by VW cheating about diesel emissions. His fund has lost 10.65% up to end September this year. Fortunately the VW holding was small and the fund is sufficiently diversified to absorb the loss, nevertheless he has written to tell us about it.
I wrote recently about unexpected events impacting the performance of individual stocks and here is a text book example. Here is also an unusual example of a fund manager explaining a mistake. He never boasts about his good market calls although he could. His fund has returned an annual average of more than 14% since he started managing it in 1998.