Punch Card Capital, L.P. is a low-key investment management firm based out of Winter Park, Florida. It is a hedge fund with assets under management (AUM) of $582 million (according to form ADV from 2021-03-29). Their last reported 13F filing for the fourth quarter of 2021 included $390,572,000 in managed 13F securities and a top 10 holdings concentration of 100.0%.
Punch Card is run by hermit-like superinvestor Norbert Lou. Andrew Brown of Interactive Brokers summarized his findings on Lou as follows:
"This is the basic information I have found about Norbert Lou and Punch Card Capital. Fund Age: 17 Years (started in 2004), Norbert Lou's Age: 47, Fund Size: $300 Million, Performance: 14%+pa as of 2011 (estimated 27% pa as of 2018), Philosophy: Long only, no shorting, concentrated portfolio.
Norbert’s skill is he is a deep reader and patient investor. There are currently only three stocks in his portfolio, therefore it is high conviction. Only the very best ideas make it into the portfolio. I don’t think he has had more than six positions at any one time. No leverage. Hunts for undervalued and under followed companies that can compound at extraordinary rates. Smaller Caps preferred. Holds plenty of cash, around 25% and still able to get market beating returns."
Here are Punch Card's current holdings, based on its latest 13F report:
| Stock | Sector | Shares Heldor Principal Amt | Market Value | % ofPortfolio | Previous% of Portfolio | Rank | Change inShares | % Change | % Ownership | Qtr 1stOwned | EstimatedAvg Price Paid | Quarter End Price |
| BRK.A | FINANCE | 349 | $157,281,000 | 40.27 | 37.23 | 1 | No Change | 0% | 0.0563% | Q4 2014 | 226,000.00 | 450,662.00 |
| ALLY | FINANCE | 3,290,300 | $156,651,000 | 40.11 | 43.55 | 2 | No Change | 0% | 0.9497% | Q1 2020 | 16.90 | 47.61 |
| WGO | CONSUMER DISCRETIONARY | 1,022,953 | $76,640,000 | 19.62 | 19.22 | 3 | No Change | 0% | 3.0678% | Q1 2019 | 30.77 | 74.92 |
Punch Card's portfolio is obviously highly concentrated. Each position reflects an extraordinary conviction which can make or break the portfolio. Given Lou's estimated 27% annualized return, the odds are heavily on the "make" side.
The largest position, Berkshire Hathaway's A shares (BRK.A, Financial), has been held since 2014. Actually, it's likely been there even longer, as the position was inherited when Berkshire acquired Burlington Northern Santa Fe Railways. I think Berkshire remains undervalued. It's like an AAA bond which delivers double digit returns with very low risk. Also, as long as he does not sell the position, he does not have to pay taxes and the retained earnings keep compounding.
Ally Financial (ALLY, Financial) was acquired during the brief Covid bear market. Below is Punch Card Management's active holding history forAlly:
| Period | Shares | % of Portfolio | Activity | % Change to Portfolio | Reported Price |
| 2021 Q4 | 3,290,300 | 40.11 | $47.61 | ||
| 2021 Q3 | 3,290,300 | 43.55 | $51.05 | ||
| 2021 Q2 | 3,290,300 | 43.20 | $49.84 | ||
| 2021 Q1 | 3,290,300 | 41.11 | $45.21 | ||
| 2020 Q4 | 3,290,300 | 39.11 | $35.66 | ||
| 2020 Q3 | 3,290,300 | 33.39 | $25.07 | ||
| 2020 Q2 | 3,290,300 | 28.78 | Add 84.48% | 13.18 | $19.83 |
| 2020 Q1 | 1,783,553 | 12.97 | Buy | 12.97 | $14.43 |
The stock has more than doubled since the initial acquisition. The GF Value chart shows the company is modestly overvalued. So why does Punch Card continue to hold it?
Again, I think some clues can be found in the GuruFocus valuation panel. Note the high Graham Number as compared to the stock price. The Graham Number is a figure that measures a stock's fundamental value by taking into account the company's earnings per share and book value per share. The Graham number is the upper bound of the price range that a defensive investor should pay for the stock. The Graham Number shows a very large margin of safety.
Perhaps Lou is looking at traditional valuation metrics such as the Graham number in conjunction with the high return on equity (18.7%). Ally also continues to buy back stock rapidly having bought back over 25% of its stock in the last 5 years. Punch Card aims for multi-baggers, not short-term trades, so this is likely a long-term hold.
The third position in Lou's equity portfolio is just over a million shares of Winnebago Industries (WGO, Financial). This position was started in the first quarter of 2019.
Again, the stock has more than doubled since acquisition. Below is the active holding history for the firm's Winnebago position:
| Period | Shares | % of Portfolio | Activity | % Change to Portfolio | Reported Price |
| 2021 Q4 | 1,022,953 | 19.62 | $74.92 | ||
| 2021 Q3 | 1,022,953 | 19.22 | $72.45 | ||
| 2021 Q2 | 1,022,953 | 18.31 | $67.96 | ||
| 2021 Q1 | 1,022,953 | 21.69 | $76.71 | ||
| 2020 Q4 | 1,022,953 | 20.44 | $59.94 | ||
| 2020 Q3 | 1,022,953 | 21.40 | $51.67 | ||
| 2020 Q2 | 1,022,953 | 30.06 | Reduce 57.12% | 40.05 | $66.62 |
| 2020 Q1 | 2,385,740 | 33.44 | Add 71.44% | 13.94 | $27.81 |
| 2019 Q4 | 1,391,550 | 30.67 | $52.98 | ||
| 2019 Q3 | 1,391,550 | 26.40 | $38.35 | ||
| 2019 Q2 | 1,391,550 | 25.65 | $38.65 |
The GF Value indicates that the company is still significantly undervalued.
GuruFocus indicates exceptional profitability, growth and valuation for Winnebago. The company has a GuruFocus profitability rank of 9 out of 10, driven by a return on equity of 32.15% and an operating margin of 11.74%, and a valuation rank of 9 out of 10, with a price-earnings ratio of 6.71 and a price-sales ratio of 0.55.
To Lou's credit, he identified this compounding opportunity early. However, I think this stock has much further to go, and given Punch Card's interest, it is likely to become a multi-bagger.
Since the beginnning of the pandemic, the sales and profitability of the company have exploded given people's interest in mobile homes, recreational vehicles and boats. Given the increasing disparity in wealth in the U.S., unsurprisingly there is more and more wealth in the top 19% of the population for "toys for adults" such as boats and RVs (as a corollary, the sales of personal jets are booming for the top 1%). Meanwhile, there is also higher demand for mobile homes and RVs for those who have been priced out of the housing market and need a cheaper place to live. Again, all indications indicate the increasing disparity of wealth will continue to widen, and companies like Winnebago will continue to prosper from this for a long time.
Conclusion
Lou is an exceptional independent thinker whose portfolio is as different from an index as can be; in fact, one might even call him an anti-indexer. His modus operandi is to concentrate and then concentrate some more on his best ideas. By necessity, they have to compounding machines in order to gain Lou's interest, based on the historical success of the firm. He rarely takes a position, and when he does, it's a big one. For us mere mortal investors, this means we better pay attention, 'cause if Lou has an investing idea, it's going to be a good one!
