Longleaf Partners Annual Letter to Shareholders 2009

"A macro oriented investor could have logically decided on January 1, 2009 (or in March when stocks were meaningfully lower) that with the horrible global economy, the teetering banking systems across multiple countries, and the extremely weak stock markets, it was a good time to sit on the sidelines until some economic clarity emerged. By contrast, an intrinsic value investor who focused on the free cash flow that certain well-run, competitively advantaged companies generated – even in a severe recession – would have purchased those cash flow streams at incredibly low multiples, i.e. high cash flow yields. Those who chose the macro route and parked in cash missed what was the best purchase point for equities in our lifetime and earned virtually nothing on their liquidity."

"The collective quality and strength of the businesses we own is unprecedented. Our management partners have delivered their companies through the worst of times and positioned them as stronger competitors. P/V’s are near or below the long-term average from which we have compounded successfully. Not only are the Funds quantitatively attractive, but the “V’s”, or appraisals are extremely conservative and probably understated. The returns of 2009 reflected excessively cheap prices moving to more normal discounts. None of the last twelve months’ return was generated by value growth. Going forward our businesses are capable of double-digit value growth given the anemic operating results in 2009 as their base. Any cyclical economic recovery will amplify this growth. The foundation for the next five years is in place to not only protect our partners’ capital, but earn better-than-adequate returns."