Sequoia Fund's 2001 letter to shareholders, written after Enron

What to notice

1. 1

   The letter argues that security analysis had become an exercise in separating truth from half-truths, and that the incentives of executives, directors and auditors would now push towards more honest reporting.

About this letter

The four principals of Sequoia Fund's manager, Ruane, Cunniff & Co., signed this letter on 19 February 2002, and it opens the fund's annual report for 2001, filed with the SEC on form N-30D, the form funds used before N-CSR. The fund returned about 10% in a year when the S&P 500 fell by about 12%.

The letter is short, and most of it is about Enron, which had filed for bankruptcy in December. The managers set the scandal beside the attacks of September 11th as a dividing line, and argue that self-interest as much as regulation will push chief executives, directors, audit committees and accounting firms to behave differently. They also explain why they keep large positions in a few companies, and why they found few new purchases in 2001: after a decade of gains, valuations still looked generous to them.

Companies

• Enron

Themes

• governance
• concentration
• valuation
• long term thinking