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LONGLEAF PARTNERS FUNDS'
MASON HAWKINS, C.T. FITZPATRICK & STALEY CATES
(continued from preceding
page)
Hawkins: It's a mistake in the short term. But it's also a long-term opportunity. The [roughly] 5% position that we had at the end of the second quarter has been added to as the stock has declined and our discount to appraisal has increased.
We're at a short-term period here in a long-term game where our short-term results have been affected by one of our holdings. Those short-term results are the price that we pay to be long-term investors. And if you can't handle the short-term volatility in an equity portfolio, then you probably aren't going to add a lot of value over time.
We need mispricing in the equity markets in order to commit big dollars at big discounts to appraisal. And if we didn't have this consternation and this concern about short-term issues…
Wall Street liked Waste Management universally at $54. There was not a single analyst that said it wasn't a great growth company and that it wasn't wonderful to own. And almost collectively, none of them like it at $17….
In the short run, the market is a voting machine and in the long run it's a weighing machine - to quote Ben Graham. In June, it was voting in the greed mode. Today, it's voting in the fear mode - at the other extreme of the spectrum.
And that big swing - from love to hate, if you will - gives us the kind of opportunities that we seek and pursue in order to buy $1 bills for 50¢. So even though this volatile stock price has affected our short-term results, we're highly convinced that it will add to our long-term compounding.
WE APPRECIATE THE OPPORTUNITY TO BUY MORE.
WMI's landfills are incredibly valuable assets.
Staley Cates: I would throw out one more thing about that - which
gets to the underlying value of the assets. The disproportionate amount of Waste Management's value
lies in its landfills. It's not in its trucks that you see driving around or the dumpsters - which
is just a really mediocre business that any of us could get into and try to be competitive in.
The value's in the landfills - which very few of us could get into even with
a lot of capital because of environmental constraints, where supply is going down as the government
shuts down municipal landfills that don't do it right, that don't have liners and that don't comply
with EPA rules and so on. Those landfills are an incredibly valuable asset. And that's where the
lion's share of Waste Management's value lies.
Allied and Waste Management together now have about two thirds of the part
of our nation's landfill capacity that isn't municipal. That's one of the reasons why we don't have
a problem waiting 12-18 months for the computer systems to merge, a good, new CEO to be named and
all that type of thing - because the landfill value isn't changing anything like a stock price drop
from $54 to $17.
Hawkins: And when Fresh Kills closes in New York, I can assure you that they're not going to let it pile up in Manhattan. They've got to put it somewhere. And that is only going to add to our earnings power long term.
Page 6 of 12
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