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What Do You Think of Grey Owl Capital?

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While Druckenmiller may not be a household name, he is as good as they get in the investment business: before closing up shop in 2010 near the top of his game, Mr. Druckenmiller managed $12 billion in assets and averaged annual returns of 30% since 1986.


As we wrote last quarter, “We don’t spend a lot of time worrying about single events like the

end of QEII [today’s substitute: resolution of the debt ceiling issue] because our investment

process is not based on forecasting and we very rarely make binary bets. Our objective is to

build portfolios that can outperform in myriad possible scenarios. We seek out investments

where the price embeds a margin of safety.” The issue is not the debt ceiling debate or the

specific end of one of the Fed’s interventions.


Rather, the issues are excessive debt in the US and the developed world in general, a US economy artificially propped up by unsustainable

fiscal and monetary intervention, and overvalued assets across the board. Capitol Hill is arguing over $1-2 trillion in cuts over 10 years when the Federal government is already $14 trillion dollars in debt, has between $50 and $100 trillion in unfunded liabilities, and is running a current deficit of $1.5 trillion dollars.




We discuss the recent, elevated correlation of stock price movements and the macro-driven nature of today's investment markets.  In this context, we detail the rationale for our investment in Microsoft.




From a base of $10.5B in 2000, Microsoft grew free cash flow (i.e. operating cash flow less capital expenses) to $22B in 2010.  This is a CAGR (compound annual growth rate) of 7.7%.  The total free cash flow generated over this ten year period was $155B.  During that same period, Microsoft returned to shareholders $142B in cash via dividends and stock buybacks.  In other words, Microsoft returned 92% of all the cash they generated to shareholders!
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