Welcome

Hendershot Investments, Inc., founded in 1994, provides professional investment advisory services. We are devoted to helping you improve your long-term financial success. Our personalized service is designed to grow and conserve your wealth by investing in high-quality, well-managed companies. Hendershot Investments is subject to a stringent overarching fiduciary duty that requires investment advisers to act in the best interests of clients and to place the interests of clients before their own. “Best interest” is defined as acting with the care, skill, prudence and diligence of a prudent person acting in a like capacity, and as considering the aims, investment objective, risk tolerance, financial circumstances and needs of the investor without regard to the financial or other interest of the individual adviser or their firm.

We encourage you to read our brochure and explore our site to learn more about the services we provide. Should you have any questions or would like more information on our firm, please email us or call us at 703.361.6130. We look forward to hearing from you.

The finest compliment we receive is a referral from our friends and clients.

Interview with Ingrid Hendershot on Value Investor with Chris Swatta show on 3-11-17 available for replay:  http://www.sportstalk570.com/

 Our Twenty Year Anniversary Special Edition demonstrates our investment strategy by chronicling events of the last two decades through excerpts from past issues.

NEW: Berkshire Hathaway 2017 Annual Meeting Notes

HI-Quality Company Updates
Thursday, June 22, 2017
Accenture-ACN
reported third quarter net revenues rose 5%, or 7% in local currency, to $8.9 billion with net income dropping 26% to $705 million and EPS down 25% to $1.05. The earnings reflect a $510 million, or $.47 per share, pension termination settlement charge. Excluding the charge, operating income rose 5% to $1.38 billion with a 15.5% operating margin consistent with the prior year and EPS rose 8% to $1.52. New bookings for the quarter were $9.8 billion with record consulting bookings of $5.2 billion and outsourcing bookings of $4.6 billion. During the quarter, the company gained significant market share with broad-based growth across most of the business from an industry, geographic and capability standpoint. On a geographic basis, Growth Markets, including Japan and Australia, led the way with strong double-digit growth. Growth in the operating groups was led by Products with 15% growth during the quarter. “The New” digital, cloud and security services generated strong double-digit growth which now approximate 50% of revenues. For the first nine months of the year, Accenture’s free cash flow increased 20% to $2.7 billion with the company paying $1.6 billion in dividends and repurchasing $2 billion of its shares, including 4.9 million shares repurchased in the third quarter for $589 million at an average price of $120.50 per share. Accenture has $3.7 billion authorized for future share repurchases. Accenture also made $1.2 billion in acquisitions year-to-date with its strong balance sheet with $3.4 billion in cash and minimal long-term debt providing the company with financial flexibility to grow the business while returning significant cash to shareholders. For the full year fiscal 2017, Accenture now expects net revenue growth to be in the range of 6% to 7% in local currency compared to previous guidance of 6% to 8% growth. Including the impact of the pension charge, GAAP EPS is now expected in the range of $5.37 to $5.44. Free cash flow is still expected to be in the range of $4.0 to $4.3 billion for the full year.

Berkshire Hathaway-BRKB announced that it has agreed to make an initial investment of C$153,225,739 to acquire 16,044,580 common shares of Home Capital Group Inc.  on a private placement basis, representing an approximate 19.99% equity stake in Home Capital on a post-issuance basis (25% on a pre-issuance basis). Berkshire also agreed to make an additional investment of C$246,774,261 to acquire 23,955,420 Common Shares on a private placement basis, which, together with its initial investment, would represent an approximate 38.39% equity stake in Home Capital. Concurrently with the execution of the Investment Agreement, Home Capital caused Home Trust Company, as borrower, to agree to enter into a new C$2 billion loan facility with a wholly-owned subsidiary of Berkshire, as the agent and initial lender, to be secured against a portfolio of mortgages originated by Home Trust Company.

Wednesday, June 21, 2017
Oracle-ORCL
reported fourth quarter revenues rose 3% to $10.9 billion led by a 58% increase in total cloud revenues to $1.4 billion, topping the $1 billion milestone for the first time in a quarter. Net income and EPS each increased 15% during the quarter to $3.2 billion and $.76, respectively. The company continues to experience rapid adoption of the Oracle Cloud led by the 75% growth in their Software as a Service (SaaS) business in the fourth quarter. For the full fiscal 2017 year, revenues rose 3% to $37.7 billion as cloud revenues jumped 60% to $4.6 billion with software license updates and product support up 2% to $19.2 billion. Net income for the year increased 5% to $9.3 billion with EPS up 7% to $2.21. Return on shareholders’ equity for the year was a solid 17.2%.  Free cash flow dipped 3% to $12.1 billion as the company continued to invest in its cloud capital expenditures. In fiscal 2018, cloud capital expenditures should stabilize around $1 billion. During the year, the company paid $2.6 billion in dividends and repurchased a net $1.4 billion of its own shares including 11 million shares in the fourth quarter for $500 million at an average price of $45.45 per share. The cloud hyper-growth is expanding Oracle’s operating margin as SaaS gross margin is expected to expand to close to 80% by year end. Accordingly, management expects EPS growth to accelerate in fiscal 2018 with double-digit EPS growth expected for the full year. AT&T has agreed to migrate thousands of existing Oracle databases to the Oracle Cloud with more big customers expected to do large-scale migrations to the Oracle Cloud in the year ahead.

Monday, June 19, 2017
Stryker-SYK
announced a definitive agreement to acquire NOVADAQ Technologies Inc. for $11.75 per share, or $701 million with a net purchase price of $654 million, reflecting net cash of approximately $47 million. NOVADAQ is a leading developer of fluorescence imaging technology that provides surgeons with visualization of blood flow in vessels, and related tissue perfusion in cardiac, cardiovascular, gastrointestinal, plastic, microsurgical, and reconstructive procedures.  NOVADAQ was founded in 2000 and is headquartered in Mississauga, Canada. The transaction is expected to close at the end of the third quarter and is expected to be dilutive to Stryker`s 2017 adjusted net earnings per diluted share by $0.03 - $0.05. There is no change to Stryker`s 2017 estimated adjusted net earnings per diluted share, which is in the range of $6.35 - $6.45. For 2018, this transaction is expected to be neutral to Stryker`s earnings and accretive thereafter.

International Consolidated Airlines Group S.A. (IAG) has signed a memorandum of understanding with Pratt & Whitney for the PurePower Geared Turbofan™ (GTF) engine to power 47 firm Airbus A320neo family aircraft. Pratt & Whitney is a division of United Technologies-UTX.  "Pratt & Whitney appreciates IAG's faith in the GTF engine, which has demonstrated its promised fuel burn savings, emissions, and reduction in noise footprint," said Chris Calio, president, Commercial Engines. "The PurePower GTF engine is a game-changing, break-through technology with more than 200,000 hours of passenger service. There are 67 aircraft with 13 operators flying 250 flights per day to over 100 destinations on four continents." IAG is the parent company of Aer Lingus, British Airways, Iberia and Vueling.

Accenture-ACN is leading a "call to action" and responding with blockchain and biometric technologies to support ID2020, a global public-private partnership dedicated to solving the challenges of identity faced by more than 1.1 billion people around the world. Approximately one-sixth of the world's population cannot participate in cultural, political, economic and social life because they lack the most basic information: documented proof of their existence. Establishing identity is critical to accessing a wide range of activities, including education, healthcare, voting, banking, mobile communications, housing, and family and childcare benefits. The goal of ID2020 is to make digital identity a reality through a technology-forward approach that will leverage secure and well-established systems. Accenture, in partnership with Microsoft-MSFT and Avanade, has developed an identity prototype based on blockchain technology – a type of database system that enables multiple parties to share access to the same data with an extremely high level of confidence and security.

 TIDBITS AND SNIPPETS

June 3, 2017
America’s Most Respected Companies
Barron’s list of "America’s Most Respected Companies: included the following HI-quality investments in its top ten: Alphabet-GOOGL, Apple-AAPL, Berkshire Hathaway-BRKA, Microsoft-MSFT, Johnson & Johnson-JNJ, 3M-MMM and Disney-DIS. It also included this snippet in the article about Berkshire Hathaway: “As Ingrid Hendershot puts it, Buffett has created a business with no equal in terms of management, financial strength, and shareholder returns.”

March 20, 2017
Tweedy, Browne Investing Guidelines
Snippet from the Tweedy, Browne Semi-Annual 2016 report:

"From time to time people ask us what they should do (we are flattered they should ask) and our general response is not unique. First, you are in a 10,000-meter race; don’t measure your progress by each 100-meter lap. Second, remember what you are investing for – it should extend your time horizon, which is a good thing to do. Third, don’t carry too much debt – if you don’t owe anybody anything, they can’t tell you what to do. Fourth, keep several years of living expenses in the bank. While it won’t earn much today, it will help keep you calm if there is a financial storm. Fifth, as Stuart Alsop once said in so many words, when you open the paper, turn to the sports page first; then, go to the news – it will help you emotionally, and controlling your emotions is an important part of this game. And finally, and perhaps somewhat selfserving, try to understand how the person you have entrusted some of your money to makes decisions. It should help you make sense of the world when it is seemingly making no sense and help you make an informed decision. "
http://www.tweedy.com/resources/library_docs/reports/TBFundsSemiAnnualReportSept2016.pdf

Feb. 27, 2017
Not In Bubble Territory

In a recent CNBC interview, Warren Buffett, CEO of Berkshire Hathaway-BRKB, was asked about the current market valuation after the Dow’s rapid run to 20,000. Here is a tidbit from the interview with the full transcript linked below:

"We are not in a bubble territory or anything of the sort. Now, if interest rates were 7 or 8 percent then these prices would look exceptionally high.  But measured against interest rates, stocks actually are on the cheap side compared to historic valuations. But the risk always is, is that — that interest rates go up a lot, and that brings stocks down. But I would say this, if the ten-year [Treasury] stays at 2.3%, and they would stay there for ten years, you would regret very much not having bought stocks now. If you buy a 10-year bond now, you're paying over 40 times earnings for something whose earnings can't grow. And you know, you compare that to buying equities, good businesses, I don't think there's any comparison. But that doesn't mean the stock market can't go down 20 percent tomorrow. I mean, you never know what it's going to do tomorrow, but you do know what it's going to do over ten or 20 years. And people talk about 20,000 being high. Well, I remember when it hit 200 and that was supposedly high.  You know, you're going to see a Dow that certainly approaches 100,000 and that doesn't require any miracles, that just requires the American system continuing to function pretty much as it has.
http://www.cnbc.com/2017/02/27/billionaire-investor-warren-buffett-speaks-with-cnbcs-becky-quick-on-squawk-box.html

Feb. 25, 2017

Fear Is Your Friend

Snippet from the Berkshire Hathaway-BRKB annual report:

"American business--and consequently a basket of stocks--is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Moreover, the years ahead will occasionally deliver major market declines--even panics--that will affect virtually all stocks. No one can tell you when these traumas will occur. During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well."

Feb. 14, 2017
A Love Letter to Warren Buffett
Tidbit from Fortune:
Please read the entire heartwarming letter from Bill and Melinda Gates.  It tells a story in numbers. The big one is 122 million, the number of children’s lives that have been saved since 1990 by fighting infant mortality. The Gates letter says 86% of children now receive the most important vaccines they need to live healthy lives, the highest number ever.
https://www.gatesnotes.com/2017-Annual-Letter?WT.mc_id=02_14_2017_02_AL2017_MED-TLK_&WT.tsrc=MEDTLK

Feb. 3, 2017
Invest For the Long Term
In a recent speech at Columbia University, Warren Buffett, CEO of Berkshire Hathaway-BRKB, repeated his basic investment philosophy:

"It's much easier to invest for the long term because you know what is going to happen. You know, in my view, with a very high probability you know what is going to happen 10 and 20 years from now in a major way, and I don't have the faintest idea what is going to happen tomorrow or next week."

When selecting investments, he looks for:
1. A business with a moat
"I am looking for durable competitive advantage," says Buffett. "I am looking for something that has a moat around it for a considerable period of time."

2. Strong leadership
"I am looking for an honest and able management to run [the company] because I don't know how to run it myself," says Buffett.

3. A good price for a good company
"I am looking for a purchase price that is not excessive," says Buffett. "It is better to pay a little too much for something that is a very good business than it is to buy some bargain but really a company without much of a future," says Buffett.
http://www.cnbc.com/2017/02/03/3-things-warren-buffett-looks-for-when-deciding-to-invest-in-a-company.html

Jan. 12, 2017
Expert Opinion

The latest memo from Howard Marks expounds on his opinion on opinions. Here is a tidbit:
Since I’ve discussed these things at great length over the years, I‘ll try here to sum up succinctly:
• There are no facts about the future, just opinions. Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty.
• Developments in economies, interest rates, currencies and markets aren’t the result of scientific processes. The involvement in them of people – with their emotions, foibles and biases – renders them highly unpredictable.As physicist Richard Feynman put it, “Imagine how much harder physics would be if electrons had feelings!”
• It’s one thing to have opinions on these subjects, but something very different to be confident they’re right (and act on them).
• Taking bold action based on forecasts of things that are uncertain isn’t just misguided; it’s dangerous. As Mark Twain said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for certain that just ain’t true.”
http://www.advisorperspectives.com/commentaries/2017/01/12/expert-opinion

 Nov. 23, 2016
Six Keys to Investment Success
Brian Rogers, Chairman of T. Rowe Price-TROW, shared these six keys to investment success:
1) Be An Optimist
2 )View Crises as Opportunities
3) Price Determines Success
4) Be Humble
5) Avoid Complexity
6) Avoid Investment Cults
http://www.thinkadvisor.com/2016/11/23/6-keys-to-investment-success-t-rowes-brian-rogers?eNL=5835d78b160ba0e97abf1f83&utm_source=TA_DailyWire&utm_medium=EMC-Email_editorial&utm_campaign=11232016&page=3

Stocks Are Cheap, If...
Snippet from Warren Buffett as he addressed questions from university students at the University of Maryland:

"Interest rates are to asset valuation as gravity is to matter.  It will take a lot of movement in interest rates (similar to Paul Volcker in 1981-2) before stocks are too high.  The interest rates on 30 year Treasury bonds have declined from 14 ½ % to 2 ½ % from 1982 to 2016.  Recently, the 30 year Treasury moved from 2.6% – 2.8%.  Stocks are cheap if long term rates are at 4%, four to five years from now.  “We are buying more shares than selling everyday unless interest rates move appreciably higher”.  A profitable trade would be to short the 30 year bond and go long the S&P 500 (assuming no margin calls).  But this is difficult to do on a big scale.  Borrowed money causes more people to go broke than anything else. Charlie Munger has said, smart people “go broke from liquor, ladies and leverage”.

https://blogs.rhsmith.umd.edu/davidkass/

Nov. 12, 2016
Buffett on the Stock Market and the Election

Investor Warren Buffett, CEO of Berkshire Hathaway, said "The stock market will be higher 10,20 and 30 years from now and it would have been with Hillary and it will be with Trump." Buffett added that he had been buying stocks in the weeks prior to the election and he continued to buy stocks after the election. http://money.cnn.com/2016/11/11/investing/warren-buffett-donald-trump-stock/

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Phone: 703.361.6130   Fax: 703.361.0125   Email: info@hendershotinvestments.com

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