In December, Ensemble Capital’s CIO, Sean Stannard-Stockton, appeared at the ValueWalk Contrarian Investor Virtual Conference to discuss their investment in First American Financial, one of the two leading title insurance providers in the US.

In the presentation, Sean discussed:

  • How First American, and a few other small companies offering title insurance, provides a very low-cost mechanism to create trust in the US real estate market which greatly reduces transaction costs that buyers and lenders would otherwise incur.
  • How First American reacted differently than its main competitor to the initial impact of the pandemic and set themselves up to capitalize on the massive recovery that occurred and the continued housing activity boom we expect to continue.
  • Why the largest cohort of Millennials is just now entering the home buying market, which will drive a wave of household formation and housing demand for a number of years to come.

(Click here to see video if you are reading this in an email)

For more information about positions owned by Ensemble Capital on behalf of clients as well as additional disclosure information related to this post, please CLICK HERE.

Yesterday afternoon, Ensemble Capital’s chief investment officer Sean Stannard-Stockton appeared on CNBC’s Squawk Box Asia to discuss Google’s blow out results and why the newly disclosed, larger than expected losses in the Cloud business segment was good news for shareholders.

(Click the link above to view the video if you are reading this in an email)

For more information about positions owned by Ensemble Capital on behalf of clients as well as additional disclosure information related to this post, please click here.

Below is the Q4 2020 quarterly letter for the ENSEMBLE FUND (ENSBX). You can find historical Investor Communications HERE and information on how to invest HEREEnjoy!

As of December 31, 2020

4Q20 1 Year 3 Year 5 Year Since
Ensemble Fund 17.54% 30.89% 20.41% 19.04% 17.55%
S&P 500 12.15% 18.40% 14.18% 15.22% 14.15%

*Inception Date: November 2, 2015

Performance data represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Performance data current to the most recent month end are available on our website at

Fund Fees: No loads; 1% gross expense ratio.

We want to begin this letter by saying thank you to our long-time investors who stuck with us this year and our new investors who saw fit to invest with us in the midst of a pandemic. While we are pleased with how we navigated the unprecedented events of 2020, we know that it is the trust our investors place in us and their willingness to maintain that trust through panic inducing times like those witnessed in March, that allows us to pursue our long-term oriented investment strategy. We know that trust is hard earned and can be easily lost, so we appreciate the role that our investors play in enabling us to succeed.

Every year offers lessons for investors who are open to learning them. The lesson this year was a reminder of just how unpredictable financial markets can be. In mid-February, just weeks before the Coronavirus began killing Americans by the thousands on a daily basis, the market was trading at what was then all time highs. On March 23rd, the US stock market bottomed, after a sickening 34% decline, as the Federal Reserve and Congress began to make clear that they would provide a level of financial support to the economy that dwarfed anything seen in the post WWII era. After an initial strong bounce, the market surprised many investors by continuing to rally for much of the year, turning positive in August and finishing the year with a gain of 18.40%.

If on January 1st of 2020, a crystal ball had revealed that a deadly pandemic would sweep the globe killing nearly two million people and sending every major economy into the sharpest recession ever recorded, not a single informed investor would have suggested that market returns for 2020 would be double the historical average annual return. Understanding why this unexpected result occurred is of critical importance in thinking about the investment opportunities and risks ahead.

At the big picture level, the market displaying very strong performance in the midst of a terrible recession is explained primarily by the fiscal stimulus provided on a bipartisan basis by Congress. The reason recessions are so bad for the stock market is because during recessions, household income declines, people spend less money, and so companies generate less profits. But the Coronavirus recession featured rising household income. While income from employment did decline by approximately $4,100 per household, the direct economic transfer payments authorized by Congress totaled $9,500, leading to a net increase in household income.

So, while the longer-term costs of Congressional action (i.e. potential concerns about debt levels and/or increased inflation) will not be known until later, 2020 actually saw the fastest ever growth in household income.

Now imagine looking at that crystal ball on January 1st and rather than mentioning the pandemic, it had told you that American households, whose spending makes up 70% of the US economy, were going to see their income supercharged to new all-time high levels. The idea that the market might go up wouldn’t have seemed so farfetched.




Investors should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. The prospectus contains this and other information about the Fund. You may obtain a prospectus at or by calling the transfer agent at 1-800-785-8165. The prospectus should be read carefully before investing.

An investment in the Fund is subject to investment risks, including the possible loss of the principal amount invested. There can be no assurance that the Fund will be successful in meeting its objectives. The Fund invests in common stocks which subjects investors to market risk. The Fund invests in small and mid-cap companies, which involve additional risks such as limited liquidity and greater volatility. The Fund invests in undervalued securities. Undervalued securities are, by definition, out of favor with investors, and there is no way to predict when, if ever, the securities may return to favor. The Fund may invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. More information about these risks and other risks can be found in the Fund’s prospectus. The Fund is a non-diversified fund and therefore may be subject to greater volatility than a more diversified investment.

Distributed by Rafferty Capital Markets, LLC Garden City, NY 11530.


During our fourth quarter portfolio update, we profiled portfolio holding NVR (NVR). Below is a replay of our live commentary on the company from our quarterly portfolio update webinar and an excerpt from our quarterly letter.

In late 2019, we started a position in homebuilder NVR. You may know them better by their consumer-facing subsidiary brands, especially Ryan Homes.

At Ensemble, we would not be interested in investing in most homebuilders. The three key attributes that we insist upon for any holding are a competitive moat, strong management, and business forecastability. At first glance, homebuilders don’t check off any of these boxes. There’s little differentiation between most home builders, their management teams tend to be pro-cyclical, and housing demand is a cocktail of hard-to-predict factors. Nevertheless, we think NVR is an exceptionally well-run business, with strong competitive advantages, and a business model that is far more forecastable than its peers.

NVR doesn’t have a traditional moat. Its unique business model is theoretically replicable, but despite NVR’s long track record of superior results, its competitors are either unwilling or unable to adjust their operations.

Like another one of our holdings, First Republic Bank, there’s a cultural reason why competitors can’t fully replicate NVR’s strategy. Homebuilders typically start out as land developers and are therefore used to and drawn to the short-term, leveraged returns that the land speculation business can bring. In contrast, NVR plays a slow-and-steady long game.

To play such a game in the homebuilding industry, NVR uses a differentiated business model. Rather than do homebuilding and land development like the rest of the industry, NVR only focuses on homebuilding. NVR uses options to control land, which gives them the right but not the obligation to buy a parcel. Compared to developers who may end up with land no one wants, NVR only exercises the option when there’s clear demand to build on the land.

Despite NVR’s land-light strategy’s success, the industry’s use of land options remains lower than it was during the housing boom in 2004-2006. It is really hard for traditional homebuilders resist the land development game.

National homebuilders also enjoy the prestige of having the largest national market share. While there are perks to this strategy, it is inefficient from an operational standpoint. Put simply, they are too spread out. In contrast, NVR focuses just on land east of the Mississippi River and aims to maximize regional market share.

NVR may not have the highest profit margins in a strong housing market, but it also does not see profits crash in a housing downturn. During the housing crisis a decade ago, NVR was the only major homebuilder to make a profit every year.

Breaking apart NVR’s return on equity into its three components, we can understand why its strategy is so successful. Most homebuilders report similar profit margins and asset turnover ratios. They then use large amounts of debt to augment their returns on equity.

NVR’s operations report higher profit margins and most importantly, they turn their inventory faster than their peers. This allows them to use less leverage to achieve strong returns on equity. By having a healthier balance sheet than its peer group, NVR is better positioned to survive and capitalize on opportunities in a downswing.

An underappreciated part of NVR’s business model is its pre-fabrication factory network. NVR has seven factories scattered across its territory, from which it pre-fabricates building materials like framing, panels, doors, and other components for its communities. Roughly 90% of NVR’s communities are serviced by its factory network and most of NVR’s communities are within 100 miles of its factories.

The pre-fab factories do a few things for NVR. They allow NVR to build off-site in all types of weather, the factories are shipping destinations for suppliers, and rather than have suppliers deliver to hundreds of sites in an area, NVR has them deliver directly to the factories, which increases supply chain and manufacturing efficiency.

We’re only just now seeing homebuilders come around to the benefits of pre-fab factories, but NVR has been using them since the 1990s. In addition, NVR has density advantages stemming from its market share strategy that will be hard to match for both upstarts and incumbents looking to make pre-fab factories work for them.

Unlike most homebuilders, NVR broadly avoids competing in top metro areas, instead opting for promising secondary and tertiary metro areas like Richmond, Virginia and Greenville, South Carolina. A key factor in homebuilder profitability is finding cheap but still desirable land. That generally means exurban locations, 25 miles or more away from the metro area, and NVR has shown a knack for identifying cheap but promising land.

Fortunately for NVR, its geographic niche is in high demand right now. COVID related quarantines and the rise of remote work opportunities has made secondary and tertiary cities as well as exurban locations more attractive than they were previously.

NVR has other tailwinds at its back, including the peak millennial cohort entering household formation years, a shortage of existing homes for sale, and low mortgage rates. Single family home starts have yet to recover from the housing crisis after a decade of underdevelopment. As you might expect, homebuilder sentiment is at all-time highs.

We think the current housing cycle has years of expansionary activity ahead, but we take additional confidence in knowing that NVR outperforms its peers in down cycles and indeed gets stronger in them. That’s why we increased our holding in March and April. The market sold off all the homebuilders, but we were confident that NVR would capitalize on any industry weakness.

Finally, another important component of our NVR thesis is our confidence in its management team who are proven top notch capital allocators. For example, they do not pay dividends because they believe them to be tax inefficient and return all free cash flow through buybacks. Buybacks also afford them flexibility during[…]

During our fourth quarter portfolio update, we profiled portfolio holding Ferrari (RACE). Below is a replay of our live commentary on the company from our quarterly portfolio update webinar and an excerpt from our quarterly letter.

“The most difficult part of my job is to say no.” – Enrico Galliera, Ferrari Chief Marketing and Chief Commercial Officer

Ferrari’s chief marketing officer finds himself in a unique position in his role in that he has to say no to customers who he has successfully persuaded to want to buy Ferrari’s product because of supply constraints.

Or its more accurate to say supply restraints since they are self  imposed by the company in order to maintain the exclusivity of its products. And this for products that cost anywhere from hundreds of thousands to a few million dollars each at very high gross profit margins. That’s quite a bit of restraint!


As cited later in the interview, Galliera goes on to say that the $1.8MM LaFerrari Aperta, was “a gift” to Ferrari’s best customers. And though that terminology sounds strange, it truly was because shortly after those LaFerrari’s landed on the customers’ driveways… they were worth double or more!

Through its cars, Ferrari delivers exclusive and unique experiences to its customers. Whether it is in the product itself, derived from its high-performance race cars as it has been since its founding by Enzo Ferrari, or through the privilege of inclusion in an exclusive club offering its members unique driving and racing experiences, all connected by their shared passion, status, and ability to afford the luxury. It’s a super exclusive club at a global scale, providing members the opportunity to connect from across the globe. Both of these aspects are important to Ferrari buyers.

Ferrari has two sets of production models, those models called its “range models” produced at a few thousand units over their lives, and its limited “special” series models that number in the hundreds in total. While the range models are the majority of its roughly 10,000 total unit sales per year, they are still priced above $200,000 and can have waiting lists that are 12-18 months long.

The more limited series cars are available to Ferrari’s best repeat customers by invitation only. These are the most exclusive, highly desired, and most valuable models, that customers must work their way up the “best customers” list to attain. That distinction also results in invitations to special company hosted events such as exclusive track days and glamorous launch events in the company of peers from around the world. Given the investment to get onto the list for a limited or special series model, with its exclusivity and appreciation potential, customers extended the opportunity tend to be very reluctant to give up their orders, for fear of losing their spot in the future to others nipping at their heels to take their place.

The result of this demand management is a highly predictable, resilient, and profitable business model even during recessionary periods. In fact, during the Financial Crisis of 2008-2009 shipments only dropped 4% amidst an auto industry that saw a 15% fall in demand. In 2020, shipments declined only because of supply constraints due to factory and supplier shutdowns related to the pandemic, while orders have continued to be strong.

As you would expect, this business model is quite unique and can be very valuable if managed well. Ferrari’s management has done a great job in handling the delicate balance between maintaining exclusivity while also increasing the size of its customer base, production volumes, and profitability of the business.

Key to their success is always building fewer cars than are demanded in the market, which of course supports pricing of both the new cars as well as used models. These are classic Veblen goods; demand increases with price precisely because they are so hard or expensive to attain. Our own analysis concludes that over the long term, to maintain that exclusivity Ferrari has to manage the pricing for its cars by making sure it is growing pricing fast enough to keep up with the growth of its customers’ wealth. That’s a unique problem to have, yet as a Veblen good it benefits the customer, the company, and shareholders.

The results of such a unique business model and a complimentary management culture have been a very lucrative investment for its shareholders with the stock nearly quadrupling the S&P 500’s performance since its IPO in 2015.

Ferrari is unique in its heritage and appeal to millions of people around the world through its connection to F1 racing, which it has raced since the competition’s founding in 1950. This has to do with the roots of its culture, imparted by its founder Enzo Ferrari 70 years ago. He was passionate about racing and in founding his Scuderia Ferrari race team built his reputation by winning often and early in the automobile’s history. There is an authenticity in what Ferrari stands for and what it promises its customers.

The result of its very profitable business model means that the company is able to offer its employees a great work environment, benefits, and mission (if you’re passionate about cars and racing), including going the extra mile to protect them and take care of their families and communities during the COVID crisis in Italy. Ferrari also helped the communities it operates in and its suppliers, whom the company views as key partners in cutting edge engineering and materials. This approach has been great for shareholders as growth, profitability, and returns attest. It’s a win-win-win model, which we love because it represents an entity where all stakeholders want the company to succeed and are willing to go the extra mile to see[…]