Longleaf Partners Fund: Value Investors in the Age of Quantum Ponzis | Buyside Digest
InsightArticleOctober 28, 20256 min read
Longleaf Partners Fund: Value Investors in the Age of Quantum Ponzis
By Genevievecjackson@gmail.com
When “Trailing the Market” Is a Compliment
It’s hard to look patient when the world’s gone manic. The Longleaf Partners Fund (LLPF) returned –0.33% in Q3 2025 and is –0.41% year-to-date, which makes it sound like they took a nap while the S&P 500 rose +14.8%.
But the partners aren’t apologizing. In fact, they practically warned you this would happen. Their Q4 2024 letter said it outright: “Sometimes it is prudent to trail the market as we were doing in 1999 and early 2000.”
And if that’s not the most prophetic sentence of 2025, I don’t know what is.
Because while the Magnificent 7 were levitating on AI fumes, Longleaf was quietly building a portfolio of 19 actual businesses with 10× free cash flow multiples and management teams that still believe in cash flow.
This is value investing in its purest, most stubborn form.
LLPF’s team admits they’re in a “late-stage bull market” where fundamentals are irrelevant and price-to-anything ratios no longer fit on a slide.
“Sometimes you have to be willing to underperform to avoid losing permanent capital,” they write.
They’ve seen this movie before. The current setup, they say, rhymes with the dot-com bubble of 1999–2000, complete with circular supplier financing, hype IPOs with no revenue, and analysts explaining why valuation “doesn’t matter anymore.”
They even drop a stat from J.P. Morgan’s September note:
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AI-related stocks have accounted for 75% of the S&P’s returns, 80% of its earnings growth, and 90% of its capital spending since ChatGPT launched.
That’s not a tech cycle — that’s a religion.
The Chart: Déjà Vu in Data Form
Year
Fund Net Return
S&P 500 TR
Russell 1000 Value
Notes
2021
+22.4%
+28.7%
+25.2%
Post-COVID recovery
2022
-13.1%
-18.1%
-7.5%
Defense worked
2023
+18.3%
+24.2%
+10.8%
Quality catching up
2024
+12.7%
+26.3%
+15.3%
Setup year
2025 YTD (Q3)**
–0.41%
+14.8%
+11.7%
“Prudent lagging” phase
Source: Fund letters, Southeastern Asset Management, Bloomberg.
Owning Real Stuff While Everyone Buys Ideas
The fund’s top holdings look almost quaint next to today’s meme-worthy tickers. It’s a who’s who of actual cash-flow generators:
CNX Resources (6.2%) – America’s most profitable gas company no one talks about. With maturing hedges, massive buybacks, and 35 trillion cubic feet of reserves, it’s a quiet monster. Management’s Deep Utica play could add another zero to its valuation.
Mattel (5.8%) – Yes, Barbie is a serious investment. After a tough quarter driven by tariff delays, Mattel’s margins are improving, and 2026 brings two new films and a game launch. Management is using almost all free cash flow for buybacks — about 5% of shares outstanding this half.
Kraft Heinz (5.8%) – The fund’s “boring trade.” A spin-off is coming: “Flavor Elevation” (the sexy condiments) and “Steady Staples” (the mac-and-cheese). Together, management thinks they’re worth $40/share, versus today’s mid-30s.
EXOR (5.6%) – The Agnelli family’s investment vehicle that quietly owns Ferrari, Stellantis, and Philips. They just sold part of Ferrari at a premium to buy back EXOR stock at a discount.
IAC (5.6%) and MGM (3.6%) – Two of the cheapest names in the portfolio. After adjusting for IAC’s MGM stake, the rest of IAC’s holdings are “free.” The managers expect “increased urgency” from both management teams soon.
Every company in the top ten either generates cash, owns assets, or is buying back stock at bargain prices. Basically the opposite of 2025’s “AI infrastructure arms race.”
The Timber Trade Returns
One of the most interesting moves this quarter: Longleaf reentered timberland with new positions in Rayonier (RYN) and PotlatchDeltic (PCH).
These two promptly merged after quarter-end — a “merger of equals” that’s actually equal. The team calls it “a rare win/win M&A deal” that grows value per share through synergies and disciplined capital allocation.
Southeastern has a long history with timber assets, and they see this as the next cycle’s inflation hedge — tangible, scarce, and still trading below private-market values.
EXOR, FDX, and the Patient Playbook
Another big storyline: FedEx (5.5%), which the team thinks is worth $350 a share once it spins off its Freight unit next year.
They also love EXOR, despite short-term pain. It’s a global holding company trading below NAV, run by people who actually act like owners. EXOR recently recycled Ferrari gains into undervalued Philips stock and share buybacks — the kind of “boring compounding” play Longleaf lives for.
Meanwhile, Albertsons (5.3%) is their defensive hero. After a messy breakup with Kroger, the grocer is buying back stock like it’s 1999 and sitting on 39% owned real estate. Tariffs and Amazon headlines have hit sentiment, but Longleaf’s take is that “steady, necessary industries are where real money hides.”
Value Investing in a Bubble: The 2000 Parallel
The fund explicitly compares 2025 to the dot-com peak, showing charts of the S&P’s price-to-sales ratio and free cash flow multiples from both eras.
The similarities are eerie:
Price/Sales ratio >3× (same as late 1999)
Market-cap-weighted FCF up <30%, while valuations tripled
IPOs with no revenue valued in the billions (“revenueless Fermi” gets a special mention)
The conclusion is blunt: “This still does not add up.”
They even show that back in 1999, their fund underperformed for a year or two — then crushed the index over the next five. It’s the classic short-term pain, long-term outperformance story.
“History doesn’t repeat, but it rhymes,” they write. “And we like our odds on the next verse.”
Contributors and Detractors
The quarter wasn’t without its wins and losses:
Winners:
Bio-Rad (4.2%) rebounded as earnings steadied and its Sartorius stake began recovering. Still has hidden assets and repurchases stock aggressively.
PVH (4.8%) (Calvin Klein & Tommy Hilfiger) proved resilience, buying back a teens percentage of shares. Management’s basically playing 4D capital allocation while everyone else is chasing Lululemon.
Rayonier also helped immediately, with merger news boosting sentiment.
Losers:
Mattel, due to delayed North American orders — which the fund views as temporary noise.
FIS, the fintech software provider, missed volume expectations but continues to buy back shares aggressively.
Overall, management says fundamentals are intact: free cash flow per share is growing, multiples are compressing, and value gaps are widening.
Outlook: Playing Offense in a Mania
With cash at 15.8% and a price-to-value ratio in the low 60s%, the fund sees plenty of dry powder.
Their management partners are “on offense,” using buybacks, spin-offs, and asset sales to realize value. The tone is calm but confident — they know they’ll look dumb until the bubble bursts. Then they’ll look prophetic.
“We have improved the quality, P/FCF, and P/V of the portfolio as the year has gone on,” they conclude. “We are encouraged for the future return potential.”
That’s the Longleaf way: build the ark while everyone else dances on deck.
The Bigger Picture
The firm’s ethos hasn’t changed since the 1980s: concentrated ownership, aligned management, and patience bordering on masochism.
They don’t do flashy predictions. They just keep buying discounted assets and waiting for the math to work. It always does — eventually.
As they put it: “We would rather be up less than the market today than down permanently tomorrow.”
