Over 120 million viewers tuned in to this year’s Super Bowl in Las Vegas—making it the most-watched telecast in U.S. history. As the Chiefs and 49ers battled on the gridiron, a familiar company stole the spotlight off the field with two creative commercials that garnered plenty of attention. But will CoStar Group and Homes.com ultimately succeed in its quest to change the future of residential real estate platforms? Plus, discover more about how our Research team is adhering to the wise words of Charlie Munger in selectively deploying our clients’ cash in new investment opportunities.

If you were tuned in to this year’s Super Bowl, you probably caught the lively star-studded commercials for Homes.com. You may not know that Homes.com is owned by one of our portfolio companies, CoStar Group (CSGP). The Super Bowl ads featuring Dan Levy and Heidi Gardner kicked off a billion-dollar campaign to take on Zillow in the residential real estate information market.

CoStar has long held a dominant position in providing commercial real estate data to brokers and banks with its CoStar suite. Over the last several years, they have also cultivated successful marketplaces in multifamily and commercial markets with Apartments.com and LoopNet, respectively. Now, they are looking to leverage their expertise into the much larger residential real estate market.

With very profitable core businesses and billions of dollars in cash on their balance sheet, CoStar is making a bid to unseat Zillow Group as the leading portal for residential real estate. While Zillow makes money by selling homebuyer leads to agents who pay for those leads, Homes.com is looking to generate advertising revenue from sellers’ agents looking to showcase their properties.

CoStar is using its considerable resources and real estate expertise to provide a better experience for homebuyers. They currently employ thousands of real estate analysts around the country who routinely gather data on commercial properties. CoStar is now utilizing these employees to gain insights into residential communities. The company believes that bringing additional value-added information around parks, schools, and other community amenities will give it a proprietary advantage over the competition.

As long-term shareholders of CSGP, we’ve seen this playbook successfully executed before. Only time will tell if they are able to cut into Zillow’s dominance—but if there’s a CEO that we think can do it, it’s CoStar’s Andy Florance.

Late last year, Charlie Munger—Warren Buffett’s right-hand man and business partner for half a century—passed away one month before his 100th birthday. One of the greatest investment minds to ever live, Munger was known for his quick wit and simple yet intellectually elegant (and often blunt) one-liners. A core tenet of Charlie’s was patience—waiting for the right moment. As he said, “The big money is not in the buying and selling… but in the waiting.”

You may have noticed that your equity portfolios are carrying a higher level of cash or cash equivalents (such as short-term treasury funds) than usual. As you know, we invest for the long-term based on our “bottoms-up” approach—meaning each business or investment is analyzed at the company level, as opposed to making predictions about the economy or stock market in the near term. This approach has led us to trim holdings that we believe are great long-term investments, but are presently extended based on valuation (in other words, we sell when they’re expensive). This strategy gives us room to maneuver around the edges and manage risk while still maintaining long-term positions.

These trims create a cash position that provides flexibility to take advantage of great opportunities that the market seems to present a few times each year. These opportunities can come in the form of adding to existing investments or initiating new positions in high-quality companies at appealing valuations.

For now, great opportunities have been relatively scarce. We will stay true to being patient, especially with cash equivalents currently paying over 5%. Munger’s words seem perhaps more relevant than ever: “It takes character to sit with all that cash and to do nothing. I didn’t get to where I am by going after mediocre opportunities.”

Best Regards,
The Sandhill Research Team

Disclosure: This has been prepared for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by Sandhill Investment Management. Sandhill Investment Management (“Sandhill”) is a registered investment advisor with the Securities and Exchange Commission that is not affiliated with any parent company. Third-party information in this report has been obtained from sources believed to be accurate; however, Sandhill makes no guarantee as to the accuracy or completeness of the information. All statements made regarding companies, securities, or other financial information contained in the content are strictly the beliefs and opinions of Sandhill and are not endorsements of any company or security or recommendations to buy or sell any security. These investment strategies have the potential for profit or loss. For a full list of strategy recommendations for the preceding year, please email your request to compliance@sandhill-im.com.