Not a lot of investors can say that they brought innovation to the field, and Pat Dorsey is just one of them. He is a creator of investment analysis which focuses on economic moats that durable companies possess and he is the founder and owner of Dorsey Asset Management. Pat Dorsey’s portfolio holdings now include stakes in nine companies.
Dorsey Asset Management manages a portfolio valued at $825 million. The biggest holding is Meta Platforms Class A (META), followed by Alphabet Inc Class C stocks (GOOG). He also holds large stakes at Smartsheet Inc. with Class A stocks (SMAR) and Wix.com (WIX). Recent significant trades include investing in a new Danaher Corp (DHR) holding.
Pat Dorsey’s career started long before he founded Dorsey Asset Management. We can take a peek into his investment strategy, the innovations he brought in, and how he currently manages his fund. Performance metrics of Dorsey’s funds go back ten years to its founding, but they can provide some insights into his decision-making.
Current Holdings
- Meta Class A stocks (NASDAQ: META) with 22.15% of the portfolio
Dorsey has been trading Meta stocks since 2016. During 2022 when their stock value was dropping he increased his position. In 2023 the scales turned and the prices went up, and Dorsey timed his sales to benefit the most from the price rise. Currently, he owns 386 thousand shares valued at $183 million. He invested $68.5 million, resulting in a gain of 167% from this holding.
- Alphabet Class C (NASDAQ: GOOG) with 15.30% of the portfolio
In six years of trading Alphabet stocks, Dorsey has been very active conducting 26 trades. Now he owns 858 thousand shares valued at $126 million. He invested $61 million resulting in a gain of 107%.
- Smartsheet Inc Class A (NASDAQ: SMAR) with 14.10% of the portfolio
This company focused on creating a cloud-based platform for managing teams is a newer holding which Dorsey is trading from Q2 2020. Now he owns 2.55 million stocks valued at $116 million. During 2023 he trimmed the holding for 1.25 million stocks when their price went down from their 2022 maximum. These trades resulted in a loss from this holding of 19%.
- Wix.com Ltd (NASDAQ: WIX) with 12.03% of the portfolio
Dorsey has a stake of 766 thousand shares in Wix.com valued at $99.2 million. This comes after a busy 2023 in which he sold over 1.1 million shares. The timing of selling should be better because he sold the shares at the low point after he increased his position in 2022 while the price was still high. This bad trade timing resulted in a loss of 17% since his total investment was $120.
- Danaher Corp. (NYSE: DHR) with 9.45% of the portfolio
A new holding in Dorsey’s portfolio is a conglomerate focused on designing and producing medical equipment. He bought 315 thousand shares for $66.9 million, and the stock price jumped right away. Now, only a month later the holding value increased to $78 million resulting in a gain of 17%.
Key Sectors
Pat Dorsey’s portfolio is primarily invested in the tech sector. His portfolio has this current asset allocation:
- Technology with 81.1% of the portfolio valued at $669 million
- Industrials with 9.5% of the portfolio valued at $78 million
- Real Estate with 9% of the portfolio valued at $74.2 million.
Investment Strategy and Philosophy
Pat Dorsey’s investment strategy can be described as a mix of growth and value investing. When investing he is following Warren Buffett’s philosophy of finding companies that are either undervalued with a potential or those that are traded at fair prices.
When he invests he prefers investing for the long term. That is why he is so keen on identifying fundamentally good companies that have growth potential. He specializes in finding companies that have solid economic moats. These shield them from market swings and offer a high return generation over time.
Identifying Economic Moats
Identifying economic moats is an approach popularized by Warren Buffett, which Pat Dorsey adjusted for his investment philosophy.
To identify economic moats he conducts industry analysis, aiming to understand the competitive landscape. To be able to find moats in a specific company, he first must understand its competition and sector.
Next, he conducts company analysis and tries to find weaknesses or strengths in each moat category.
As a final step, he studies the competitive advantage and tries to anticipate its durability over time. This is especially important when looking for a long-term investment opportunity.
Different Types of Moats
There are six primary types of moats:
- Intangible assets. Companies that have this type of advantage do not rely on physical advantages. Intangible assets can refer to brand recognition, patents, regulatory advantages, or intellectual property rights.
- Cost advantages. This advantage occurs when the company can deliver services or products at lower prices than the competition. This can be a result of efficient operation management, different access to resources, or due to economies of scale.
- Switching costs. These costs are triggered when the customer has to switch from one provider to the other. If these costs are too high, then the customer will rarely decide to switch the company.
- Network effects. This advantage reaps benefits for the company when the number of users increases. If the number of users is intimidating, that can put off the competition from trying to beat the company.
- Efficient scale. When there is only space for a couple of companies in the sector, then they can efficiently serve the whole market. This can come as a result of a geographic barrier, or a regulatory issue that limits the number of companies in the sector.
- Reputation. This factor can be one of the most powerful moats that the company can have. Reputation can come from the innovative nature of the company, its good customer service, or the constant high quality of its products or services.
Take A Look At Understanding Economic Moats with Pat Dorsey:
Diversification Strategy
Pat Dorsey follows the philosophy of investing in a few quality companies. He avoids diversification just for the sake of it. By concentration, he aims to generate high returns from a good few picks.
But, he doesn’t completely neglect diversification. Although his portfolio list is always short he is aiming to invest in different industries, or if not possible different geographical regions.
Pat Dorsey Portfolio Performance Analysis and Track Record
Historical Performance Overview
Pat Dorsey founded Dorsey Asset Management and it started producing solid returns right away. In the first couple of years, annual returns went above 20%. But in the last three years, performance dropped. This is mostly due to the bad performance of some major holdings like PayPal, Alteryx Inc., SEMrush, and Walt Disney.
When we take compounded returns from the inception of the fund, they are at 216%. But, especially bad years were 2018, 2019, 2020, and 2023. When looking at only the last three years, compounded returns were -29%.
Market Insights and Outlook
Current Market Assessment
Dorsey sold his share in Disney after sustaining major losses. He invested in Dollar General Corp holding during 2023 but he very quickly closed this holding after the first major fall in price.
Roky Inc is another holding that Dorsey closed in 2023. He began trading it in Q1 2022 when he bought stocks valued at $146. He ended up selling them in Q3 2023 at $77. Dorsey invested in one new holding, Danaher Corp in late 2023.
Outlook and Future Strategy
Since Q3 2021 Dorsey has been trimming his overall portfolio. From $1.3 billion the value of the portfolio fell to just under $800 million. He closed several positions mostly due to losses. He started reshaping his portfolio, but we are guessing that he is still reluctant to make bigger buys.
FAQs
What Is Pat Dorsey’s Net Worth?
The latest, but still outdated info from 2019 about Pat Dorsey’s net worth points to a figure of $6 million.
Conclusion
When talking about fundamental analysis, value investing, and expertise in economic moats you cannot overlook Pat Dorsey. His career started a decade before founding Dorsey Asset Management, in Morningstar Inc., where he built his name and reputation.
His extensive knowledge of the industry helped him to have an advantage over the competition. This has brought him and his investors solid returns, but in recent years some investment decisions turned out bad and produced losses.
Nonetheless, we can all learn from Pat Dorsey and his approach to fundamental analysis of both the companies and industry sectors. His books “The Little Book That Builds Wealth” and “The Five Rules For Successful Stock Investing” are all-time favorites among investors, offering numerous insights and tips, for both experienced and new investors.
