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Summary Year-to-date, the fund is up 1.97%, versus -5.29% for the S&P 500. Top 10 holdings (65.2% of the fund): Valeant Pharmaceuticals, Berkshire Hathaway, TJX Companies, O’Reilly Automotive, Fastenal, Precision Castparts, MasterCard, Idexx Laboratories, Mohawk Industries, and Google. During the third quarter, the fund was adding to its positions in Rolls-Royce, Constellation Software, and Jacobs Engineering. An update on Valeant Pharmaceuticals. Since its inception on 7/15/1970 an investment in the Sequoia Fund (MUTF: SEQUX ) has returned 14.34% annually versus 10.65% for the S&P 500. The fund is noted for its long-term value investing style, portfolio concentration, and outperforming in down years. For more background on the fund you can check out my original article here . The big news for the Sequoia Fund is the Valeant Pharmaceuticals controversy. The fund started accumulating shares in the second quarter of 2010 and by the end of the year held 11.3 million shares. The stock price during this period ranged from $14 to $30. You can find the fund’s reasoning for getting into the company in the 2010 annual report, which you can find here . Valeant quickly became the fund’s largest position. It said at the time: Valeant and Biovail merged during the year, and on December 31 the combined company, called Valeant, was our second largest holding. In recent weeks, rapid appreciation in Valeant shares caused it to surpass Berkshire and become Sequoia’s largest holding. It is the first time in nearly 20 years that Berkshire has not been the largest investment in the Fund. Speaking of Berkshire, it was Charlie Munger that first sounded the alarm that all might not be up to snuff. Munger is Chairman of the Daily Journal Corporation and was asked about Valeant at the last annual meeting. He responded: Valeant is like ITT and Harold Geneen come back to life, only the guy is worse this time. For those unfamiliar with the ITT story you can check out this article , which gives a nice summary. Basically, like Valeant, ITT was built up on acquisitions and debt. And what was once a growth story turned into a mish mash of debt laden businesses. Despite Munger’s warnings Valeant’s stock continued its upward trajectory, reaching a high of $263.81 on August 6th. Munger wasn’t the only one suspicious of the stock. On August 13 blog AZ Value Investing published an article on Valeant, calling it a dangerous story told well. You can find the article here . Trouble for Valeant was just around the corner. On September 17th infectious disease website Healio reported that Turing Pharmaceuticals raised the price of its Daraprim drug from $13.50 per tablet to $750. The USA Today followed up with its own article the next day and did the math for us, noting the price hike was 5,000%. Then Hillary Clinton jumped on board, tweeting on September 21st: Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on. That put all specialty pharma companies in the crosshairs, including Valeant. In a week the stock dropped from $245 to $155. But the pain wasn’t over. On September 28 Citron Research, a specialist in unearthing frauds and terminal business models, published a report saying a congressional subpoena to Valeant on price gouging should be granted. Plus it gave a short term price target of $130 with the stock in the $170-$180 range at the time. The initial report didn’t move the stock much. But sure enough on October 14 subpoenas were issued. And then Citron wrote another report detailing the whole Philidor RX issue. By the time the dust had settled Valeant had dropped 50%, from $180 to $90, in just a few days. On October 28 the Sequoia Fund addressed the issue in a letter to shareholders which you can find here . Key comments: The short seller Andrew Left (of Citron Research), writing as Citron Research, exploited the negative sentiment surrounding Valeant. Our consultations with lawyers who specialize in the pharmaceutical industry lead us to believe there is no legal reason Valeant can’t advise, control or own Philidor. We work hard to understand Valeant and its business model. Our belief has always been that Pearson is honest and extremely driven. He does everything legally permissible to maximize Valeant’s earnings. At a recent price of $110, Valeant trades for about seven times the consensus estimate of 2016 cash earnings, which does not strike us as a rational price for a company with a diverse collection of product lines and strong earnings growth. So it appears the Sequoia Fund is sticking with Valeant. As of 6/30/15 Valeant was a $2.5 billion position in the fund, and its largest, accounting for 28.7% of the fund. As of 9/30/15 Valeant was a $2.0 billion position in the fund, and its largest, accounting for 24.8% of the fund. Based on my numbers, assuming the fund didn’t sell any shares, the position is now worth about $1 billion at a price of $90. It will be interesting, to say the least, to see the fund’s activity in Valeant during the fourth quarter of 2015. Here’s the fund activity for the third quarter of 2015. New Stakes: None. Stake Disposals: None. Stake Increases: Rolls-Royce ( OTCPK:RYCEY ) designs, develops, manufactures, and services integrated power systems worldwide. The company is known for its expertise in making engines for wide body jets. The fund has been in Rolls-Royce since 2007. It built up the position to over 12 million shares by the end of 2008. Since then it’s held, save very minor selling. Despite continuing to hold, the fund is very concerned over the position. While it admires its jet engine business, it questions the board of directors recent decisions to diversify into marine engine and power generation businesses. It’s also concerned the company is abandoning its Total Care service contract selling model which was very successful under the former CEO. As for the current CEO, John Rishton, the fund says, “… in our meetings with him, has shown minimal awareness of the returns on capital his acquisitions have generated.” The fund was selling in the second quarter of 2015, trimming the position by 437k shares when prices traded between $13.75 and $16.00. Rolls Royce announced in April that John Rishton was retiring and be replaced by John Rishton. The fund must like East’s plan as they did an about face in the third quarter of 2015, adding just over 7 million shares as prices ranged from $9.75 to $13. Constellation Software ( OTCPK:CNSWF ): Constellation Software, based out of Toronto, acquires, manages, and builds vertical market software (VMS) businesses. The fund likes the company because the software they provide tend to be essential to the customers’ operations. It also likes Constellation for being an adept acquirer and then increasing the cash flow of acquisitions. During the fourth quarter of 2014 the fund acquired 257k shares for a 1.09% position. Prices for the fourth quarter of 2014ranged from $240 to $300 for the ADR. During the third quarter of 2015 the fund added another 165k shares boosting its position by 64%. Prices ranged from $380 to $460. This is now a 2.19% position in the portfolio. Jacob’s Engineering (NYSE: JEC ) provides technical, professional, and construction services to industrial and government clients. The fund first established a position in the fourth quarter of 2013, picking up 743k shares when prices ranged from $56 to $64. That turned out to be near the high point for the stock which has been falling since January of 2014. The fund added another 716k shares in the second quarter of 2014 when prices traded between $53 and $65. This past quarter the fund added another 764k shares. Prices traded between $36.50 and $44.50. This stock is a 1% position in the portfolio. Stake Decreases: None. Kept Steady : Omnicom (NYSE: OMC ), Precision Castparts (NYSE: PCP ), Compaignie Financiere Richemont SA ( OTCPK:CFRUY ), O’Reilly Automotive (NASDAQ: ORLY ), Canadian Natural Resources (NYSE: CNQ ), Sirona Dental Systems (SRIO), Berkshire Hathaway (BRK.A & BRK.B), Danaher (NYSE: DHR ), EMCOR Group (NYSE: EME ), Trimble Navigation (NASDAQ: TRMB ), Mohawk Industries (NYSE: MHK ), Expeditors International (NASDAQ: EXPD ), Perrigo Company (NYSE: PRGO ), Valeant Pharmaceuticals (NYSE: VRX ), West Pharmaceuticals (NYSE: WST ), Zoetis (NYSE: ZTS ), Fastenal Company (NASDAQ: FAST ), Praxair (NYSE: PX ), IMI plc ( OTCQX:IMIAY ), MasterCard (NYSE: MA ), Brown & Brown (NYSE: BRO ), Google (NASDAQ: GOOGL ) and (NASDAQ: GOOG ), Goldman Sachs (NYSE: GS ), International Business Machines (NYSE: IBM ), Waters Corporation (NYSE: WAT ), Admiral Group ( OTCPK:AMIGY ), Hiscox Ltd. ( OTC:HCXLY ), Verisk Analytics (NASDAQ: VRSK ), Costco Wholesale (NASDAQ: COST ), Tiffany & Co. (NYSE: TIF ), TJX Companies (NYSE: TJX ), Walmart (NYSE: WMT ), Croda International ( OTCPK:COIHY ), Cabela’s (NYSE: CAB ), and Idexx Laboratories (NASDAQ: IDXX ) saw no changes from the second quarter of 2015 to third quarter of 2015. Here’s a snapshot of the activity from the second quarter of 2015 to the third quarter of 2015: (click to enlarge) Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.