Megan_Rexazin / Pixabay Argosy Investors commentary for the third quarter ended September 2021, disucssing the decline in stock price of Dream Finders Homes, Grocery Outlet Holdings and Roadrunner Transportation Systems.
Q3 2021 hedge fund letters, conferences and more
Corsair Took A Hit From Small-Cap Underperformance In Q3; Says Evergrande Not The Next Lehman Brothers
Corsair Capital was down by about 3.5% net for the third quarter, bringing its year-to-date return to 13.3% net. Corsair Select lost 9.1% net, bringing its year-to-date performance to 15.3% net. The HFRI – EHI was down 0.5% for the third quarter but is up 11.5% year to date, while the S&P 500 returned 0.6% Read More
Year-to-date 2021 performance was 17.1% in select accounts. The S&P 500 by comparison returned 15.9%.
This quarter our holdings experienced mixed performance. Some of the portfolio companies I have invested in most recently have done the worst of late (more on that later). We are sharpening our pencils on depressed names in and out of our portfolio , trimming more richly valued names, and slowly consolidating the portfolio into our best ideas. We feel a portfolio of ~30 businesses, with the top 10-15 representing a significant majority of our equity exposure is a prudent way to grow our wealth without being too concentrated.
This chart shows that as a portfolio increasingly diversifies beyond 20 stocks (they must not be significantly correlated to one another), the benefits of additional diversification diminish substantially. We think that this is the correct way to think about long-term investment. As Omaha’s most famous investor, Warren Buffett, would remind us, if we owned 5 or 6 well-positioned businesses in the town or city in which we live, no one would accuse us of being too concentrated.
The above passage is a bit aspirational, if I’m being honest. I greatly respect the trust put in me by the people whose money I manage, and if I were to put 25% of their money into an investment that went horribly, I would feel terribly. Having a bit more diversified portfolio than the above chart would suggest is optimal is a bit of insurance against my own ignorance. Existing Portfolio Activity: ESI, TAP, EPAM, DAVA, GDYN, WFC, GXO, JD
This section will sound repetitive to last quarter’s section on existing positions. I trimmed or eliminated our stakes in Element Solutions Inc (NYSE:ESI), Molson Coors Beverage Co (NYSE:TAP), EPAM Systems Inc (NYSE:EPAM), Endava PLC (NYSE:DAVA), Grid Dynamics Holdings Inc (NASDAQ:GDYN), GXO Logistics Inc (NYSE:GXO), JD.Com Inc (NASDAQ:JD), and Wells Fargo & Co (NYSE:WFC) during the quarter. Each of these had appreciated significantly since purchasing and I considered none of them except DAVA, GDYN, and EPAM a core position at this time. DAVA, GDYN, and EPAM continue to discount multiple years of 20%+ growth and even still would be valued at >30x 2024 earnings. We are slowly trimming here despite the strong growth of the businesses.
GXO was a spin-off of XPO, and we elected to keep the XPO business because we do not perceive GXO’s contract logistics business as inherently attractive. We sold JD as a result of the furor over Chinese stocks during the quarter. We had been concerned about China’s lack of respect for investor rights for some time, and Beijing has become significantly more aggressive in asserting itself of late. In addition, the legal structure Chinese companies use to come public in the U.S., a Cayman Islands shell corporation leaves American investors with an unsure path to recovering value should these companies cease to trade on U.S. exchanges. Because of the uncertainty, we exited our position in JD completely. We still love JD’s long-term prospects, but we cannot estimate the legal/regulatory risk associated with these companies anymore. More broadly, we are freeing up cash for some other positions we already own which have declined in this market, and after additional review, remain attractive. Dream Finders Homes
Dream Finders Homes Inc (NASDAQ:DFH), like Grocery Outlet below, was down over 30% since our first purchases during the first quarter of this year. Their stock price declined significantly due to a large shareholder, Boston Omaha, offloading almost 10% of the publicly-traded shares of DFH in a short period of time. This was unexpected because Boston Omaha presents itself to public markets as a patient long-term investor, like Warren Buffett . In fact, one of the two principals of Boston Omaha is directly related to the Oracle of Omaha.
The timing was curious as well because DFH announced a fairly large acquisition around the […]
source Argosy Investors 3Q21 Commentary: DFH, GO, RRTS Stock Declines