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Legacy Ridge Capital Management are contrarian investment managers who believe successful results can be achieved through a focused, long-term investing.
The absolute return of the portfolio was great, and relative to broader indices it was good, but compared to energy indices we could have done a bit better.
The great news is that we feel like these headwinds are finally shifting to tailwinds for a strategy like ours.
Madmaxer/iStock via Getty Images To December 31 st 2021 : LRCP Equity Fund I Gross LRCP Equity Fund I Net S&P 500 Russell 2000 MSCI World Index Trailing 1-yr Total Return: 41.8% 32.4% 28.7% 14.8% 22.4% Trailing 2-yr Total Return: 56.8% 44.3% 52.3% 37.8% 42.5% Trailing 3-yr Total Return: 60.8% 47.9% 100.4% 72.8% 82.5% Trailing 4-yr Total Return: 54.6% 42.3% 91.6% 51.8% 69.9% The figures above are on a cumulative basis and are unaudited. Future results will also be presented on a cumulative basis in this section. Annual results will be illustrated below for those who wish to measure us based on 12-month cycles. However, we view the cumulative results as most meaningful since we are trying to build wealth far into the future and the annual results are only important in as much as they contribute to a 3, 5, 10, and 20-year track record. Annual Results LRCP Equity Fund I Gross LRCP Equity Fund I Net S&P 500 Energy AMZ XAL 2021: 41.8% 32.4% 53.3% 39.9% -1.7% 2020: 10.6% 9.0% -33.7% -28.8% -24.2% 2019: 2.5% 2.5% 11.8% 6.5% 21.3% 2018: -3.8% -3.8% -18.1% -12.4% -22.4% To reiterate, our goal is to have good absolute returns first and foremost, which should lead to good relative returns versus the broader markets. However, I also think it’s important to highlight the performance of the primary sectors in which we feel we have an advantage and in which we invest. There is no reason to present this other than for transparency reasons. Owning a highly concentrated portfolio will prevent our results from looking like anything we compare them to in most years, but knowing the performance of energy broadly, midstream energy specifically, and North American airlines will add some context for those partners who wish to do some higher-level analysis. Please see the accompanying disclaimer & footnotes at the end of the letter for a broader description of each of these indices. “a business earning 20% on capital can produce a negative real return for its owners under inflationary conditions not much more severe than presently prevail. If we should continue to achieve a 20% compounded gain—not an easy or certain result by any means—and this gain is translated into a corresponding increase in the market value of Berkshire Hathaway stock as it has been over the last fifteen years, your after-tax purchasing power gain is likely to be very close to zero at a 14% inflation rate… …the inflation rate plus the percentage of capital that must be paid by the owner to transfer into his own pocket the annual earnings achieved by the business (i.e., ordinary income tax on dividends and capital gains tax on retained earnings)—can be thought of as an “investor’s misery index”…We have no corporate solution to this problem; high inflation rates will not help us earn higher rates of return on equity. One friendly but sharp-eyed commentator on Berkshire has pointed out that our book value at the end of 1964 would have bought about one-half ounce of gold, and fifteen years later, after we have plowed back all earnings along with much blood, sweat and tears, the book value produced will buy about the same half ounce. A similar comparison could be drawn with Middle Eastern oil. The rub has been that government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil. ” Warren E. Buffett—from the 1979 Berkshire Hathaway shareholder letter. Buffett’s assessment of the deleterious impact high rates of inflation have on wealth creation is relevant to all investors today. He wrote this forty-two years ago, a time that most closely resembles the current macro environment than any period since. And while Nate and I won’t pontificate on future rates of inflation, we do know December’s Consumer Price Index ( CPI ) advanced 7%, the highest rate in forty years, and the Producer Price Index ( PPI ) rose 9.6%, the highest rate since the data was first tracked in 2010. Buffett’s “investor’s misery index” is pointing up.
Our portfolio is very […]
source Legacy Ridge Capital Partners Equity Fund I 2021 Annual Letter
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