Written by Summary
MPE Capital seeks to purchase the common stock of businesses with durable competitive advantages, run by competent management teams with proven track records of value creation, and at prices below a conservatively estimated intrinsic value.
I am very optimistic that the next five years is going to look very different.
Our results for this year have been poor mainly due to some holdings going from cheap to even cheaper.
JCPJR/iStock via Getty Images Returns are shown net of a 1.5% management fee for a model account Inception January 25, 2017 Portfolio Holdings (alphabetically):
Alphabet
Altice USA
Brembo, S.p.A.
Poshmark
Squarespace
Wix.com Ltd.
MPE Capital’s Full-Year 2021 Letter
For the year ended December 31st, 2021, MPE Capital declined 24.8%. For comparison, the S&P 500 TR gained 28.7% during that same time period.
MPE Capital officially turned five years old this January; I can’t believe how quickly time flies. While I’m not particularly thrilled with our results since inception, I am very optimistic that the next five years is going to look very different. I’ve learned a lot over the past five years and have gradually refined my investment process. I will discuss some of those learnings in this letter, as well as a new investment we made.
I was recently reading Jeff Bezos’ shareholder letters for Amazon, and he spoke about something that I think has been very relevant to my investment journey. It was on the topic of expectations and high standards. He was giving the example of an Amazon employee who wanted to learn to do a perfect free-standing handstand (not leaning against a wall). At first, she went to her yoga studio, took a workshop, but even after a short while couldn’t seem to perform a free-standing handstand. She then hired a coach to teach her—I guess such people do exist—and the first thing the coach said is most people think it will take 2 weeks to perform a free-standing handstand, but in reality, it will take closer to 6 months of daily practice.
He told this story to make the point that if you don’t have realistic expectations of how difficult something is, you are very likely to quit before you achieve success, especially if you are approaching something with high standards.
I’m sure many people have tried to perfect a free-standing handstand for a short period of time, only to ultimately quit oncethey didn’t see quick results. I think parts of this story resonatewith me and my investment journey. I underestimated how long it would take and how much experience would be required before I could begin to generate market beating returns. After five years of professional money management, I feel like I’m definitely very close, if not already there, as far as process and ability. I’m very much looking forward to our future results, and I’m squarely focused on making the best possible investment decisions going forward.
Our results for this year have been poor mainly due to some holdings going from cheap to even cheaper. In totality, our portfolio is extremely cheap and trading at a big discount to intrinsic value. Some of our holdings are easily worth two times their current market prices. We must remain patient and in time the market will fairly value our holdings.
Below is a list of some of the mistakes I’ve made over the last five years and the changes I’ve made as a result. I also discuss a new investment we made in Squarespace. Investment Methodology My first mistake was not having a refined methodology for analyzing companies and investment opportunities. I’ve learned a lot from analyzing hundreds of businesses over the last five years and from studying some great investors including Chuck Akre, Nick Sleep, Josh Tarasoff, Robert Vinall, and many more.Initially my focus was on companies with strong competitive advantages, aligned management teams, and prices below intrinsic value. However, this was still too vague, and my framework was underdeveloped. It can be very easy to use a label like network effects or economies of scale without thinking more deeply about a company’s value proposition versus peers orthe factorsthat make it very difficult for peers or new entrants to replicate the company’s value proposition.If a company has many perfect substitutes, it doesn’t matter if there are economies of scale, it probably won’t end up being a very good business over time (think automotive business). I especially like to think in terms of the late Clayton Christensen’s job mental model and […]
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