Who is this Guy Hal?

We return after a slightly longer than usual gap between writings as…we were busy. Yes, it is an infinitely better business model and frankly a higher star on the wellness chart to just buy good businesses at reasonable prices run by people who have our best interests in mind than to sweat out more erratic business models and endlessly engage with management and the Board on a myriad of completely self-inflicted issues that were so “off-spreadsheet” that NO AI-based model can machine learn human dysfunction to the degree it actually happens in real life. Nevertheless, stuff sometimes happens and here we are. And being under an NDA takes all the fun out of writing about it, but oh yes, we will have 3,000 words for you on the above topic in likely 90 days. And it looks like a high probability of the proverbial happy ending.

In the meantime, we are still in the midst of having a pretty good year on an absolute and relative basis because…surprise…being a value-oriented manager does not mean you have to have 35% of your portfolio in energy and/or banks or have owned US Steel every year since 1946. Oh sure, we have natural gas, dredging, local TV broadcasting, and some ICE (that’s cool kid talk for internal combustion engine) auto exposure, but we don’t wake up every day dreaming of the good old economic days. “Value” should be best judged as “getting more than what you are paying for,” not buying the 30 cheapest leveraged cyclical the day before they don’t go bankrupt and hoping for the best.

We also do not play onesie twosie with the indices by which people compare us, which in technical terms means we are playing the alpha game, not a beta factor model by which we line up trailing characteristics in order to hit someone’s checklist. Yes, that means we are not for everyone, but I would suggest we a priori offer a prospective client value for their active management dollar. Our operator (Paul Hinkle at [email protected]) remains available for your call.

So we are going to find out soon how the investment business really works…again. Over the last 12 years (and another 29 before that of just more of the same) we have had periods of blistering performance and periods of not-so-blistering, particularly the 3.5 years that ended 18 months ago that we refer to as the partially self-inflicted value hell. We have had different numbers of analysts who have differed in background and temperaments. We have gained and lost assets in most cases under the exact opposite scenarios by which we likely all acknowledge we should be acting. We experiment with “process and technology” to help us be more efficient. In the meantime, our investment philosophy remains unchanged: value, long-term, concentrated, thoughtful internally generated research, index-unconstrained. And the portfolio manager is unchanged, in smaller-waisted jeans, and still making combative gestures in the racquet sport of your choice. Yet apparently, we became so much smarter and better looking on April 1st than we were on March 26th for the oldest reasons in investment management history. And the same wonderful character traits will blossom further at the end of Q2.

None of this should matter to you is our point. We have an institutional caliber firm in all aspects of investment, trading and operations, compliance, and client service. We are “rightsized” to do proper small-cap investing – as in, we actually buy small-cap stocks. I think people grossly underestimate the number of people who have left our world and the number of people running 160 stock portfolios with a median market cap of $6.5 billion and market it as a small cap. Paul is still waiting for your email or call.

On to today’s world. What is funny is that I cut and pasted this a few months ago in my “write something” folder when I started this letter. Attribution is lost but:

All the trading instincts you have were fostered by easy money and cheap leverage. Growth doesn’t always beat value. Momentum can be negative, not just positive. Multiples don’t always expand. Risk-taking is now dangerous, not a free lunch. Bad companies will be allowed to fail. Cost of capital is a real thing to consider when making an investment.