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Second Quarter 2019 Letter: Pent-Up Alpha

We have posted our brief quarterly letter, which you can read by clicking here.

Speed Read:

  • Our underperformance this year reflects irrational prices that have become even less rational, particularly with the view we have on the board of our largest position;
  • Our portfolio has higher FCF growth (+61% in the last 18 months) and a higher FCF yield (14%) than the market and even FANG, yet the securities still managed to under-perform. This has led to significant pent-up alpha as fundamental value will continue to accelerate in the next 18 months;
  • Hyperbolic discounting, a cornerstone of behavioral economics, suggests when the market finally catches up to reality, the pay-off will be far larger than it otherwise would have been;
  • As other Builders have done, we are taking advantage of the irrationality by welcoming a number of new investors with the launch of our Luxembourg fund;
  • We look forward to announcing new evolutions to our framework and collaborations with Dr. Phil Tetlock at our investor day on September 5. We look forward to seeing you there.

Second Quarter 2019 Letter to Investors: Pent-Up Alpha


This article has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy or sell the securities or assets mentioned, or to invest in any investment product or strategy related to such securities or assets. It is not intended to provide personal investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that may receive this article. Persons reading this article should seek professional financial advice regarding the appropriateness of investing in any securities or assets discussed in this article. The author’s opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors LLC and its affiliates may have a position in the securities or assets discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such positions and sell or cover certain positions without notice. No part of this article may be reproduced in any form, or referred to in any other publication, without express written permission of GreenWood Investors LLC.

Past performance is no guarantee of future results.

This Post Has 4 Comments

  1. Hello, Enjoyed (as usual) reading the letter. Thanks! My personal portfolio is having a similar behavior. However I’m note sure I should be upset about it. As you said, in other words, its great to see companies doing buybacks that are creating value for shareholders. Meanwhile we can keep buying before the crowd (finally) gets rational and the markets turn efficient :). I’m also very curious to see the next steps on your largest position. The company has a good image and territorial presence so I think it could, successfully, explore other business opportunities. Good luck!

    1. Hey there – we cut the position prior to Q2 results because of weak traffic and we recently added some back. No we do not believe Google has completely ruined their business model.

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