Grey Owl Capital Quarterly Letter 2Q 2013

August 5, 2013

“…an unfortunate consequence of the most recent naïve interventions is that capital preservation in the long run and capital preservation in the short run have been made mutually exclusive.”

Dylan Grice, Edelweiss Journal Issue 13

Dear Client,

To begin, let us state that we are tired of writing about macroeconomic issues. We suspect you are tired of reading about them. We would like nothing more than to send out a quarterly letter full of updates on the companies we own and the rationale for individual buy and sell decisions. Nevertheless, we must address the market action following Federal Reserve Chairman Ben Bernanke’s May 22nd testimony before Congress, where he merely floated the idea of “tapering” the Fed’s quantitative easing efforts. Subsequently, almost every global asset class fell in value. We believe this market reaction is just a taste of what is possible and justifies a continued conservative investment posture that recognizes the ephemeral nature of current valuations. Thus, brace yourself for a discussion of financial repression, perfect asset price correlation, and tail risk

Before moving on, here is the standard performance table for Grey Owl Opportunity Strategy asof June 30, 2013:

Grey Owl Opportunity Strategy

Grey Owl Capital

What happened? Aren’t “safe” Treasury securities supposed to go up when “risky” equitys ecurities go down? Isn’t that the basic principle behind asset allocation and modern portfolio theory? If the market’s reaction to the possibility of a slowdown in Fed bond buying at some point in the future is an indication, it would seem that some long-held investment axioms are now up for debate by a broader set of folks than just us (and a small number of others we often reference in these letters).

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