Golden Door Asset Management letter to shareholders for the third quarter ended September 30, 2016.
- Q3 2016 hedge fund letters
Growth is all about development. A painful learning process, hence the term growing pains. Today we believe the U.S. economy is now entering a growth environment. Hard to believe but we feel the pain every day.
This may sound odd but we are contrarians by nature, choosing to invest against the status quo. How do we find growth investments? Look for companies with inefficient business models. For example, legacy software systems or inflated operating costs. Investing in technology can increase productivity by an order of magnitude. In the land of opportunity, capitalism allows business to move expeditiously when opportunities arrive. As we look for more opportunities we believe the companies that need to adapt and innovate is where we will find the highest returning businesses.
Given our new investment thesis the Fed’s interest rate decisions no longer impacts our investment strategy in the short term. We are looking pass the interest rate stories and observing a bigger picture. Our focus is on growth and how it will get us out of the country’s indebtedness.
Golden Door Asset Management – Quarterly performance
In the past year, we have allocated a significant portion to cash in our portfolios to hedge against some market conditions. With ~50% of our portfolios invested, we have been able to match market performance in our overall strategy, which indicates our investment style delivers a higher risk-adjusted return than the market.
Our objective is to have the best risk-adjusted returns for investors on an absolute basis. The third quarter has begun to show signs of life. As the market becomes more volatile and opportunities arise, we will begin to invest more aggressively.
Below is a summary of a few of Golden Door’s investment picks this year:
Apple (AAPL) – Between new product releases and Samsung phones exploding, the company has given many traders the chance to profit on the swings. We bought the company earlier in the year in order to capitalize on the new iPhone 7 release. In September, we finally decided to sell out of this blue chip stock and invest dollars in emerging brands.
Lockheed Martin (LMT) – Our favorite deal of the year. We invested in LMT mid-summer for our accredited investors and profited with a 25% in just under two weeks. This was a rare spinoff known as a Reverse Morris Trust, giving us the opportunity to purchase new company shares at a ten percent discount. The market moved in our favor.
Coty (COTY) – Another special situation investment for all of our clients. Procter & Gamble (PG) decided it would be best to spin off its top beauty brands in a tax efficient strategy. Current shareholders were able to purchase shares at a seven percent discount. As of the date of this letter, these shares have already tendered and resulted in a 60% annualized return.
Cvent (CVT) – The largest position in our client portfolios. Vista Equity Partners submitted a bid to purchase the company for $1.65 billion in cash, or $36 per share. The shares are currently selling at a discount due to some antitrust concerns. We are confident that this deal will close swiftly since Vista Equity has a great track record with technology investments.
Wells Fargo (WFC) – We may have come in too early but we are excited for WFC over the long run. Unfortunately, this branded bank had falsified sales goals, resulting in a $185 million fine from the government and counting. This is a temporary setback for a leading bank. This will not result in a significant loss, but rather a buying opportunity as the stock price continues to fumble.
Growth in the U.S. tends to be synonymous with technology. For 2017, we believe technology will be the value driver for high returns, resulting in greater economic productivity. Liquidity in the capital markets seem to agree with us as the recent issuance of IPOs has increased these past few months. Highly developed countries possess the majority of the hardware (mobile phones, laptops) in the world. Technologists have the ability to do two options today: 1) Create software with more advanced solutions (artificial intelligence and Internet of Things) or 2) deliver technology to the rest of the developing world.
In these scenarios, we prefer to invest in the former. As leaders in innovation, the United States continues to produce the majority of technology advancements for the rest of the world (i.e. Silicon Valley). As new products are released, public companies have more incentive to invest in growth. Our job today is find investments we believe will be able to outperform the market average. The companies that do not invest in growth will fall behind the average over the long run. Growth equals risk, but with no risk, comes no reward.
Given the current political environment, we have found both parties to be unfavorable to the healthcare market. This is why we have reduced our exposure to the healthcare industry and expect valuations to retract for the next few quarters. Our expansion into technology-enabled businesses allows us to become more agnostic industry-wise. We expect new developments in technology to create more investment opportunities in the future. Stay tuned for more updates.
This past September we celebrated our 3rd year anniversary in business. We would like to thank our Golden Door investors for supporting us since the beginning. As of November, we will have officially moved our headquarters to Hoboken, New Jersey. With the new offices, we plan to expand our operations and leverage our New York City network.
Below are a few fun, historic facts about Hoboken:
- The first brewery was founded in 1663.
- John Jacob Astor, once the richest man in America, lived on 2nd and Washington St from 1829-1848.
- America’s first yacht club started in 1845.
- The first baseball game was played in 1846.
- The zipper was invented by Automatic Hook & Eye Co. in 1905.
- The first Oreo cookie was sold in 1912 at a Hoboken grocer.
- Birthplace of Frank Sinatra, born in 1915.
- The first Blimpie’s sandwich shop opened started in 1964.
- Jet.com open its office in 2014 and was acquired by Walmart for $3 billion in 2016.
- Golden Door Asset Management opened a new office in 2016!
We look forward to building a valuable investment portfolio and relationship with you. We are here to cater directly to your investment needs, so please do not hesitate to reach us at any time. Our focus as always will be on long-term value creation. If you or anyone you know shares that vision, we welcome you as a Golden partner.
Golden Door Asset Management
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