Forage Capital letter to investors for the fourth quarter ended December 31, 2016.
2016 Hedge Fund Letters
“Prosperity knits a man to the World. He feels that he is ‘finding a place in it’, while really it is finding its place in him.” – The Screwtape Letters, C. S. Lewis
Dov Gertzulin's DG Capital has had a rough start to the year. According to a copy of the firm's second-quarter investor update, which highlights the performance figures for its two main strategies, the flagship value strategy and the concentrated strategy, during the first half of 2022, both funds have underperformed their benchmarks this year. The Read More
For the quarter ending December 31, 2016, Forage Capital (“the Fund”) returned +4.1%, net of all fees and expenses compared to +3.8% for the S&P 500 Total Return Index. The two largest contributors to performance this quarter were ODFL and MRC; the two largest detractors were OAK and SELF. From inception on July 14, 2016 to year-end, the Fund returned +3.4%, net compared to +4.8% for the S&P 500 TR Index. Around 54% of the fund’s assets were in cash at year-end. The other 46% was unevenly allocated across 11 stocks with a median market cap of $9bn. Lofty valuations and the absence of meaningful, sustained sell-offs within the universe of businesses I find investable, have confounded my efforts to put more capital to work during these first 6 months of the fund’s life. Considering our significant cash allocation, should the broader averages continue their quiescent ascent, the fund’s performance is highly unlikely to keep pace.
It appears I goofed in purchasing Global Self Storage (SELF) last quarter. I was enticed by the prospect of a responsibly capitalized REIT rolling up and applying easy operating aid to a fragmented landscape of mismanaged self-storage properties in 2nd tier markets that seemed relatively insulated from excess capacity, and was further encouraged by persistent open market stock purchases by Mark Winmill (the CEO) and Board Members. But then, in the Holiday Spirit of giving, on the day before Thanksgiving the Company stealthily announced an agreement to purchase, at an egregiously inflated valuation, a self-storage entity in which Mark had a substantial personal ownership stake. Investments in small cap companies like SELF (~$35mn market cap) are primarily jockey bets and I’ve learned through expensive mistakes that the slightest whiff of value-thwarting self-dealing is usuall