Songbird Asset Management – Spring Projections

Songbird Asset Management – Spring Projections

Songbird Asset Management’s April 2017 newsletter titled, ‘Spring Projections.”

Also see 2017 hedge fund letters

Here in Washington, DC, we’ve had a surprisingly mild winter and scientists have warned that the pollen count will be exceptionally high this spring. I take these pollen projectionists for their word (and have stocked up on Benadryl) because there are laws to nature that we can all count on.

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This month as public companies start reporting their First Quarter results, it’s a busy time for stock analysts because they must prepare their earnings projections for the rest of the year based on what happens (or doesn’t happen) in Q1. But unlike nature and science, the stock market has few immutable laws if any, other than the truism that “what goes up, must come down.” Pure-numbers, quantitative analysts should know their models are never fail proof (remember Long-Term Capital Management?) and when it comes to investing, it is truly both an art and a science.

The science part involves the numbers. For example, analysts look at a company’s historical financials to understand what happened. They build quantitative models using cash flows and discount rates to come up with a company value. They rely on mathematical relationships to extrapolate past performance into the future. The art part is the assumptions that go into the projections. They rely on years of experience investing in certain sectors, industries, and types of business models. They develop pattern recognition they apply to specific company events that happen (or don’t happen) to predict future outcomes. They build a working relationship with the management teams who run the companies they invest in.

Famed investor Howard Marks once noted that “investing is more art than science”. I tend to agree and this probably explains why most investors underperform the market. If it were just science, we should all be able to rely on analyst projections like our pollen forecasters. But the successful investors with long term track records have figured out the balance between art and science. So when it comes to spring projections, I’d rather bet on scientists than stock analysts, thus I brace myself for a summer full of sneezing.

Performance Update

For the first quarter of 2017, the representative portfolio finished up 4.29% versus the Russell 2500 Index benchmark of 3.76%, outperforming by 0.53%. Year-to-date through yesterday, we are up 8.66% versus the benchmark of 5.62%, outperforming by 3.04%.

Thank you and I hope you enjoyed this small investing insight. Until next month’s newsletter, happy successful investing!

Songbird Asset Management, LLC, is a private investment firm based in Washington, DC, that specializes in U.S. small company public equity investing. We manage a high-conviction, focused portfolio of no more than 30 stocks held in separately managed accounts. To learn more, please visit our website or email

The Story Behind Songbird     All birds chirp or make sounds, but not all birds can sing. Songbirds are a special group of birds and scientists have discovered that songbirds are born not knowing how to sing, but learn their songs over time. Birds that sing better are essentially, superior learners. At Songbird Asset Management, we strive each day to be better learners. We are relentless in our efforts to build knowledge in pursuit of our ultimate goal – to help you grow your nest egg of investments.

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