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August 15th, 2017
Letter to Investors: 2017 Mid-year Update
Dear Investment Partner:
For the first half of the year through June 30th, our portfolio* gained 14.6% gross (and 12.0% net of all fees). The S&P 500 gained 9.3% including dividends during this time.
Saber’s cash position continues to be elevated more than I’d like, fluctuating between 10-25% throughout most of the first half, and closer to the high end of that range currently. Also, for a number of clients whose accounts were established sometime earlier this year, you might notice a cash level that has been abnormally high so far year-to-date. This is because two stocks that were purchased early last year at much lower prices have appreciated to a level closer to fair value. They remain holdings in the model portfolio, but will likely be sold in the near future and thus haven’t been purchased yet for new accounts. So, cash levels will be slightly higher for new accounts initially, but over time the cash level (like the rest of the portfolio) will begin to very closely mirror the model portfolio as new investments get made.
Cash is not held as a hedge (although it can act like that at times). It is also not held because of some prediction for a downturn or some projection I have regarding general market valuation levels (I don’t/can’t predict the market’s near-term direction and I don’t make investment decisions based on the valuation level of the S&P 500 or any other market index).
Cash is simply held when I haven’t quite found the right investment idea yet. However, I would much rather own good businesses, as they’ll produce much more value than cash over time. I expect that, over time, we’ll be mostly fully invested. Certainly, a good market drop would help our cause.
Your Interactive Brokers account statements should have arrived in the mail. Those statements contain your 2nd quarter results as well as the current positions and account value as of 6/30/17. You can see your YTD results as well as other relevant details for your account online on your Account Management page at the Interactive Brokers website. Please contact me with any questions regarding your account, your portfolio, or anything else.
I recently read a good book called Deep Work. The book is about increasing productivity by prioritizing your time, trimming the “fat” out of a work day by avoiding distractions, and focusing more intently on important projects. Each year I set a few goals, but one goal that always is on top of my list is very simple: “Get Better”. I try to refocus each year on self-improvement, looking for areas where I can improve as an investor. The ultimate objective here is to expand my list of companies I follow (and sharpen the understanding of those already on the list). This increases my opportunity set for potential investments.
This year, my focus is to make a conscious effort to do more deep work – read more books, dig deeper into companies and subjects, minimize busy work, and cut distractions that tend to keep a lid on productivity and creative thinking.
One of the things I’ve always loved about business and investing is that they have something very much in common with other things I like such as athletics, music, and chess – and that common denominator with all of those endeavors is that there is always room for improvement. These are examples of crafts – and the way you improve your craft is by practicing.
And unlike Allen Iverson, I’ve always loved practice. Practice is where you get better, and I’ve always felt the greatest satisfaction comes not necessarily from the achievement (although that is the ultimate end-goal), but often from the noticeable self-improvement that happens from time to time along the way.
To summarize this concept with a more practical question: how does an investment manager best position himself or herself to achieve great results? One way is to do more focused practice – that is, engage in more “deep” work and less “busy” work.
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