Q2 2024 - Seeking Winners Quarterly Letter
July 7, 2024
Table of contents
Dear Fellow Investors
Seeking Winners Fund Commentary
Our New Holdings
A Tech Echo & The Allure of Easy Money
S&P 500 vs Seeking Winners Valuation
All-Weather Cash Flow & Reinvestment
Suggested Reading
Dear Fellow Investors
At Seeking Winners, our mission is clear; to invest in businesses with strong economic fundamentals while protecting our capital from permanent loss. These are the companies that truly understand their market, operate efficiently, and possess a lasting competitive edge. Unlike fleeting trends, these fundamentals create value that endures. The capitalist system itself acts as a filter, separating the winners from the losers. But predicting which companies will flourish in this dynamic environment is a notoriously difficult task. Many factors contribute to success, and external forces can disrupt even seemingly stable industries. This is why we approach any claims of absolute certainty in the market with a healthy dose of skepticism. True understanding comes from acknowledging the inherent complexities and uncertainties of the business world.
As always, my core philosophy revolves around four key pillars:
Unwavering Focus on Cash Flow: I prioritize companies with a business model I understand and a proven ability to consistently generate high levels of free cash flow. This robust cash generation serves as the lifeblood of future growth and investment opportunities.
Identifying Capital Allocation Masters: Beyond simply generating cash, I seek companies with management teams who excel at allocating that capital effectively. This expertise in making strategic investments fuels long-term shareholder value creation.
Investing Alongside Outstanding Owners: I believe in the power of ownership mentality. I gravitate towards companies led by individuals who are themselves invested in the company's long-term success. This alignment of interests fosters a strong commitment to sustainable growth and value creation.
A Price Conscious Mentality: The starting price you pay does matter. I use a reasonable estimate of future cash flows to arrive at what I consider an acceptable price to pay for an exceptional business.
I’m particularly drawn to businesses with a special talent: the ability to consistently deploy additional capital and see it generate resilient returns in the future. Owning just one of these companies and holding the position can lead to wealth accumulation that's almost beyond measure. The key lies in the power of compounding returns. By effectively reinvesting profits back into the business, these rare enterprises can fuel significant future growth, making them incredibly valuable long-term holdings.
This focus on resilience allows us to target consistent, albeit modest, outperformance relative to the broader market. While windfall gains are always enticing, we recognize their fleeting nature. Our primary objective remains mitigating risk by building a portfolio of resilient companies. This approach fosters long-term stability and generates sustainable growth, allowing us to benefit from the power of compounding returns over time.
The market in 2024 has been a whirlwind of excitement for investors, particularly in the semiconductor sector. This surge reminds me of the housing bubble, where everyone suddenly became a real estate expert. Similarly, the first half of this year has seen an explosion of self-proclaimed semiconductor gurus, many with no experience in chip manufacturing or design. It's truly remarkable!
For over a decade, our markets have been fueled by easy money, a surge in passive investing, pump and dump schemes, unrealistic price targets and more. This, in my opinion, has created a dangerous environment. After a period of rapid growth for the world's largest companies, it's highly unlikely they'll continue to perform at the same pace. When you consider the core principles of sound investing, it boils down to simple math.
This message is particularly important for those invested in index funds outside of company-matched retirement plans. or if you’re concentrated in semiconductor names or ETF’s. If you believe the current market party will endlessly continue, we hope this letter serves as an important reminder that things might cool down eventually. Remember, sound investment decisions are built on a foundation of careful analysis, not fleeting trends.
Finally, I'd like to express my sincere gratitude to all those who have taken the time to read and share my work with their networks. As I write this, we have passed the 400 subscriber mark. While this number may seem modest in the larger context, it holds significant meaning for me. This project began as a simple way to track my investment performance and document my thoughts, and your engagement has been incredibly motivating. Seeking Winners represents a community of curious minds interested in the world of investing and I'm committed to providing valuable content that can help us all navigate the investment landscape together. Thank you for being part of this journey!