Q2 2025 - Seeking Winners Quarterly Letter
July 6, 2025
Dear Fellow Investors
This quarter, we dedicated time to reflecting on two crucial investment themes: position sizing and recurring revenue business models. Our introspection was sparked by two insightful episodes from the We Study Billionaires Podcast: "The Mindset and Skills That Build Investing Legends w/ Ian Cassel (TIP732)" and "Owning Best-in-Class Businesses w/ Joseph Shaposhnik | Rainwater Equity's Launch (TIP731)." These discussions with Ian Cassel and Joseph Shaposhnik provided valuable perspectives that resonated with our investment approach.
As managers of a concentrated, high-conviction portfolio, the performance of our larger positions can significantly impact overall returns. While our fund performed well this quarter, it was primarily driven by the strong performance of a few top holdings. This highlighted the importance of re-examining our position sizing, as ideally, your largest investments should also be your strongest performers.
We recognize that some of our position sizing proved more optimal than others, even for underperforming stocks, and acknowledge that luck played a role. While it's tempting to attribute challenges solely to misfortune or dismiss short-term performance, we believe it's crucial to learn from every experience. In particular, our investment in Computer Modelling Group Ltd. was, in retrospect, sized too aggressively. We believe that some of the most powerful insights come from investment mistakes, and we'll delve into our takeaways from this particular position, as well as share an example of where we believe our position sizing was effective.
In this letter, we'll explain why position sizing is critical, share valuable lessons learned from our errors, and detail the framework we use to manage the Seeking Winners Fund. Finally, we'll discuss why we primarily structure our portfolio around recurring revenue businesses, which enables us to more confidently forecast future free cash flow growth.
For our new subscribers, we always re-emphasize our investment philosophy in each quarterly letter, serving as a helpful reminder of our core focus:
Unwavering Focus on Cash Flow: We prioritize companies with a business model we 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, we 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: We believe in the power of ownership mentality. We gravitate towards companies led by individuals who are themselves invested in the company's long-term success.
A Price Conscious Mentality: The starting price you pay does matter. We use a reasonable estimate of future cash flows to arrive at what we consider an acceptable price to pay for an exceptional business.