Letters
2007 Marketing Intro Letter
Welcome to Saddle Peak. Our hedge fund has now been operating for a year and three quarters and it is time to formally communicate our story.
The Story:
We are long term fundamental value investors. We purchase equities from all market capitalizations (multi-cap manager). We concentrate our investments on our best ideas. The relationship between price and intrinsic value is the primary factor in determining weightings for portfolio construction. Our hedging strategy is straightforward. We buys put options on overvalued companies and or indices. We don’t like to lose money. We are opportunistic investors not traders. Likewise, we purchase long term call options (which are priced on volatility) when they are cheap relative to their intrinsic value.
The accompanying presentation package communicate our views on risk. As investors our value added is a function of our return relative to our stock picking risk. This long term risk is small as long as we buy a dollar of intrinsic value at a discount. The market risk is always present, but is reduced through the use of put options. Many market participants do not consider a meaningful (15% or more) decline as possible. Similarly, a multiyear flat market is not in their conscious mind. They have forgotten history or are simple basing their investments on hope not reality.
Our package details the fund’s performance during down markets (market risk on a monthly basis). The cumulative return in these periods is a function of our ability to preserve capital when the market is declining. However, unlike some value investors we are optimists at heart so we stay more fully invested. It is the efficiency of our put options which allow a more fully invested position. From inception, our fund has grown as our investments have appreciated. The rate of growth in the future will be most affected be our value added stock picking. The main purpose of this letter and package is to communicate what we have done and our enthusiasm for the future.
In Summary:
Saddle Peak’s fund is unique in the hedge fund world for its combination of fundamental long term value investing while controlling market risk. Our results to date show a glimpse of our value added. We look forward to the future given the increased greed of investors. The next fear phase for the markets will be ugly and Saddle Peak will then show its total value added.