Dear partner,
Our outlook on the future hasn’t changed since the previous quarterly letter. At the time of writing, we are just a few days away from the deadline set by Trump regarding import tariffs, so we don’t know what this week—or the next few weeks—will bring.
Summer markets can be more volatile due to lower trading volumes, but honestly, we’re not too concerned. We have full confidence in our companies and maintain a healthy cash position to take advantage of any opportunities that may arise.
Whether volatility will actually increase remains uncertain. Markets appear to have grown used to Trump’s antics and often respond quite indifferently. I wrote an article on this a few weeks ago, titled “Greed, Greed, Greed” (see below).
Since January, our fund has risen by 10.3%—a strong result. But that doesn’t mean we’re already back among the winners. Small European family-owned businesses, selected with a value investing approach, are still not leading the charge. There’s renewed interest in Europe, which is a start, but that interest mostly flows toward large companies (through indexes) and the defense sector.
Still, it’s encouraging to see this upward trend just as we’re on the verge of broadening our pure equity fund into a fund of fund managers. Not all our target managers have seen the same momentum, which actually gives us a better chance to make strong initial rebalancing decisions.
Waiting Room
Right now, it feels like we’re in a waiting room. The CSSF approval—after a few technical questions—seems like a formality that could be finalized in the coming days or weeks (though unfortunately it’s the summer holiday period). Once approved, we can begin gradually reshaping our portfolio.
In the meantime, we’ve continued our due diligence on various managers. For some, we’re reviewing the finer details. Others are still in transition toward new (solid) structures, which fits perfectly with our strictly regulated fund, allowing us to invest with them too.
Investor Evening(s)
On June 24, we held a presentation for our fund of fund managers at the Abbey of Kortenberg. Sixteen people attended, several of whom expressed clear interest. A few family offices also requested one-on-one sessions.
Due to this interest, we’re considering organizing another evening event in the Kempen to reach investors from Antwerp and Limburg. The date and location haven’t been set yet, but it will likely take place at the end of September.
If you, as a partner (or potential investor), haven’t heard the story firsthand, we’re happy to arrange private video meetings.
Farewell to Warren Buffett
In May, I (Sam) flew to Omaha to attend the annual Berkshire Hathaway meeting. It’s often called the Woodstock of Capitalism and is the perfect place to connect with other value investors. I also met some of our candidate managers there.
The headline, of course, was Warren Buffett stepping down as CEO of Berkshire Hathaway. He’s been a guiding example throughout my investment career (since 1999), and though I don’t know him personally, it still felt like losing a mentor. It was emotional.
While Omaha is great for reconnecting with familiar faces, smaller conferences are better for discovering new talent. Joël attended the Nordic Value Congress in Denmark—an exclusive event with only about 30 participants—where he had the chance to dive deeper into conversations with some of our target managers.
Greed, Greed, Greed
Please don’t take the following as fearmongering. It’s not about scaring anyone—it’s about understanding the current environment.
Markets have always been driven by two emotions: greed and fear. We firmly believe this will continue in the long run. But over shorter periods—sometimes spanning years—the market has changed.
It used to be enough to buy stocks based on valuation. If something was cheap enough, it was only a matter of time before others noticed, bought in, and the price rose to a fair level. After a strong rise, greed (and sometimes euphoria) would take over, pushing prices beyond intrinsic value—until they fell again. And the cycle repeated.
Today, valuation alone is no longer enough. It remains the key factor for long-term returns, but we disagree with the popular claim that it’s all about ROIC (return on invested capital). As the famous baseball coach Yogi Berra once said: “In theory, there is no difference between theory and practice. In practice, there is.”
There are fewer investors today who truly think things through. And those who do are more focused on growth, quality—and thus also momentum. Markets are increasingly driven by algorithms, with passive investing being the simplest form: “ETF receives money, so the ETF buys.”
We see a shift from active to passive funds. In other words, we’re moving from investors who think about their choices (with varying success) to investors who simply follow the flow.
On the one hand, we have full confidence in people, companies, and the long-term future. On the other hand, the current environment makes us uneasy in the short to medium term.
To be clear: we are not worried about the companies in our portfolio. They are generally so undervalued that we’re happy with their operational returns alone. A revaluation would be nice, but it’s not required.
Our unease lies more in the mindset dominating the market. The U.S. bombed Iran as part of the Middle East conflict, yet the markets barely flinched. That reaction—while perhaps justified—was surprisingly muted.
Are investors simply wiser now and better at predicting the future? No one can predict the future—Nostradamus aside. Are computers better at pattern recognition? Maybe, but markets reacted more strongly in past wars, so this deviates from previous patterns.
We believe the explanation is simpler: there’s almost no fear left, just plenty of greed. Every dip or correction is eagerly bought up. That works—until there’s no money left to buy the dips. For now, there’s still cash on the sidelines, often pulled from active funds.
Our question is: what kind of black swan event would it take to bring fear back and push markets down for an extended period? (Editor’s note: let’s hope it doesn’t happen before the CSSF approval so we’re protected.)
A correction or crash now and then is healthy. But the quick recovery of recent downturns—like the COVID crash, which was erased in weeks or months—doesn’t really test the resilience of investors or companies. And such a test is necessary to prevent excesses like the ones we’re seeing today.
There are analysts out there with 16 or 17 years of experience who’ve never truly seen a crash—only read about them. And we circle back to Yogi Berra: “In theory, there is no difference between theory and practice. In practice, there is.” You can’t learn how it feels from a book.
Today’s market excess is clear to us when looking at certain advertisements:
On various financial websites, you’ll see products built around single stocks, involving written options and monthly—or even weekly—payouts. Even Seeking Alpha, a respected U.S. investing platform, features more and more articles on these products.
These setups create leverage and very risky situations. In my opinion, they’re “accidents waiting to happen.” The last time we saw similar practices—though many underestimated the impact—was in 2007–2008, with repackaged credit products.
That these products will end badly seems inevitable. Whether they’ll cause a systemic crisis is another question. Losses will likely fall on investors, not banks. Or are we being too optimistic?
The Fund
As we’ve always said, quarterly results don’t matter—long-term ones do. That said, it’s still encouraging to see our portfolio rise over 9% last quarter, and 10.3% since January.
However, as mentioned earlier, our companies are still only modestly outperforming compared to European indexes and defense. Outside of those sectors, things remain underwhelming. Most gains come from solid company performance and, thanks to low purchase prices, generous dividends.
T-Class Results
The graph shows a small increase in the intrinsic value of the fund, but this wasn’t due to clever stock picking. In fact, we were sellers, not buyers, this past quarter. The rise in intrinsic value came from some withdrawals paid out of cash, increasing the intrinsic value per share.
The Net Asset Value (NAV) rose faster than the intrinsic value last quarter, narrowing the gap between price and value from 80% at the end of March to 70.6% at the end of June.
A-Class Results
The A-class and T-class have shown identical performance in recent years. The only difference lies in the performance fee, which hasn’t applied in recent years. So the results are effectively the same.
As mentioned earlier, the T-class will be merged into the A-class—good news for T-class partners.
Top Contributors to Performance
Top Detractors to Performance
Largest Holdings
Transactions
In Q2, we mainly sold. For example, we sold Smartphoto as we couldn’t build a sufficiently large position to have meaningful impact. You were already informed last quarter about Argentex; the final tranche was sold in April.
We also sold Hal Trust. With passive investing on the rise, there’s less enthusiasm for bringing new companies to market. Eventually, Hal Trust will need to go public to unlock its value. For now, we’re stepping aside.
Originally, we bought it as a cash alternative—and it held up well against inflation, so no complaints. We also trimmed Sofina to free up cash in anticipation of the fund’s expansion. Finally, we sold Hornbach Holding with a 44.4% gain in under six months.
Hornbach has been in our portfolio twice now, and we’d gladly ride another 40–50% increase with them in the future.
The higher volume of sales is no coincidence, and not just due to the fund’s expansion. Even without that, we would be leaning toward selling today.
We sense market tension and want to launch the protective options fund as soon as possible. That offers better protection than simply holding cash and will provide ammunition when the next round of bargains appears.
Companies
In our last two quarterly letters, we explained our rationale for buying our largest positions and what we expect from them. That view hasn’t changed, and we haven’t made any major purchases since.
There’s nothing particularly notable—positive or negative—to report on results either. Of course, we’re monitoring everything in detail. We’re also sending this letter a bit early, so most half-year results are still due in August.
Some acquisitions and mergers have taken place (e.g., at Tessenderlo), but nothing that will make or break our numbers—just solid business operations.
Anexo is a unique case. We doubled our position, though it still only accounts for 1.6% of the fund. It’s a so-called “net-net,” where the cash plus receivables exceeds the market value. The company is growing, and there’s a potential buyout offer in the works from the main shareholders and a financial party.
We initially bought it as a learning position, and doubled down when we saw enough shareholders band together to block a lowball offer.
Kind regards and thank you,
Sam & Joël