Dear partner,
During our physical annual meeting on Thursday, June 4 in Mechelen, it was particularly nice to meet many partners in person. It was an inspiring evening in which we talked extensively about the investment world we live in, the robustness of our portfolio, and the ways in which we arm ourselves against what is to come.
In the presentations that evening and the conversations afterwards, one common thread emerged, which is immediately the title and central theme of this letter: ‘We are different’.
Is being different a guarantee of success? Does being different lead to more peace of mind? Is being different a goal in itself? Why would you want to be different? Does it offer any advantage at all? Many questions that we attempt to answer. We leave the conclusion to the reader.
That the financial world is increasingly dominated by passive index funds, retail gamblers, and extreme tech concentration was already discussed in our previous quarterly letter (readable here). We deliberately choose a fundamentally different path. We think differently, act differently, and have structured our portfolio in such a way that in the event of a market crash, our fund will also react completely differently.
Those who have been following us for a longer time know our argument. For new readers, we think it is good to explain this way of working—which is so essential to us—once again in this letter. We set out all points in order: what that ‘different’ approach concretely means and why we believe this is the ‘right’ approach.
The illusion of traditional risk diversification
Let us start with a conversation we had afterwards with one of our partners. He put this forward as the most relevant point as to why he is a partner.
When you knock on the door of a major bank or a traditional wealth manager, you invariably get the familiar speech about risk diversification. They advise you to spread your capital across a handful of different banking funds. The reality, however, is that this so-called diversification is often a dangerous illusion.
Anyone looking under the hood of four different banking equity funds today will see that they almost all move in the exact same direction. Every single one of them is invested in the exact same group of giants, tech stocks that now make up an absurdly large portion of the S&P 500 and the world index. The 12-month correlation between the S&P 500 and the Nasdaq-100 (the index of tech stocks) rose in March 2026 to a record high of 0.98 (‘0’ meaning absolute lack of correlation, ‘1’ meaning total correlation). This proves that the S&P 500 has effectively become a concentrated tech fund and that passive “risk diversification” via funds following the index is an illusion.
When the market suddenly moves downwards, the assumed diversification disappears rather quickly. Stock market history teaches us that inter-correlations between traditional equity funds in times of crisis shoot up to +0.85 or more. Everything then falls simultaneously and almost equally hard.
Our approach is fundamentally different. We invest independently of market trends and major indices. We cannot calculate it precisely, but we estimate that our portfolio has an overlap of less than 1% with major stock market indices. While the index investor blindly buys whatever is large, we specifically look for the gems that stay under the radar. We view that not just as risk diversification, but above all as risk reduction.
Our positioning: The 3D world versus the 2D world
One of the most striking differences from traditional funds is our sector allocation. Where the rest of the world continues to massively pump capital into software, SaaS companies, and the promises of artificial intelligence (the ‘2D world’), we are heavily underweight in tech and heavily overweight in real assets (the physical or ‘3D world’).
The crowd seems to forget at times that the cloud does not float in the air. In reality, the cloud consists of concrete, copper wire, rare earth metals in GPUs/CPUs and memory, huge amounts of energy, and water. We have explained several times our thesis that over the past decades there has been structural over-investment in AI and under-investment in the real, physical economy: mining, commodities, infrastructure, and energy.
A first serious accident in the 2D world recently occurred. The AI hedge fund of 25-year-old former OpenAI researcher Leopold Aschenbrenner collapsed within weeks from a peak of $45 billion to just $10 billion (a loss of 77%). The fund utilized gross leverage up to 4x on extremely concentrated positions in AI infrastructure (such as Nebius, SanDisk, and CoreWeave). Margin calls from three major banks forced a massive $16 billion sell-off to Citadel at a 10% to 20% discount. We expect more missteps of this kind. It reinforces our conviction to focus on capital preservation and avoiding leverage.
Our ‘being different’ is not limited to the nature of the underlying investments in our fund, but also extends to the method of execution. We invest through a few funds managed by selected specialists in commodities and bottom-up researched companies with tangible assets. These managers know that world through and through. They invest in extremely cheaply valued companies with strong balance sheets and little debt.
Should the house of cards of overvalued tech companies wobble, our companies are robust enough to weather the storm.
Very pure value investing: Net-Nets added
Value investing is not an empty marketing term for us, but our way of thinking and acting. And that applies not only to our own direct positions, but equally to all the managers we have selected. Currently, half of our portfolio is entrusted to highly concentrated value investors in very specific domains. More details on that in the second part of our letter, which is exclusively reserved for our partners.
The philosophy of value investing is, as you know, buying companies with a very large margin of safety. Within our own selection, Sam has selected European small caps in this manner from the beginning. Since June of this year, Joël applies this philosophy in its purest and most extreme form. We are now building an exposure of approximately 5% to Benjamin Graham’s legendary ‘net-nets’. These are deep-value companies that have been so severely rejected by the market that their total market value is lower than their liquidation value (Net Current Asset Value or NCAV, which is current assets minus all liabilities). In other words: we have a margin of safety and get the factories, machinery, intellectual property, and all future profits completely for free.
This type of company is far from glamorous and is anxiously avoided by traditional wealth managers. But academic studies and decades of practical experience show that a disciplined basket of net-nets achieves an outperformance of 20% to 30% over the long term. It is the ultimate margin of safety: investing in companies priced as if they are already dead, but which can rebound strongly thanks to a small catalyst.
At the time of writing, we have been running this strategy for 10 weeks. That basket of around 20 stocks returned +8% over that period.
Fun fact: although we do not invest in the AI hype, we do use Artificial Intelligence in our net-net strategy. Since net-nets require a quantitative approach (data-based) supplemented with a touch of qualitative input (management actions such as share buybacks, respect for minority shareholders, clean structures, etc.), this strategy is extraordinarily suitable for structured AI research. Joël has already written several LinkedIn articles about this (the first of the trilogy can be found here in Dutch). We believe this gives us an edge over the majority of investors in this strategy.
Our “ugly duckling” as a beacon of antifragility: the options fund
How does our portfolio react during a severe market crash? Where traditional funds hope to drop slightly less than the index, we have active, built-in protection. We have invested approximately 20% of our portfolio in a unique, rules-based options fund.
For those who shudder at the thought of options investing, I like to make the comparison with a hammer. Give a hammer to a burglar, and he smashes your window. Give that same hammer to a skilled carpenter, and he creates beautiful furniture with it. Options are exactly the same: in the wrong hands, they are a dangerous weapon that can destroy portfolios. Used wisely, as is the case for us to be clear, options act as insurance at a low cost.
In normal market conditions, that fund is our ugly duckling. Nothing more than a cash position that, in the best-case scenario, yields a small return. While our value managers steadily build return, this options fund contributes barely anything in good times and can even weigh on overall performance. It simply doesn’t quack like the rest of the portfolio.
But the moment the market suddenly crashes (Nassim Taleb’s Black Swan), the transformation occurs. Precisely when the rest of the world panics and equity portfolios plummet, our fund surges explosively thanks to falling prices and rising volatility. It is an antifragile component: something that literally grows stronger through chaos.
Why is this 20% position so crucial during a crash? It structurally protects our capital. In a crisis like in 2022, when the market fell by 34% from peak to trough, our unprotected portfolio dropped by 18.9%, whereas a protected portfolio would have experienced a decline of only 12.6%.
Furthermore, you have cash when you need it: traditional value investors hold cash to be able to strike during a crash. But cash yields nothing and dilutes your returns in good times. The mechanics behind this were discussed here.
A well-balanced options fund is our “cash insurance plus”. During a crash, our 20% position suddenly expands significantly. By rebalancing this fund (selling at a profit and purchasing additionally penalized stocks at that moment), our portfolio not only recovers faster, but we also achieve substantial additional outperformance at that time.
Howard Marks and the path to the top decile
Famed fund manager Howard Marks writes: “You can’t predict the market, but you can position yourself.” That is exactly our philosophy. We do not pretend to know when the bubble will burst, but we do make sure that we are resilient against the most negative scenarios.
Therefore, our goal is never to be the absolute ‘top performer’ in a euphoric stock market year. To become number one in a rising market, you have to take irresponsible risks and blindly follow hypes in a momentum strategy. We do not play that game. We focus obsessively on capital preservation and avoiding heavy losses.
The mathematics behind volatility (the so-called volatility drag) is relentless. We also discussed this during the last meeting: a loss of 50% requires a gain of no less than 100% just to break even. High volatility destroys effective compound return over the long term. Winning quietly and consistently is the path to real wealth.
Skin in the game & Pay for performance
As entrepreneurs, we firmly believe in the right incentives. In the traditional financial world, managers often get rich in their sleep from fixed management fees, regardless of whether they add value or not.
At Chess Capital, we do things differently. Since we have a substantial portion of our own family capital in the fund, we are in the same boat as our partners. All our underlying fund managers share this same philosophy and were selected on that basis.
Review of the tactical adjustment in Q4 2025
As our loyal readers know, we diversified our value investing strategy by incorporating specialized niche funds alongside our European small caps. The intention was not to be solely dependent on a lagging Europe.
We were asked at the time whether we would regret it if Europe suddenly started to outperform the rest of the world. This ‘worst-case scenario’ would mean that our remaining 30% European positions would perform very well, while the other funds would drag down total performance.
And that is precisely what happened in the first half of the year. So we can now answer the question perfectly.
And no, we have no regrets. In fact, we would do it again without hesitation. Our own selection offered about a 12.9% return from January 1 to July 31. This closed a small portion of the massive undervaluation of our companies.
The funds in which we invested for diversification (excluding the options fund) performed ‘only’ 5.3% over the same period. And the options fund, our 20.8% cash position, stayed virtually flat.
We do not consider that lost profit, but rather gained peace of mind. It feels so comfortable knowing that opposing forces keep each other in balance and thereby prevent a large drawdown. Since the launch of the W-class 10 months ago, when we began investing in diversified funds, we have achieved an annualized net return of 8.5%.
The Chess Capital Fund is a private fund, targets only ‘well-informed investors’, has €19.5 million in assets under management, and is open to new partners. We currently see promising investment opportunities.
The remainder of this letter is reserved for our partners. In it, we detail the performance of the underlying funds and our own individual positions.
In conclusion
Dear partner, we live in a fascinating and at times speculative market environment. We navigate through it contrarian and continue to think rationally. Thanks to our all-weather portfolio, we sleep soundly and look to the future with great confidence.
With warm regards and many thanks for your trust,
Sam and Joël