Fellow Partners,
I am pleased to report strong performance in our first five months of operation.
For me, the highlight of 2020 — in addition to welcoming my daughter Isabella to the world — was closing the year knowing we have been wise stewards of our capital. This includes our strong returns, but also the manner in which these returns were achieved.
You received statements on your individual positions in the fund earlier today. The only reason your returns may vary will be the timing of when you joined the fund.
Thinking about performance
We continue to believe our results should be measured over a rolling 5-year time horizon. We typically hold our investments for years, and thus it can often take years to know whether we were right in our assessment of said investments.
As usual, Warren provides great context for thinking about performance:
If the next four years are going to involve, say, a +40%, -30%, +10%, -6%, the order in which they fall is completely unimportant for our purposes as long as we all are around at the end of the four years.
The course of the market will determine, to a great degree, when we will be right, but the accuracy of our analysis…will largely determine whether we will be right.
Warren Buffett, from an early Buffett Partnership letter
We have no idea when we will be right. Instead, we focus our efforts on applying practical wisdom and playing the long game. These actions combined with patience, discipline and humility give us confidence that we will be pleased with our results over the long-run.
All that said, it is nice to have a strong start to our partnership and encouraging to see our investment philosophies bearing fruit in the salad days of the fund.
What performed
That we performed well is important; as important is knowing why. Risk comes from not knowing what you’re doing — anyone can have a good year every now and then. To that end I am also pleased with the quality of the portfolio's performance.
Most importantly: we had very few misses, and none of substantial size (the primary way we manage risk is by position sizing). We took a loss on only a handful of positions, and in aggregate all losses reduced portfolio performance by less than 1% across the period.
The majority of our positions each contributed more than 1% to portfolio performance, and while we did have a few big winners, even without them we would have performed well.
The partnership is currently invested in 33 positions based in six countries throughout North America, South America and Asia Pacific. Our cash levels averaged 11% in 2020.
We remain concentrated in high quality assets. Our top ten positions account for 62% of portfolio assets. Our top twenty positions account for 83% of portfolio assets.
While I pay minimal attention to sector-specific diversification (most things can be valuable at the right price), some of you will want to know that the fund has substantial holdings in the technology, consumer cyclicals, financials, industrials, and telecom sectors.
I will go into greater detail in our annual report, which will be issued this Spring once the annual fund audit is completed. A major focus of that report will be what our investments enabled. We view our securities as fractional shares of businesses; those businesses, in aggregate, had fairly good years.
Closing items
As always if you know others who would value partnering with us please connect us.
Thank you for the continued opportunity to compound trust with you. Here’s Isabella and I wishing you all a strong start to 2021!
All the best,
John
Founder and Managing Partner