Investment Activity Report - 2024

We are pleased to share our first-ever Investment Activity Report for the year 2024. We outline everything we bought and sold throughout the year and provide a brief discussion on the thesis behind each move. 

Alibaba & JD.com

After the abysmal 2021/2022 performance of Chinese stocks, we started to take a closer look. Underlining the word stocks in the previous sentence was intentional, our research revealed a severe disconnect between the stock prices and the underlying businesses. The stocks had fallen over 50%, meanwhile the fundamentals of these companies were either doing OK, good or even great. The market was turning its back on some of the most incredible companies in the world. There was plenty of growth ahead and many had phenomenal balance sheets, with some holding a significant portion of their market cap in cash. We used this market dislocation to purchase some incredible companies on the cheap – PDD, BABA, JD and Prosus (a proxy for Tencent). Fast forward to 2024, we could not resist adding to BABA and JD at the prices listed above. We felt that we were being more than fairly compensated for the risks associated with Chinese equities. So far, this has played out quite nicely.

Gravity & Teton Advisors

These businesses could not be more dissimilar, but the investment thesis is relatively the same. At today’s prices, both of these companies have net cash positions exceeding their current market cap. Not only that, but they are both profitable and have been for some time. Another way to look at it: you could purchase the business, immediately get your money back, and still own a profitable enterprise. Some might even argue that you would own it for free. Of course, without actual control of the company, it doesn’t work quite that way, but it illustrates how undervalued these businesses are. There is tremendous uncertainty regarding future cash flows for both, but with their substantial cash reserves, we believe the downside is already more than accounted for. If we had to choose, Gravity stands out, as reflected in our decision to take a full position.

Brookfield Renewable

Our portfolio is heavily concentrated, and when we fully exit a position, we are left with a noticeable amount of cash. We try our absolute best to minimize cash holdings, but that can be difficult as we need extreme conviction before initiating large positions. Additionally, given the market temperament over the last couple of years, finding exceptional opportunities has been quite the process. At times, we may exit a position without an immediate replacement in mind. Brookfield Renewable presented an attractive opportunity to put cash to work, offering a 7% yield with additional upside potential. The company has a long history of increasing FFO/share and dividends annually. The French term bouche-trou, while somewhat blunt, accurately describes BEP’s current role in our portfolio, a placeholder until we find our next opportunity. Until then, we will hold onto BEP, earn the yield, and likely capture some upside while we wait (the stock is up 10% since our purchase).

Warner Bros Discovery

We’ve held WBD for a few years, but over time, we grew increasingly skeptical of its market position and long-term viability. The core business is deteriorating faster than anticipated, and the dispersion in our FCF estimates continued growing. When considering trimming the position, we ultimately decided to sell. It was the only core position that continuously made us doubt our thesis. We believe the investment should do well and that achieving a price of $20+ in the near term is well within reach. Ultimately, we’ll sleep better at night without constantly second-guessing WBD, and we believe that peace of mind has its own value.

MTY Food Group

We are slightly down since purchasing a full position in MTY. At today’s price of ~$42, the company is trading at 7.1 times 2024 FCF or 9 times 2023 FCF. The company has a history of growth and a simple, predictable business model. We believe this valuation presents an opportunity to own a solid business at an attractive price. As the company deleverages over the next few years, we expect free cash flow to grow organically, without requiring any major surprises. We look forward to seeing how the market values this stock in 2–3 years.

1-800-Flowers & Figs

These two starter positions weren’t going to turn into full positions and were therefore exited from the portfolio. Subsequently, we saw that Figs had committed to investing a large amount into a healthcare AI startup. Given the parties involved, we would have loved to be a fly on the wall for that transaction. This capital allocation decision reinforced our choice to exit, though this is not a reflection on the quality of Figs' products.

Carmax

Carmax became a core position in 2023, perhaps prematurely, and we exited in 2024 with a ~25% gain. We had hoped for more, but over time, we fell out of love with the business model, and the outlook for the next 2–3 years became increasingly difficult for us to predict.

Regis

If only investing were always this easy. Not long after initiating our position in Regis, the stock unexpectedly quadrupled overnight. We didn’t have tremendous size behind this yet, so it wasn’t a home run, but it was a nice win nonetheless. After reassessing the risk-reward profile at the new price, we decided to exit shortly after.

Brookfield Corp

Brookfield was our largest investment to date, and over time, our conviction only grew stronger. As we continued to assess its value, we found ourselves adding more, believing the market significantly undervalued the business. After an exceptional run in 2024, we made the difficult decision to trim our position, given its initial size in our portfolio and the substantial gains realized. That said, BN remains a cornerstone investment, and our plan is to hold it as a core position indefinitely.

Dollar General & Dollar Tree

We've initiated starter positions in both companies and continue to deepen our research. With both stocks down over 60% from their highs, the initial outlook suggests a compelling opportunity.