Exclusive from ValueWalk: Khrom Capital’s letter to limited partners (great value investor just named to Forbes 30 under 30), see recent letter here. [sic]
Dear Limited Partners:
In the year 2013, our Partnership returned 25.8% net of fees and expenses. On average, we held 43% of our assets in cash throughout this period.
John Templeton aptly said, “If you want to have a better performance than the crowd, you must do things differently from the crowd.” That maxim is obvious but its implementation is difficult. Differentiation in the investment business is hard. This is readily apparent from the many soundalike fund letters disseminated every quarter (ours included). Though stark contrasts among funds are rare, differences do exist on a subtle level—subtleties that can compound to a large competitive edge over time.
We at Khrom Capital give more than passing thought to our dissimilarities and whether they serve to help or hinder us in producing superior returns. Here are some distinctions that we note: We can go for months without a new investment and expect to only make a few per year. Our cash holding may be enormous at times when we cannot find anything smart to do (or at times when we are just not smart). When we do find exceptional investments, we take concentrated positions and make them count. We now focus on spending time underwriting investments half a decade out—we have conditioned ourselves to consider everything else a distraction and avoid it. We have structured our fund with a long-term lock-up that actually allows us to do all the above. We have an incentive against gathering assets that hamper returns. (We have a 6% hard hurdle before earning our incentive fee and collect no management fee.)...MOREHere's the Forbes 30<30 a=""> 30>