2016 3rd Quarter Memo for Vailshire Clients

Dear clients of Vailshire-

Autumn has officially arrived here in Colorado, bringing cooler temperatures, beautiful changing leaves and studious kids in the thick of a new school year.  Our family loves to hike around the myriad trails here in Colorado Springs–with the mule deer, foxes and coyotes, under the majestic, snow-capped Pikes Peak.

I hope you enjoy the Fall season as much as we do!

Changing Investment Seasons

Similar to the changing seasons, great investments often go through periods of cyclicality.  For example, few sectors were as disdained as precious metals (e.g., gold and silver) were at the beginning of 2016.  

Gold started the year around $1,070 per ounce, and has since risen to approximately $1,313–a 23% gain.

Similarly, the majority of gold miners and producers were on the brink of insolvency at the end of 2015, only to rise 100% or more over the ensuing three quarters.  Several Vailshire clients have seen solid performances of such companies within their portfolios.  

Within our flagship hedge fund (Vailshire Partners, LP), we have enjoyed success with multiple such companies–most notably Gold Standard Ventures ($GSV), up 139%, and McEwen Mining ($MUX), up 266%.

The Blessing of Diversification

These, and many other precious metals holdings, have helped to offset the significant continued weakness in the healthcare and biotech sectors.  The biotech sector, in particular, has been in a relentless bear market for 15 months–which continues to drag down the short-term returns in our accounts.

The upside is that the continued poor share price performance of many great companies (such as Regeneron, Celgene, Gilead and Amgen, among others) means that we have been able to add to–or simply hold onto–the positions that we have at bargain prices.  When the biotech and healthcare sectors return to their normal valuations, we will witness significant gains within our portfolios.  

I beseech you, therefore, to keep holding onto these fantastic companies until their day in the sun returns.  You will be happy you did.

The Presidential Election

Clearly, these are interesting and disconcerting times in the United States.  In addition, citizens around the globe are growing increasingly restless with the status quo.  I believe that the upcoming presidential election will be just the tip of the iceberg regarding societal paradigm shifts.


But that’s just my opinion.

My aim is not to be overly political or even worrisome, but to let you know that such uncertainty and unrest will absolutely bring increased market volatility in the coming months and years.  In light of this, I urge you to call to mind our long-term investment focus while the days are relatively calm.  While some defensive hedges may be put into place within Vailshire accounts, we know that being long-term business owners of shareholder-friendly companies remains one the best methods of individual wealth creation; even (and especially!) in times of turmoil and unrest.

Brexit: That Was It?

As an aside… Remember Brexit?  Britain’s vote to leave the European Union was on everybody’s mind three months ago.  It rocked the financial markets and caused a swift, harsh drop in equity prices.  

A few days later, most stock markets had not only recovered their temporary losses, but had climbed to new highs.  That event was followed by one of the calmest and uneventful summers in US stock market history.  Imagine that!

Remember that there are always reasons to be afraid and to sit on the sidelines; terrified of another stock market crash; stashing your money in a bank account earning less than 1%; waiting for the “perfect moment” to invest again.  But multiple studies have shown that the best time to be invested in stocks is… today!

Since the market has a long-term upward slope, the wisest decision is to be invested in great companies as soon as possible–then just hang on for the ride.  Let the businesses you own do the hard work of wealth creation for you, while you enjoy the other important things and people in your life.

One of my roles as your investment adviser is to encourage you to not lose hope in this proven methodology.  If you ever find your resolve waning, please give me a call or send me an email!

A Savings Account Alternative

I wrote about this in my last memo, but wanted to bring it up again to any of you who may be interested.

As you are undoubtedly aware, savings and checking accounts don’t yield very much.  In fact, earning 0.1% interest on $100,000 results in a return of just $100 over one year.  But if you’re lucky, the bank will give you a free lollypop when you visit, for the honor of earning so little interest each year!

I’m obviously making light of what has become a real problem for people who have worked hard to save as much as they can for retirement and other expenses, yet are currently earning very little.

In light of this, I’ve developed an actively managed “savings account alternative” for clients who are looking for something better.  It also has provided welcome relief from the normal stock market volatility, as the underlying account holdings fluctuate very little, yet yield returns of 6-7% after fees.

From our earlier example, earning 7% on $100,000 equals $7,000 per year… which is a vast improvement to the $100 you are earning in your bank account.

(3rd Quarter Update): I’m humbled to report that the returns on these accounts since the beginning of 2016 have far exceeded Vailshire’s goals of 7% and are currently up 16% in nine months… which equates to 21% annualized.  Not too shabby!

If this interests you, please let me know.  It’s as easy as setting up a separate brokerage account or IRA through Interactive Brokers for Vailshire to manage.  I can help you do so in a fairly quick and painless manner.

In conclusion…

I am honored by your partnership with Vailshire Capital Management.  I truly treasure our long-term relationship and the opportunity to make a living helping people live well and invest wisely.  

If I can help you, a family member or a friend invest wisely for the long-haul, please let me know.