In this newsletter, we cover the following topics:
Macro: Reopening plays stumble slightly on J&J vaccine issue
Interview: We talk with Ash Rai Co-Founder of Camelot, a long-only, value-oriented hedge fund
For subscribers of our stock picking service. We are working on a new research report of a new company that we think has upside of 50-70%. Peers have recovered and there are “green shoots” on the horizon. We expect a dividend reinstatement in the mid-term could as a catalyst and a potential acquisition should add meaningful free cash flow to the bottom line. We plan to have this research report out by the weekend at the latest. In addition, subscribers can see our “Top Ideas” list that we will be updating weekly with notes and what we are invested in.
Reopening stocks stumbled a bit Tuesday after the FDA and CDC recommended a pause for the Johnson & Johnson vaccine due to potential blood clotting issues. Reopening stocks from restaurants to Disney fell during yesterday’s trading session.
Stay-at-home stocks rebounded today after a rocky couple of months. Zoom was up 6.61%, and Peloton gained 2.85%.
We’re not deterred at all in our reopening thesis by this news. Pfizer and Moderna appear to have enough capacity to vaccinate the vast majority of the US adult population even if Johnson & Johnson’s vaccine is no longer used.
If anything, Tuesday’s dip was a good buying opportunity for those bullish on reopening plays. I’ve also said in previous newsletters that we’d be bullish on reopening plays even without an effective vaccine. A large chunk of the population will refuse to be locked down or adhere to strict Covid guidelines going forward.
Besides, many states like Texas and Georgia have already lifted all Covid restrictions and are embracing a full reopening.
As we’ve said before, it’s impossible and pointless to try guessing the daily direction of the market. The movements within a couple hours or one day are mostly random and unpredictable. We recommend taking a mid-term outlook and profiting from a trend that has momentum and will inevitably pay off.
For example, it was fairly obvious last April that tech stocks related to people staying at home would do well. But you weren’t too late if you didn’t immediately recognize that trend. There were about 6 solid months where you could’ve profited off Peloton, Zoom, and Twilio by jumping in at any time and waiting a couple weeks.
However, some people jumping in to a call option that expired the next day lost because Twilio, Zoom and all the other tech names had -6% days all the time.
Right now, we believe the reopening play is the obvious trend over the next few months that investors will continue to jump into, especially as Q2 numbers come out looking really good.
Interview with Ash Rai of Camelot
1. Can you please introduce yourself?
Hi! My name is Ash Rai, and I am the Co-Founder and Chief Executive Officer of Camelot, a long-only, value-oriented hedge fund founded in January of last year which returned 34.44 percent net of fees (43.05 percent before fees) in 2020, and is rapidly expanding currently.
2. How did Camelot start?
My co-founders — David Tamburri and Nishant Jain — and I founded Camelot in January 2020, as freshmen at Vanderbilt University, after building a track record of investment success managing personal and family funds since we were very young, as well as a portion of the University endowment.
Knowing that successful investments over time grow even modest savings into the funds necessary for financial freedom, we were driven to build a vehicle enabling our friends and family to live better, happier, and more worry-free lives over the long term. Ultimately, the impetus for Camelot was simply to build a vehicle our friends, family, and ourselves wanted — our first investor was my roommate — and the knowledge that we are making a material impact on the lives of our investors motivates us to put every ounce of effort possible into our investments everyday.
Since inception, we have grown our assets under management exponentially, expanding beyond friends and family investments to a wide range of high-net-worth investors — and, in 2020, we returned 34.44 percent net of fees (43.05 percent before fees).
3. What kind of investments do you like?
As a long-only, value oriented hedge fund, Camelot buys stakes in high-quality companies trading at discounts to our judgement of their intrinsic values — as their valuations increase to fair value and close these discounts, we generate strong returns for our investors.
In order for a company to be added to our portfolio, it must be extremely high quality — a characteristic we ascertain by analyzing its quantitative balance sheet, income statement, and cash flow statement factors, as well as its qualitative operational factors.
Fundamentally strong companies’ balance sheets reflect their ability to meet expected obligations and weather unexpected shocks, their income statements reflect consistent return on invested capital, and their cash flow statements corroborate this — all quantitative factors we carefully analyze.
However, while financial metrics are partially indicative of a company’s investment merit, they must not be considered in isolation — we also analyze companies’ operational aspects, such as product and management quality, ability to maintain and expand sales, industry climate, and more.
As value investors, we identify one key investment risk as poor company operational quality — not simply price volatility — and mitigate this risk by only buying stakes in companies making the best products, with the best leadership, track records of success, and positive industry tailwinds. Making appropriate judgements about companies’ qualitative aspects — even more so than their quantitative ones — is a skill largely gained through experience, and we suggest investors spend extensive time reading every 10-K they can find in order to build familiarity with the business landscape.
At Camelot, our team spends the majority of our time reading annual filings for every listed American and Canadian company, industry reports, and news articles — all to make as informed investment decisions as possible, in order to generate the greatest returns for our investors as possible.
It is worth noting that fundamental quality alone is not sufficient for us to buy a stake in a company — the company must be available at a discount to our judgement of its intrinsic value, since we generate our returns from companies’ valuations increasing to fair value and closing these discounts.
Ultimately, the intrinsic value of any company is the discounted present value of its future cash flows — and judging these future cash flows requires deeply analyzing its quantitative and qualitative aspects and forward trajectory — and we only buy stakes in companies trading far below their intrinsic values.
Crucially, the second key investment risk when buying stakes in companies is overpaying for them, and we mitigate this risk by making careful judgements about companies’ intrinsic values — informed by rigorous analysis and experience — and only buying when companies are available at deep discounts to their fair values.
Ultimately, buying high-quality companies — both from a quantitative and qualitative standpoint — at deep discounts to their intrinsic values, and realizing returns as their valuations increase to fair value and close these discounts, is in our view the best path to long-term investment success.
Our rigorous application of value investment principles — buying high-quality companies at deep discounts to their intrinsic values — enabled Camelot to generate returns of 34.44 percent net of fees (43.05 percent before fees) in 2020, while minimizing risk, and we are excited to continue generating strong returns for our investors going forward.
4. How can I learn more about Camelot?
You can learn more about Camelot by visiting our website at https://camelot-fund.com, or feel free to reach us directly at email@example.com.
We would love to talk with you about Camelot as we continue to generate market-beating returns for investors who join us on our journey — please reach out over email (firstname.lastname@example.org) and we will respond promptly. We look forward to hearing from you!
Disclaimer: this interview is not an offer to, or solicitation of, any potential clients or investors for the provision by Camelot of investment management, advisory or any other related services. No material discussed in this interview is or should be construed as investment advice, nor is anything in this interview an offer to sell, or a solicitation of an offer to buy, any security or other instrument.