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Dane Capital Second Quarter Letter

Next month we will be sending out our Autumn edition, which is already taking shape. We have interviews with two value-focused funds lined up, one of which is Eric Gomberg’s Dane Capital.

Ahead of the release of our Autumn issue next month, here is Dane Capital’s second quarter letter to investors which was published last week.

We’re pleased to report that in the 2nd quarter of 2017, Dane Capital Management (the “Fund”) returned 10.6%, net of fees and expenses, resulting in the Fund generating a 22.8% return year-to-date.

We’ve stated, both when results have been disappointing and strong, that Dane’s performance should be judged over years, and not months and quarters. We remain optimistic about our ability to identify unique ideas and produce outstanding returns over time.

We’re confident regarding our Fund’s prospects over the next several quarters, particularly given recent earnings reports (regardless of positive or negative near term stock action) as they validate our theses on our core holdings. Moreover, we continue to see interesting opportunities, although we remain judicious, as always, and add new stocks to the portfolio at a conservative pace.

Interestingly, even with the Fund’s strong year-to-date results, several of our largest positions have not contributed to the positive performance (or, in some cases, have negatively contributed to the Fund’s performance), despite healthy fundamentals. We are confident, that both these companies, and our other holdings, which we view as below their intrinsic value, will reflect fair value in quarters to come.

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Arquitos Capital Partners – July 2017 Performance

Steven L. Kiel:

Arquitos Capital Partners returned 1.6% net of fees in July, bringing the year to date return to 26.0%. Since its April 10, 2012 launch, the fund has provided an annual net return of 30.4%.

Separate from performance results, I want to highlight a project in which you will likely have interest. My friend Tom Jacobs spearheaded a campaign to republish the works of Maurece Schiller. After a Kickstarter campaign and other financial contributions to get the project off the ground, Tom is on the verge of publishing the first of five Schiller books on special situation investing. I had not previously been aware of Schiller’s contribution to investment analysis and learned that his books, originally published more than 50 years ago, were the foundation for the style of investing that Arquitos has successfully employed.

Tom’s idea was to add modern case studies from a variety of investors in the reprints of the books. I am happily supporting Tom and am also contributing a case study for one of the books. You can find my case study on ALJ Regional Holdings below:

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Stanphyl Capital Management July Letter To Investors

Friends and Fellow Investors:

For July 2017 the fund was down approximately 0.9% net of all fees and expenses. By way of comparison, the S&P 500 was up approximately 2.1% while the Russell 2000 was up approximately 0.7%. Year to date the fund is down approximately 16.7% net while the S&P 500 is up approximately 11.6% and the Russell 2000 is up approximately 5.8%. Since inception on June 1, 2011 the fund is up approximately 90.1% net while the S&P 500 is up approximately 109.4% and the Russell 2000 is up approximately 83.2%. Since inception the fund has compounded at approximately 11.0% net annually vs 12.7% for the S&P 500 and 10.3% for the Russell 2000. (The S&P and Russell performances are based on their “Total Returns” indices which include reinvested dividends.) As always, investors will receive the fund’s exact performance figures from its outside administrator within a week or two; meanwhile I continue to waive the annual management fee until we regain our high-water mark.This has been an awful year for us, and yet the fund has been down roughly this much before and

This has been an awful year for us, and yet the fund has been down roughly this much before and subsequently went on to recover that downdraft and set a new all-time high NAV, and I have every intention that it will do so again. This year’s terrible performance has been almost entirely due to our short position in Tesla, whereby despite having an overwhelming number of facts on our side (detailed, as usual, below) the stock is up 51% this year. Meanwhile, as a value investor it’s currently tough to find any companies cheap enough to buy; Howard Marks from Oaktree Management did a great job this month summarizing how incredibly overvalued this market is– here’s the link and here are the highlights:

See the rest of the letter below:

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Second Quarter 2017 Letter to Alluvial Fund Partners

Dear Partners,

It is my pleasure to report results for Alluvial Fund, LP’s first six months of existence. While such a period of time is insignificant in the grander scheme, I am nonetheless happy to see the value of our investment grow at a healthy clip out of the gate. For the three months ended June 30, 2017, the value of an investment in Alluvial Fund, LP rose 7.1%, net of full fees. This compares favorably to the S&P 500 Index total return of 3.1% and the Russell 2000 Index total return of 2.5%. Year-to-date, Alluvial Fund, LP has produced a net return of 12.6% compared to 9.3% for the S&P 500 and 5.0% for the Russell 2000. The partnership finished the quarter with $9.3 million in assets.

In launching the partnership, Alluvial has welcomed several new limited partners. I am grateful for the opportunity to manage capital for you, and I will work to the fullest of my abilities to maximize the value of our investment. I am equally grateful to those partners who took a risk on a young, wholly unproven manager back in 2014, when Alluvial was born from a blog I would update in the wee hours in my rowhouse apartment on Pittsburgh’s North Side. It’s been incredibly rewarding to see both our portfolios and the scope of Alluvial’s activities grow.

These quarterly letters are a medium for me to discuss meaningful events at portfolio companies and lay out the investment case for various holdings. From time to time, I may share some general investment related thoughts. However, I tend to leave the pontificating on value investing to others. I enjoy talking about the opportunities I have found much more. With that said, let’s get to it. Alluvial focuses on small companies, illiquid securities, and special situations. Though we maintain this focus, we will purchase larger and more liquid securities when they

With that said, let’s get to it. Alluvial focuses on small companies, illiquid securities, and special situations. Though we maintain this focus, we will purchase larger and more liquid securities when they are especially misprice. We invest globally and are willing to wait years for value to be realized, provided value is accruing at a reasonable rate in the interim. When thinking about Alluvial Fund’s various holdings, I divide them into four informal categories. Many Alluvial holdings do not fit neatly into any of these categories, but the categories do provide me with an analytical framework I use in evaluating possible investments.

See the rest of the letter below:

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Boyles Asset Management – Q2 2017 Letter Excerpt

“In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches.” –Financial historian, economist, and educator Peter L. Bernstein (2004 interview with Jason Zweig)
As he did in his 2007 book, A Demon of Our Own Design, Richard Bookstaber returns to the story of the cockroach with his 2017 book, The End of Theory.  The cockroach has survived and thrived for about 300 million years, thanks in large part to a simple survival mechanism.  As described by Bookstaber:

…the cockroach simply scurries away when little hairs on its legs vibrate from puffs of air, puffs that might signal an approaching predator, like you.  That is all it does.  It doesn’t hear, it doesn’t see, it doesn’t smell.  It ignores a wide set of information about the environment that you would think an optimal system would take into account.  The cockroach would never win the “best designed bug” award in any particular environment, but it does “good enough” and makes it to the finish line in all of them.

This brings to mind the saying that in order to finish first, one must first finish.  But the broader point being made is that it is often simple, coarse rules that lead to survival advantages.  While these rules, or heuristics, may not be the optimal traits for an organism to reach its maximum potential for thriving in an environment, given a specific set of conditions, it allows the flexibility needed to stick around to see the finish line should the conditions change.  The observation credited to Charles Darwin about a surviving species being not the strongest nor the most intelligent, but the one most responsive to change is applicable here.  Uncertainty and change are inherent in nature, as they are in business and life in general, and it is often simple heuristics and ideas that, if pursued with discipline and consistency, can allow one to survive whatever the future may have in store.
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Boyles Asset Management – Q2 2017 Letter Excerpt

“In general, survival is the only road to riches. Let me say that again: Survival is the only road to riches.” –Financial historian, economist, and educator Peter L. Bernstein (2004 interview with Jason Zweig)
As he did in his 2007 book, A Demon of Our Own Design, Richard Bookstaber returns to the story of the cockroach with his 2017 book, The End of Theory.  The cockroach has survived and thrived for about 300 million years, thanks in large part to a simple survival mechanism.  As described by Bookstaber:

…the cockroach simply scurries away when little hairs on its legs vibrate from puffs of air, puffs that might signal an approaching predator, like you.  That is all it does.  It doesn’t hear, it doesn’t see, it doesn’t smell.  It ignores a wide set of information about the environment that you would think an optimal system would take into account.  The cockroach would never win the “best designed bug” award in any particular environment, but it does “good enough” and makes it to the finish line in all of them.

This brings to mind the saying that in order to finish first, one must first finish.  But the broader point being made is that it is often simple, coarse rules that lead to survival advantages.  While these rules, or heuristics, may not be the optimal traits for an organism to reach its maximum potential for thriving in an environment, given a specific set of conditions, it allows the flexibility needed to stick around to see the finish line should the conditions change.  The observation credited to Charles Darwin about a surviving species being not the strongest nor the most intelligent, but the one most responsive to change is applicable here.  Uncertainty and change are inherent in nature, as they are in business and life in general, and it is often simple heuristics and ideas that, if pursued with discipline and consistency, can allow one to survive whatever the future may have in store.
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