Moreus Q4 letter to investors

2017 seemed to be one of those periods for the Fund, as the “FAANG stocks1” and many other tech stocks zoomed to new heights, in our view without much (if any) regard to business fundamentals, intrinsic values, and most importantly, risk. Against the backdrop of an over 8½- year bull market that has seen the S&P 500 generate a total return of over 330% since its March 2009 low, well-documented megatrends such as electronic and mobile commerce that are revolutionizing business and our way of life, and talk of synchronized global growth finally
arriving in earnest2, many investors appear to have thrown caution to the wind and are increasingly reaching for growth. In some corners of the market, such investors who, in their euphoria, reach too far (or high) for growth are, in our opinion, assuming levels of risk – specifically what we call “price risk” – that we deem to be increasingly excessive.

At Moerus, we strive to limit price risk as much as possible by “buying right,” i.e., as cheaply as possible. In fact, it is our very first principle of risk mitigation (among many others). Why?
Because throughout the history of financial markets, the assumption of excessive price risk has periodically resulted in massive destruction to investors’ wealth, of the extent and scale that would take decades to recover from, if ever. Just what exactly is price risk, and how can it be so dangerous for investors? We will return to this topic in greater detail after discussing recent
activity in the Fund, but for now, suffice to say that we are intently focused on avoiding the excessive price risk assumed by overpaying for growth, even if it means that the Fund’s shortterm
performance may typically lag that of benchmark indexes during a go-go market.

It’s not that we have anything against growth. In fact, we like growth quite a bit. We just don’t like to pay for it. Fortunately, we have been able to find intriguing investment opportunities
that we believe are valued cheaply based on what we know in the here and now, despite having what we believe are attractive long-term growth prospects. As we have discussed in the past, such counter-intuitive opportunities periodically become available, often because of what we believe is temporary, short-term adversity that scares off investors who are prone to buying what is popular when it’s popular. The Fund’s recent investment activity provides two examples of such opportunities.

XXXXXXX is a London-listed banking group which focuses on financial services businesses in XXXXXXXXXXXXXXXX. Founded in 2013 by former

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