CV Capital – 31 October 2018

To my fellow shareholders,

October has not been a kind month for stocks, the ASX 200 fell 5.5% in October. This drop was not triggered by domestic issues but rather events in the US market which spread around the globe. The phrase “When America sneezes, the world catches a cold” is especially true in the financial markets.

Given our concentrated portfolio, I had expected to report a lower return in October than in September. Our big winners did give up some gains in October but this was offset by gains from one of our smaller positions, Watpac which went up significantly due to a takeover offer. I first wrote about Watpac in March, when Besix (majority shareholder of Watpac) tried to buy 50% of the shares it did not own via a scheme of arrangement. Institutional investors voted down the scheme and seven months later Besix is back to buy 100% of the shares it does not already own. In my opinion, although Besix’s offer still undervalues Watpac, it would be risky to remain a minority shareholder in an entity which Besix may end up with a very large controlling stake.

In terms of activity, we have been very slowly buying shares in a marketing company. I say slow because our bid has been in the market for 6 weeks and only 66% of the trade has been filled. The stock’s illiquidity and my allergy to paying high prices are the main reason for this slow digestion.

Although I have been reporting CV Capital’s performance on a month end basis, I’ve done it mainly for the purposes of transparency. CV Capital’s objective is to beat the benchmark over the long term (3-5 years) and therefore I do not place too much emphasis on the current performance given the short history.

The table below shows our performance (before taxes) from inception to 31 October 2018. Our cash position is circa 20% of the portfolio.

 15 Jan 1831 Oct 18Gross dividends (cumulative)Return (incl franking )
CV Capital1.001.173nil17.3%
Benchmark - STW56.754.482.6720.8%

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