CV Capital

CV Capital – Year end FY2018 shareholder letter

To my fellow shareholders,

CV Capital has recently completed its inaugural year on 14 January 2019. The past 12 months has been a story of two halves for the stock market. In the first half (15 Jan – 30 Jun) the ASX 200 accumulation index (ASX 200 index including dividends) appreciated by 4.1% and in the second half (1 Jul – 14 Jan) it reversed course and depreciated by 4.7%. A combination of US-China trade war fears, rising interest rates in the US, sharp decline in FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) all contributed to the second half being disappointing one for the market.

All in all, the ASX 200 accumulation index finished down 0.8% for our financial year (15 Jan 18 – 14 Jan 19). Our benchmark (ASX:STW) did better, ahead by 0.5% over the financial year. One reason our benchmark did better than the ASX200 accumulation index is because it includes returns from franking and foreign tax credits, whereas the ASX 200 accumulation index only includes cash dividends. As CV Capital also reports franking credits as part of its returns, the STW ETF is a better yardstick than the ASX 200 accumulation index.

Before I delve into CV Capital’s performance for FY2018, I would just like to reiterate that we are investing for the long term and that the focus on 12 month returns as a measure of success is foolish. As Warren Buffett once wrote, “why should the time required for an investment to payoff synchronize precisely with the time it takes the planet to go around the sun?” 

Given this backdrop, our 12 month return was 7.6% after costs (8.2% before costs). The main expenses was compliance (tax and accounting) and travel cost for attending AGMs. I will continue to keep costs as low as possible and as the company grows its asset base, the expense ratio (expenses as a percentage of assets) will further decline.

Although we did generate excess returns of 7.1% (7.6% minus 0.5%) over the benchmark, we gave back close to 9.5% of the gains from August 2018, which is disappointing. The paper losses we suffered since August was primarily due to 1) my stupidity and 2) random market movements (in combination these spoke for 90% of the losses from August).

My stupidity

My biggest folly for the year was Donaco. Donaco is a gaming company and operates two casinos, one in Lao Cai, Vietnam and another in Poipet, Cambodia. It acquired Star Vegas (Poipet casino) in 2015 from a Thai vendor with an arrangement where the Thai vendor would manage the casino for two years and be paid a success fee upon achieving specific earnings targets.

Once two years was up, Donaco decided to take back management of Star Vegas and during that period in mid 2017, there was a falling out between Donaco and the Thai vendor.  Donaco alleged that the Thai vendor breached the non-compete agreement by operating two casinos in the Poipet area. Business at Star Vegas slumped as the Thai vendors poached the VIP junkets. Donaco then proceeded to sue the Thai vendors in Cambodia and Singapore.

We purchased the shares in Feb 2018 after the shares fell more than 50% due to the problems. The shares were cheap and I believed that the problems faced by management were surmountable. However, the extent of the trouble was not fully disclosed by the company and some of the details only emerged much later from a recent article published in the SMH, an extract which I’ve included below.  

“According to the court documents, on the afternoon of June 30, 2017, all the slot machines at Star Vegas were turned off and the gambling tables closed. Around 4pm an announcement came over the speaker system within the casino that the Star Vegas had ceased operation and all players were required to move to the “Star Paradise”, the new casino next door. The Thai vendor allegedly took computers, kitchen equipment and corralled about 550 staff to the new casino. He also told VIP junket operators he would not extend credit to their clients and could not guarantee their safety unless they started visiting Star Paradise casino instead.” – smh article on 12 Jan 2019.

Both parties are now suing each other and the biggest risk for Donaco is if the Thai vendor (as landlord) manages to terminate Donaco’s 50 year lease on the Star Vegas land. The shares were trashed as institutional investors fled given the uncertain outcome of the litigation proceedings and potential for further underhanded tactics by the Thai vendor.

At the end of the financial year, we recorded a 70% paper loss on this investment which reduced the portfolio returns since August by 2.6%.

One of the principles at CV Capital is that success is not measured by winning or losing on a single investment but rather having a robust process that identifies low risk investments with favourable wininng odds. A simple analogy is that every bet we make, we want casino odds rather that player odds. Therefore, my folly was not that we lost money on this but the fact that I was aware of the risk of operating in a frontier jurisdiction with potentially shady characters but still overlooked it.

At the end of our financial year, the market capitalisation of Donaco is slightly above $50 million. I believe that the market has more or less fully discounted the value of Star Vegas so there is no point selling at current prices (Donaco also operates the Aristo casino in Vietnam). In the event Donaco is able to get a favourable outcome in the lease arbitration case in February 2019, this would remove a huge cloud of uncertainty over its future. 

Random market movements

Our largest position in CV Capital is Schaffer Corporation. The shares were transferred into CV Capital at $11.10 per share at the beginning of the financial year. On 15 August, Schaffer reported a 174% increase in underlying profits for FY2018. Investors responded to these solid financial results by driving up the share price to $17.05 by the end of August. From September onwards, the shares then reversed course into a declining trend and by the end of our financial year the shares were trading at $13.06.

There was no fundamental reason for this decline. In fact at the AGM in mid November, the Chairman broadly confirmed that the first half results for FY2019 would be similar to the first half results for FY2018. Nonetheless, the share price still fell and is currently trading at a level lower than where the shares were trading two weeks before the company reported their strong results for FY2018, which doesn’t really make much sense to me. Since August, the decline in Schaffer’s share price has shaved off 6% gains in our portfolio.

However, I continue to believe that the shares are undervalued and have elaborated more on this below.

Top holdings

At the end of the financial year, our top 3 positions including cash accounted for 69% of the value of CV Capital.

1Schaffer Corporation18%
2Steamships Trading13%
3Baby Bunting11%

 Note 1: Returns include unrealised capital gain, dividend and franking credits

I am quietly optimistic about our three largest investments and have given a high level summary of each one below.

Schaffer Corporation

At current prices, I believe Schaffer is undervalued by the market. The entire company is being valued by the market at $181 million and it has no net debt. It has a property portfolio worth $84.6 million net of capital gains tax.

Schaffer has two operating businesses, Automotive Leather and Building Materials (which is insignificant relative to the Automotive Leather division). The Automotive Leather division reported net profit after tax of $23.7 million in FY2018 and is expected to report similar levels of profit in FY2019.  

Backing out the value of property from Schaffer’s market value, it implies that the market is valuing the Automotive Leather division at $96.4 million ($181m – $84.6m and ignoring the Building Materials division) or at a price earnings multiple of 4 times ($96.4m/ $23.7m). I believe this is a very low valuation for the Automotive Leather business given:

  1. It has secured multi-year supply contracts with Land Rover, Audi and Mercedez Benz.
  2. It has the opportunity to increase volumes after being awarded new contracts to supply leather for Mercedez’s electric cars commencing in early 2021.
  3. Similar businesses have been sold at much higher price earnings multiple. 

In addition, Schaffer owns two development sites whose which can add significant value in the medium term. The first is a large development site for industrial use in Jandakot, Perth which is adjacent to an established industrial zone with links to a major freeway. The second is a residential development site approved for high density apartments within the Cockburn coast redevelopment project (just south of Fremantle, WA). This redevelopment project will create a township for 12,000 residents over the next 20 years. I believe the development risks are relatively low given the sites are located in already established areas and without any debt associated with the sites, it has the advantage of waiting for the right market conditions to launch the developments.

For the above reasons, I believe Schaffer to be undervalued at current market prices. FY2019 dividend is forecast to be at least $0.60 per share fully franked which represents a gross dividend yield of 7.7% based on our cost per share. I’m happy to collect the dividends whilst waiting for the market to realise its intrinsic value.

 Steamships Trading

Our second largest holding is Steamships. Steamships is the leading logistics, hotel operator and property developer in PNG. Steamships is not only undervalued by the market at current levels but it also has the potential to double its earnings over the next 3-5 years.

Steamships’ market capitalisation was $580 million (14 January 2019) and it had net debt of $133 million, valuing the company at $713 million or PGK1.7 billion (exchange rate of 1A$:PGK2.4). It owns investment properties valued in the range of PGK$1.6 billion to PGK$2 billion. Therefore, the market is only placing value on its investment properties and ignoring the value of its shipping business, land transport business and hotel business.

As Steamships is one of the largest conglomerates operating in PNG, its fortunes are very much tied to PNG’s economy. Over the last few years, PNG has been in an economic slump due to low commodity prices and cuts in government spending. However, there are huge resource projects in the pipeline with the most significant being the Papua LNG project, which once developed would be PNG’s second LNG project.

The first PNG LNG project commenced construction in 2010 and was completed in 2014 at a cost of US$19 billion. This provided a massive stimulus to the economy which resulted in profits for Steamships nearly doubling from PGK96.5m in FY2009 to PGK177.7m (FY2012).

The Papua LNG project is expected to cost US$13 billion and if history is any guide, during its construction phase it should provide an economic tailwind to Steamships similar to the first LNG project. Of course there is risk that the Papua LNG project gets delayed or does not proceed. However, with the company’s market value backed by its property assets, I see this bet as heads I win and tails I don’t lose.

Baby Bunting 

Our third largest security holding at year end gave us the highest gains in FY2018 (total returns 48.6%). Baby Bunting is the leading baby product retailer in Australia. Calender year 2018 was a watershed year for Baby Bunting as many of its key competitors including Baby R Us shut shop leaving Baby Bunting as the sole national bricks and mortar baby store retailer in Australia.

Baby Bunting has doubled its store footprint in the last 5 years to 50 stores. The company has plans to expand their footprint to 80+ stores and I believe with the closing down of its key competitors it has further scope to enlarge their footprint. It has a successful store format so replicating it into new locations should generate similar success.

The biggest threat to Baby Bunting is online shopping, i.e. Amazon. However, there are still some advantages that Baby Bunting has over its online competitors, such as:

  • Baby products are an emotional purchase so new parents would want to touch and feel the product first.
  • For first time parent (I should know) buying big ticket items such as strollers and car seats is daunting mainly because of the extensive range of products with different features, types, brands etc. Having someone explain to you the differences and the pros and cons of each product is extremely helpful.
  • Proper installation of a car seat is important. Baby Bunting provides baby car seat installation service which an online retailer would not be able to provide.
  • Some products are exclusive to Baby Buntings. For example, they have their own private label products or exclusive colours on branded strollers (very important for the stroller to match mommy’s handbag!) etc.

In addition, for big ticket items such as strollers, baby seats and cots, Amazon Australia currently only has a fraction of the product range sold by Baby Bunting. It appears to me that Amazon Australia’s baby segment focuses more on smaller items whereas the bulk of Baby Bunting’s revenue come from the big ticket items such as strollers, car seats and cots.   

So I’m quite bullish about the prospects of Baby Bunting given advantages of scale in being able to negotiate prices (higher margins) or exclusive products from its suppliers, potential growth from new store rollout and population growth. In my view, Baby Bunting is on its way to becoming the “Bunnings” of the baby speciality retail segment.


Our largest holding at the moment is cash. The current levels of cash is not 100% intentional, we had two takeovers in this financial year (Watpac and SVWPA) where we generated returns between 25% to 29% on each investment and have not been able to fully redeploy the cash. Although we are not trying to time the markets and in general prefer to be fully invested at all times, I do believe there are reasons that justify a bit of caution in today’s markets.

There are risks such as Brexit, fallout from the China US trade wars, slowing economy in China, fall in Australian house prices, sell-off in the US high yield bond market etc.

So at the moment, we’re still investing but being more cautious and selective in our investments.

The remaining 31% of the portfolio is made up of 7 securities. At 14 January 2019 we have a portfolio of 10 securities.


This first year has been a learning experience for me and I think I’m a better investor now than at the same time last year. Whilst it would have been nice to report double digit returns for the first year, 12 months is still a very short period in investing and we did manage to generate some excess return which is nice. Even though we have generated excess returns of 7.1% over our benchmark, we have decided to waive the performance fees this year given it was our inaugural year and to show appreciation for the trust that you have placed in us.

I’m optimistic about the portfolio because there are some investments which have the potential to do really well in this year. We will continue to turn over as many stones as possible to look for mis-priced bets.

Thank you for entrusting us with your capital.

 15 Jan 1814 Jan 19Gross
Return (incl franking credits)
CV Capital1.001.076nil7.6%
Benchmark - STW56.753.783.2080.5%
ASX 200 accumulation index60,54560,043n/a(0.8%)

CV Capital

CV Capital – 30 November 2018

To my fellow shareholders,

Maintaining the trend from October, the ASX 200 index was down approximately 3% in November, without taking into consideration dividends. US China trade war and rising interest rates in the US have all weighted on the market. Unless there is a major rally in December, it is increasing looking like calender 2018 will be a negative year for stocks.

As discussed last month, I accepted Besix’s offer for our Watpac shares. I still think Besix’s offer undervalued Watpac but between the choice of selling now and locking in a gain of 29% or  holding onto the shares and becoming a minority shareholder in a situation where Besix will have voting power greater than 75%; I thought it was a no brainer.

We recently acquired a small interest in a mining company. This is unusual territory for me as I tend to stay away from the resource sector given the risks. Earnings for mining companies tend to be volatile, a key reason being the inability to determine prices for their products (i.e. price takers). The reason why I invested in this junior miner was that I thought it was very cheap and had huge potential upside. This company had purchased a brownfield mine from the liquidators of the previous mine owner for $40 million. The previous mine owners spent $500 million on plant & equipment and mine development. For a junior miner which has $200-$300 million worth of plant & equipment (bulk of capital expenditure already spent for production ramp up), very experienced management, currently breaking-even with production ramping up and quarterly sales of $30 million, I thought it was cheap when it was trading at a market capitalisation of $70 million. This investment is not without risk but I believe the upside potential is huge.

The portfolio had it worst month to date, falling by 3.9%. One of the stocks which dragged down our performance is Donaco. This is a gaming company with casinos in Vietnam and Cambodia. Donaco is in dispute with the former owners of their Star Vegas casino in Cambodia and this dispute is getting uglier and looking like it will get dragged out with a small risk of Donaco losing the casino. A poor trading update for the first quarter of FY2019 saw a huge sell-off, it is down 52% in November. Arbitration between the parties will take place in July and will confirm whether this investment has been a mistake but it is looking like it at this stage. The only silver lining was that it was a smallish investment.

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 30 November 2018. Our cash position is circa 17% of the portfolio.

 15 Jan 1830 Nov 18Gross dividends (cumulative)Return (incl. franking)
CV Capital1.001.134nil13.4%
Benchmark STW56.753.232.67(1.4%)

CV Capital

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%

CV Capital

CV Capital – 30 September 18

To my fellow shareholders,

September has been a relatively quiet month as I have been travelling. However, we did make our biggest exit to date.

We sold our entire position in SVWPA (my original thesis here). SVWPA was a perpetual preference share issued by Seven Group Holdings (SGH) that was trading at $82 (below par value of $100) with a dividend yield of 8.3% (fully franked) when we acquired it (it was transferred from my personal holdings). My thesis for this investment is that I believed SGH could access cheaper debt compared to SVWPA and therefore it would be redeemed eventually. I wasn’t sure when this would happen but we were getting paid 8% while waiting, which in an interest rate environment of 2% was pretty attractive.

In September, SGH proposed to convert SVWPA into ordinary shares. This was subsequently approved by the SVWPA holders. We sold our stake on market prior to the conversion for $101.40 per share (above par value). I elected not to convert the SVWPA shares into equity because:

  • SGH is a large conglomerate with many moving parts and I don’t fully understand all the businesses. In my opinion the understanding and knowledge needed for a debt investment is very different from what is required for an equity investment.
  • The stock price has nearly doubled from a year ago and is trading at a price earnings ratio of nearly 19x. Not exactly cheap and I see better risk reward opportunities elsewhere.

Including dividends and the capital gain, our return on this investment was 25% (not compounded) over a 9 month holding period. I enjoyed this trade as we made money taking very little risk.

The portfolio fell 0.4% in September. The concentration of our portfolio mean that normal price fluctuations in our big positions can affect the overall portfolio. Cash received from the above sale and dividends received in September have pushed up our cash position to be circa 22% of the portfolio.

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 30 September 2018. Please note that STW went ex-dividend in late Sept with its price subsequently falling. I understand that the dividend will be paid in October. As I only account for dividends on a cash basis, September’s out-performance is slightly exaggerated.

 15 Jan 1830 Sept 18Gross dividends (cumulative)Return (incl franking)
CV Capital1.001.166nil16.6%
Benchmark STW56.757.91.2594.3%

CV Capital

CV Capital – 31 August 2018

To my fellow shareholders,

The month of August is a bit like d-day for stocks. It is reporting season for most ASX listed stocks and as an investor, August can be a make or break month for your stock thesis.

We were fortunate at CV Capital that the reporting season has resulted in a monthly gain of 7.9%, our largest monthly gain to date. The portfolio gains were mainly driven by gains in our largest and 5th largest position (based on cost). Our largest position in the fund, Schaffer Corporation (see original thesis here) increased by 18.4% in August on the back of strong earnings from its automotive leather business. Our 5th largest position (I’m not ready to disclose this) increased by 48% in August due to more favourable industry conditions moving forward. We could have gained more except for the fact that I made a mistake by being too conservative with the buying and therefore did not end up with the full target weighting for this stock.

In terms of activity, we did not buy or sell any shares in August.

Our portfolio currently consists of ten stocks with the top four positions making up 62.9% of the fund (based on market values). The concentration of the fund has gone up in August due to further gains in our largest positions. We are still comfortable holding these large positions as although they have appreciated, they are not overvalued.

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 place little emphasis on the current performance given the short history.

The table below shows our performance (before taxes) from inception to 31 August 2018. Our cash position is circa 11.2% of the portfolio.

 15 Jan 1831 Aug 18Gross Dividends
Return (incl
CV Capital1.001.171nil17.1%
Benchmark STW56.759.691.2597.5%

CV Capital

CV Capital – 31 July 2018

To my fellow shareholders,

We raised new capital in July and as a result issued 163,125 new shares. I took the opportunity to transfer more of my personal shares into CV Capital. As a result, most of my personal portfolio now resides in CV Capital. The way I account for these transfers is to adopt the close price of the transferred shares at the subscription date as the value of the new capital.

In terms of activity, we managed to put some money to work in July by mostly adding to existing positions. I also trimmed our position marginally in Steamships Trading (you can read my thesis here). Given we’re also building a position in another company with exposure to PNG, the combined portfolio’s exposure to PNG country risk was making me think about it more often than I would have liked. So I reduced it and am now more comfortable with the overall position.

Currently the portfolio comprises of ten positions with one position above 20% weighting, another two position between 10% – 15.5% weighting, six positions between 5-10% weighing and one position marginally below 5% weighting. These weightings are based on the equity portfolio and exclude cash. Last month I assumed that our largest position will be diluted with the capital raising, however the stock went up in July and therefore still maintained its above 20% portfolio weighting.

Overall, the portfolio’s returns increased by 3.7% in July (compared to June). This increase was primarily driven by an increase in our top two weighted stocks and also a recovery in the share price of a losing position. We also received some dividends which contributed to the return. 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 place little emphasis on the current performance given the short history.

The table below shows our performance (before taxes) from inception to 31 July 2018. I have not prepared these returns on a compounded basis to make it easier for you to rework the calculations. Our cash position is circa 12% of the portfolio.

 15 Jan 1831 July 18Gross dividends
Return (incl
CV Capital1.001.08608.6%
Benchmark STW56.758.811.2595.9%

CV Capital

CV Capital – 30 June 18 update

To my fellow shareholders,

Six months have gone pretty quickly and here we are at our first half year milestone. Overall, I’m pretty excited about the portfolio.  For most of our positions, the stock price has not changed materially since we purchased them and if my thesis plays out then I think the gains are still ahead of us.

Over the past 6 months, I’ve added three new positions to the initial portfolio which was transferred into CV Capital. The rest of the trading were either adding to or selling existing positions. The current elevated market means that there is not that many opportunities available but I continue to be very vigilant and will not lower our standards in selecting stocks.

I have not added any new stocks to the portfolio in June. Currently the portfolio is currently made up of eight positions with two large positions exceeding 20% weighting each, two more positions having weighting between 10%-15% and four positions with weighting less than 10%. I expect our large positions to be diluted when we open for new subscriptions in July (please contact me by 2 July if you are interested in subscribing to more shares). One reason is because I will be transferring more shares from my personal portfolio into the CV Capital. My goal is over time transfer all of my shares into CV Capital but taxation (CGT) consequences mean that I can’t transfer them as quickly as I would like.

Overall, our portfolio fell by 0.7% in June (compared to May) which was mainly caused by two positions; one falling by 11.8% and another position falling 14.7% in June. The portfolio only fell marginally as these were smaller positions in our portfolio. 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 place little emphasis on the current performance given the short history.

The table below shows our performance (before taxes) from inception to 30 June 2018. I have not prepared these returns on a compounded basis to make it easier for you to rework the calculations.  Our cash position is circa 11% of the portfolio.

 15 Jan 1830 June 18Gross dividends
Return (incl
CV Capital1.001.04904.9%
Benchmark STW56.757.990.790423.7%


CV Capital

CV Capital – 31 May 18 update

To my fellow shareholders,

Firstly, I would like to share this long but excellent article on investing by Peter Guy. At CV Capital, we share 95% of the investing philosophy expressed by Peter and as I couldn’t have written it better than Peter, I highly recommend taking the time to read this article.

Secondly, CV Capital will be open to new subscriptions in July. The deadline for new subscriptions is 6 July 2018. Please contact me directly if you would like to subscribe to more shares.

In relation to our portfolio we opened a small position in a new opportunity. I have been following this company for the past 12 months and decided to invest due to some of its key competitors recently filing for bankruptcy. Although this company is not cheap by traditional benchmarks, I believe that the recent bankruptcies will strengthen the company’s position and create opportunities to grow its market share. We will continue to slowly build our position over time.

Our portfolio returns fell marginally (0.4%) in May. This was mainly due to one of our positions falling 32% from 1 May to 31 May. This same position then increased by 24% on 1 June. This shows how volatile stocks can be on a short term basis and doesn’t lend itself to an objective measurement of investing “skill”; luck plays a bigger factor in the short term. 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 place little emphasis on the current performance given the short history.

The table below shows our performance (before taxes) from inception to 31 May 2018. I have not prepared these returns on a compounded basis to make it easier for you to rework the calculations.  Our cash position is circa 12% of the portfolio.

 15 Jan 1831 May 18Gross dividends
Return (incl
CV Capital1.001.05505.5%
Benchmark STW56.756.550.790421.1%

Mental models

Multidisciplinary approach to thinking – speech by Peter Kaufman

I would like to thank my good friend Peter Phan for sharing this excellent talk. Peter Kaufman is a successful entrepreneur who has studied and learnt Charlie Munger’s method of using the “big ideas” from various fields to solve real life problems. I found this speech to be very illustrative of the multidisciplinary approach. Sometimes when Charlie talks about this, it can be quite hard to understand as he doesn’t always give real life examples.

Although the talk is a bit long at 45 minutes it is jam packed with wisdom not only about investing but how to live a happy life, so it’s well worth listening to.


CV Capital

CV Capital – 30 April 2018 update

To my fellow shareholders,

April has been a good month for the overall market. The market losses in March were pretty much all recouped in April. In relation to our portfolio, a combination of a big position falling by 2.7%, two smaller positions increasing by 15.9% and 3.3% in April meant that increases in our portfolio for the month were not as good as our benchmark.

We bought a position in Capral.  I am familiar with the company having invested personally in Capral (prior to CV Capital) and even wrote a thesis here. This investment is a result of me having more confidence in the company after following and learning about it over the course of 12 months coupled with a recent pullback in its share price.

Capral represents the sort of investing situation I find attractive. It has limited downside and there are multiple ways of making a return. Capral is trading below its working capital, this means even in the event of liquidation (which is unlikely given it has no debt and profitable), the most we would lose is a small proportion of the sum invested. On the other hand, there are many outcomes which can lead to a higher share price:

  1. The automation project scheduled in FY2018 and consolidation of WA’s warehouses result in cost savings that could potentially lift net profit by 30%.
  2. A favourable outcome of the anti-dumping case against the large Chinese aluminium importer may led to reduced imports and allow Capral to increase its market share.
  3. Lower Australian dollar may reduce imports and result in Capral increasing its market share.
  4. The possibility of the market re-rating Capral given its actually making a decent return on the book value of its assets and paying 12.8% gross dividend yield at current prices.
  5. Corporate action that unlocks the value of the tax losses (currently $281.2 million).

Our portfolio is currently made up of seven counters with two large position exceeding 20% weighting each, two more positions having weightings between 10%-15% each and the rest below 10% weighting each. Other than one preference share, the rest of the positions are ordinary equities.

The table below shows our performance (before taxes) from inception to 30 April 2018. I have not prepared these returns on a compounded basis to make it easier for you to rework the calculations.  Our cash position is circa 17% of the portfolio.

 15 Jan 1830 Apr 18Gross dividendsReturn (inc
CV Capital1.001.05905.9%
Benchmark STW56.755.980.790420.1%