Arquitos Capital Management’s Q1 2019 Investor Letter

Arquitos Capital Management is the general partner of a value-oriented hedge fund, Arquitos Capital Partners, which is based in NYC and launched 10 years ago by Steven Kiel. He is the fund’s current President and CIO, and prior to founding Arquitos, Steven Kiel worked as an attorney in private practice, and, interestingly, he holds the rank of Major, as he is a veteran of Operation Iraqi Freedom and a member of the Army Reserves. Recently, Arquitos Capital Management released its Q1 2019 Investor Letter, a copy of which you can download below. Among other things in the letter, the fund disclosed its Q1 2019 return of 5.4%, and its since inception (April 10, 2012) return of 21.4%. It also stressed out the importance of keeping a long-term focus:

I have written about the three companies above extensively over the past few years. Some of you have taken an interest in following them in addition to your investment in the fund, and a couple of you have even told me that you check their prices daily on Yahoo Finance.

Hearing about that daily price check horrified me. I only occasionally check the price of our holdings. Certainly not daily. Doing so would destroy any advantage we have of long-term outperformance. There is no meaning behind the daily increases and decreases in the holdings. Most of our holdings have little news between quarterly filings, so following the stock price in between those filings is pointless unless sharesget to a price where we want to buy or sell.

I typically do not even make decisions from those quarterly filings. You have to give a company more time than a quarter or a year to carry out its strategy.

Following specific holdings, or even the portfolio itself, over such a short time period is a recipe for unnecessary stress and can only serve to harm efforts at maintaining discipline. If the stock price goes up in a short amount of time(and by this, I mean a few years), you run the risk of getting overly excited and making a poor decision. If it goes down in a short amount of time, you run the risk of getting overly depressed and making a poor decision.

In every study I have seen related to mutual fund and ETF investors, the investors themselves have underperformed the actual fund by at least 2% annually. That underperformance primarily occurs because investors withdraw funds after a decline and tend to add funds after an increase in value. Investing in a hedge fund or private equity with lock-up periods or restricted withdrawal periods helps to somewhat protect investors from their own emotions because it provides a cooling-off period for any decision. Conversely, an investor can typically withdraw from, or add to, a mutual fund or ETF on a daily basis.

I encourage you to ignore short-term performance and read these quarterly updates as interesting observations, not as anything actionable.

You can download a copy of Arquitos Capital Management’s Q1 2019 Investor Letter here: