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Laughing Water Capital, LP’s Q2 2019 Investor Letter

New York-based investment management company Laughing Water Capital, LP released its Q2 2019 Investor Letter – a copy of which can be downloaded below. The firm is known for its detailed and patient analysis of quality businesses that can lead to high investment returns. Matthew Sweeney is the firm’s Managing Partner and Portfolio Manager. Before he started working with Laughing Water Capital in 2016, he was a Director at Cantor Fitzgerald and a Contributing Author at Boyar Value Group. He holds a bachelor’s degree from the College of the Holy Cross and a master’s degree from Seton Hall University.

Laughing Water Capital, LP reported a 10.3% return for the second quarter, bringing a year-to-date (YTD) return of 15.3%. In its Q2 2019 letter, the firm reported the possible sources of its underperformance as well as its top five positions for the quarter.

“Dear Partners,

Laughing Water Capital (“LWC”) returned 10.3% in the 2 nd Quarter after all fees and expenses, versus 4.3% and 2.1% for the SP500 and R2000 respectively. Year to date, LWC has returned 15.3% vs 18.5% and 17.0% for the SP500 and R2000 respectively. Of course, individual results may vary, so please reference your personal statement. Additionally, please remember that as always, the indexes are provided only for long term comparisons as the most easily accessible investment alternatives. Our portfolio has very little overlap with the indexes, and thus we should not be surprised if our performance varies widely over shorter periods of time, sometimes to our benefit, and sometimes to our detriment. Despite this shortterm volatility, over longer periods of time the performance of the individual businesses that we own will drive the performance of their stock prices, which will drive the performance of our portfolio.

Short term relative underperformance is of course frustrating; it is human nature to want to keep up with the Joneses at all times. However, there is an enormous amount of evidence which demonstrates that over longer periods of time, the investors with the best results often trail the indexes over shorter periods of time. This is because if you want differentiated results, you have to behave differently than the masses.

Our portfolio remains very different than the market. On average, I continue to believe that our companies have better business models, more properly incentivized management teams, and greater future earnings potential than the average index company.

Additionally, the near-term prospects of our companies are considerably less predictable than most companies in the indexes.

This is entirely by design, and this uncertainty leads to low prices which we take advantage of. We are not reinventing the wheel; there is an enormous amount of evidence to suggest that patiently buying good businesses, led by incentivized people, during times of temporary uncertainty, at very low prices is a recipe for long term success. However, at the moment the market is rewarding near term predictability above all else, meaning that our investments are swimming against the current. Despite this, I remain confident in our future, and as our management partners navigate through their temporary problems, I expect that we will ultimately be rewarded by improving earnings power and expanding multiples as the market recognizes the intrinsic value which I see. For this reason, almost the entirety of my and my family’s assets are invested in our strategy. Our interests are aligned.”

You can download a copy of Laughing Water Capital, LP’s Q2 2019 Investor Letter here:

Laughing Water Capital, LP’s Q2 2019 Investor Letter

You can also see the list of our 2019 Q2 investor letters and download them on this page.

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