Alta Fox Capital Management recently released its Q1 2019 Investor Letter reporting the quarterly return of 28.10%, outperforming the S&P 500, which returned 13.65% in the same period. If you are interested you can track down a copy of the letter here. Aside from reporting about its performance, the fund also shared its views on several companies in its equity portfolio, including PaySign, Inc. (NASDAQ:PAYS; previously TPNL), which was one of the biggest positive contributors to its quarterly performance.
“3Pea International Inc. (TPNL)— as of 4/29/19, the new name is “Paysign, Inc” with ticker “PAYS”
TPNL was highlighted in several of our previous quarterly letters including Q4-18 and was a large positive contributor to performance this quarter. I originally profiled the company at $2.45 and it was at one point the largest position in the fund. It has closed north of $9.00 in recent trading sessions. We continue to hold a long position given our fundamentally bullish view of a largely fixed cost payment processor and program manager attached to an extremely attractive and secularly growing market of plasma donations.
In many ways, TPNL is a perfect example of the type of company I look for on the long side. At $2.45, it was a ~$100M market cap company with little investor transparency and a confusing operating history. However, it had high insider ownership, rapid growth, and was beginning to leverage its fixed costs. I visited the company’s headquarters, conducted over 25 industry diligence calls, spoke to competitors and customers, and eventually built a strong fundamental view of the industry in which TPNL operated and the company’s advantageous position within that industry. At our peak position size, we owned about 1.5% of the company.
I was able to help introduce the company to a respected investor relations firm which the company eventually hired. The company’s investor relations efforts have improved considerably, which along with tremendous operating results, has helped bring the valuation to a level that more closely reflects the unique strengths of their business model. TPNL remains a meaningful position, though we have trimmed our position size in response to the stock roughly tripling from our cost basis. Our original investment thesis can be read here.”
India Picture/Shutterstock.com
PaySign, Inc., formerly known as 3Pea International is a company that provides prepaid debit card payment solutions. Year-to-date, the company’s stock gained 9.29%, and on May 7th it had a closing price of $8.47. The company has a market cap of $385.07 million, and it is trading at a price-to-earnings ratio of 164.80. PaySign recently released Q1 2019 Financial Report in which it disclosed quarterly revenue of $7.27 million and fully diluted EPS of $0.02, compared to revenue of $4.68 million and fully diluted EPS of $0.01 in the same period of 2018.
Dislcosure: None.
This article is originally published at Insider Monkey.
Warren Buffett never mentions this but he is one of the first hedge fund managers who unlocked the secrets of successful stock market investing. He launched his hedge fund in 1956 with $105,100 in seed capital. Back then they weren’t called hedge funds, they were called “partnerships”. Warren Buffett took 25% of all returns in excess of 6 percent.
For example S&P 500 Index returned 43.4% in 1958. If Warren Buffett’s hedge fund didn’t generate any outperformance (i.e. secretly invested like a closet index fund), Warren Buffett would have pocketed a quarter of the 37.4% excess return. That would have been 9.35% in hedge fund “fees”.
Actually Warren Buffett failed to beat the S&P 500 Index in 1958, returned only 40.9% and pocketed 8.7 percentage of it as “fees”. His investors didn’t mind that he underperformed the market in 1958 because he beat the market by a large margin in 1957. That year Buffett’s hedge fund returned 10.4% and Buffett took only 1.1 percentage points of that as “fees”. S&P 500 Index lost 10.8% in 1957, so Buffett’s investors actually thrilled to beat the market by 20.1 percentage points in 1957.
Between 1957 and 1966 Warren Buffett’s hedge fund returned 23.5% annually after deducting Warren Buffett’s 5.5 percentage point annual fees. S&P 500 Index generated an average annual compounded return of only 9.2% during the same 10-year period. An investor who invested $10,000 in Warren Buffett’s hedge fund at the beginning of 1957 saw his capital turn into $103,000 before fees and $64,100 after fees (this means Warren Buffett made more than $36,000 in fees from this investor).
As you can guess, Warren Buffett’s #1 wealth building strategy is to generate high returns in the 20% to 30% range.
We see several investors trying to strike it rich in options market by risking their entire savings. You can get rich by returning 20% per year and compounding that for several years. Warren Buffett has been investing and compounding for at least 65 years.
So, how did Warren Buffett manage to generate high returns and beat the market?
In a free sample issue of our monthly newsletter we analyzed Warren Buffett’s stock picks covering the 1999-2017 period and identified the best performing stocks in Warren Buffett’s portfolio. This is basically a recipe to generate better returns than Warren Buffett is achieving himself.
You can enter your email below to get our FREE report. In the same report you can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12-24 months. We initially share this idea in October 2018 and the stock already returned more than 150%. We still like this investment.
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