Arquitos Capital recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of -7.6% for the second quarter (net of fees), underperforming its benchmark, the S&P 500 Index which returned 20.5% in the same quarter. You should check out Arquitos Capital’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.
In the said letter, Arquitos Capital highlighted a few stocks and Enterprise Diversified Inc. (OTCMKTS:SYTE) is one of them. Enterprise Diversified Inc. (OTCMKTS:SYTE) is an asset management company. Year-to-date, Enterprise Diversified Inc. (OTCMKTS:SYTE) stock lost 21.1% and on August 19th it had a closing price of $3.03. Here is what Arquitos Capital said:
“I have highlighted in the past how Enterprise Diversified has brought the most pain to the portfolio over the past three years. Shares traded for approximately $15.00 per share at the end of 2017. They were down to $2.90 at the end of the first quarter.
Looking back, shares had gotten ahead of themselves a few years ago. They are the exact opposite now. Like MMA and Westaim, Enterprise Diversified’s stock trades significantly below its liquidation value which is mostly made up of an investment in Alluvial Fund.
Enterprise Diversified made several significant mistakes with non-asset management investments. Today, we are shedding those parts of the business and focusing on our crown jewel, Willow Oak Asset Management. Willow Oak partners with external investment firms to help them reach their long-term goals.
We recently held a strategy session to help formulate a five-year plan for the company. Everyone associated with the company came away excited about the potential. We’ll be releasing additional information on our Willow Oak 2025 Plan over the coming weeks, and we think there is a tremendous opportunity to expand our affiliated manager program.
Currently, Willow Oak has relationships with four affiliated firms. Willow Oak’s Fund Management Services handles operations, marketing, back-office, and compliance matters for the fund managers. This allows those fund managers to focus on what they love the most, investing.
In exchange for this enhanced infrastructure, Willow Oak earns a fee share. These relationships are call options for Willow Oak. If the affiliated firms have a great year and/or are able to build their assets under management, both the manager and Willow Oak profit greatly. For the investment manager, this allows them to build significant operational infrastructure, often with no out-of-pocket expense. To learn more about Willow Oak, I encourage you to sign up for their mailing list at willowoakfunds.com.
From an investment perspective, Enterprise Diversified’s book value at the end of the first quarter was $3.38 per share. This significantly understates the value of the company for several reasons: our real estate investment is worth much more than what it is held on the books; the internet subsidiary is held on the balance sheet at less than one year of its earnings; the investment in Alluvial appreciated significantly in the second quarter; and the current book value gives no credit to the future earnings power from the fee shares with our existing and future affiliated managers.
I look forward to sharing more about Willow Oak and our Willow Oak 2025 Plan in the coming weeks.”
This isn’t the first time Arquitos Capital talked about Enterprise Diversified Inc. (OTCMKTS:SYTE) favorably either. The investment firm has been a long time Enterprise Diversified Inc. (OTCMKTS:SYTE) bull. In June, we shared Arquitos Capital’s bullish Enterprise Diversified Inc. (OTCMKTS:SYTE) thesis in this article.
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