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The Vilas Fund’s Q1 2019 Investor Letter

Vilas Capital Management is a value manager launched in 2010 by Mr. John C. Thompson, a Chartered Financial Analyst. He has been its CEO since inception. Before launching his own fund, Mr. Thompson was President and CIO of Mortgage Assurance Corporation (now NMI Holdings, Inc.), which he also founded (in 2009). He also honed his investment acumen at Thompson Investment Management, Inc, as CIO and Vice President, and as a portfolio manager at Thompson Plumb Growth fund, among other professional experiences, as he started his investing career back in 1993. Mr. Thompson graduated with a B.S. in Mechanical Engineering from the University of Wisconsin – Madison, and with M.B.A. in Finance and Economics from the University of Chicago. Value Capital Management relies on “time frame arbitrage” investment philosophy, which means that it searches for investments with long term horizons (5-10 years). Recently, its Vilas Fund released Q1 2019 Investor Letter, a copy of which you can download below. In the letter, the fund posted a few short comments on several stocks in its portfolio, and also reported 34.3% return for the first three months of 2019.

Dear Vilas Fund Partner,

The Vilas Fund, LP, rose 34.3% in the first quarter of 2019. The biggest gains were generated in NMI Holdings, MGIC, Viacom, Citigroup and Lincoln National. The main detractor of performance in the quarter was CVS.

In general, we are finding better investment opportunities today than at virtually any time since I started in the business twenty-six years ago, especially relative to current earnings, interest rates on bonds, real estate cap rates, and private company equity prices. Our portfolio is currently trading at 8.2 times 2019 net income estimates and 7.3 times 2020, the cheapest in my career. To those who say the market is too high, there is too much risk in stocks, and everything is overpriced, we suggest they should hire us.

In the depths of the financial crisis, valuations of equities, when compared to fixed assets and book values, were lower than today. However, many companies were either losing money or barely profitable. Valuations today are higher versus book values and assets but far lower on an earnings basis. It is as if the market is predicting another painful economic downturn and investors have sold equities to prepare. The question is fairly simple, then: what if the economy continues to chug along? The value portion of the stock market should revalue upward quite rapidly and recover a good portion of its massive underperformance when compared to growth shares

You can download a copy of The Vilas Fund’s Q1 2019 Investor Letter here:

The Vilas Fund LP – Quarterly Letter Q1 2019 (Final)

You can also see the list of our 2019 Q1 investor letters and download them on this page.

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