Upslope Capital Q1 2019 Investor Letter – “Bizarro” Market Conditions

Upslope Capital is a young investment advisor, launched by George K. Livadas in 2017. Interestingly, Mr. Livadas, who is also the fund’s Portfolio Manager, developed Upslope’s core investment strategy in 2016 while working for a Denver-based equity hedge fund manager. He holds an MBA from the University of Chicago Booth School of Business, with concentrations in Economics, Finance, and Accounting, and also a BA in Russian Studies from Georgetown University. Upslope Captial applies concentrated, long/short investment strategy, and recently it has released its Q1 2019 Investor Letter, a copy of which you can download below. The fund reported Q1 2019 return of 7.4% net of fees, and since inception return of 28.4%, describing the current market environment “bizarro”.

In a well-known Seinfeld episode, Elaine finds herself befriending “bizarro” versions of Jerry, George, and Kramer.Elaine’s “bizarro” friends are thoughtful, kind, and reliable–a mirror image of her real friends. Thinking about Q1 vs.Q4 reminded me of it all: in Q1, markets were kind, generous…and a little odd.

Stocks snapped back sharply in Q1, reversing most of Q4’slosses. It’s difficult to pinpoint an exact catalyst. Briefly-attractive valuations and the Fed easing off plans to raise rates were big drivers. But,what strikes us as bizarre is that many of the Q4 worries are still percolating. From our Q4 letter: “there was no shortage of issues to worry about: China[macro weakness], tariffs, soft housing data, Brexit, alarming weakness in bank stocks, flattening yield curve, etc.” Housing data has stabilized for now, but other issues remain. The biggest change is simply that markets are higher(driven by P/E expansion, rather than earnings growth).

With this backdrop, it seems particularly bizarre to suddenly see a stampede of “unicorns” ($1bn+ private, VC-backed, tech-oriented companies) hustling to complete IPOs in 2019. If you forced me to use another “b-word” (bubble), I would point straight to Silicon Valley. Most unicorns have achieved impressive scale,yet are still nowhere near profitability.

You can download a complete copy of Upslope Capital’s Q1 2019 Investor Letter here: