2018 2nd Quarter Memo for Vailshire Capital Management LLC

2018 2nd Quarter Memo for Vailshire Capital Management LLC

5 months ago
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Dear clients and friends of Vailshire

Happy Independence Day week! I hope you have been enjoying the freedom that we are blessed with in this country. And for those Vailshire clients and friends who are serving or have served in the military… thank you very much!

2018 2nd Quarter Investment Highlights

World politics remain turbulent, due–in no small part–to the persistent and growing threat of tariffs and trade wars. The stock and bond markets are certainly not immune to the daily
barbs traded between world leaders, and volatility has been the only constant of 2018.
Day-to-day fluctuation of stock, bond, and portfolio prices can be gut-wrenching. However, and perhaps ironically, the S&P 500 index has not moved much from where it began at the start of the year.
This “sideways” movement of the market can be frustrating for long-term, buy and hold investors. But at Vailshire we continue to invest in the best companies that are performing well, while avoiding or shorting the mediocre and poorly-performing businesses. This strategy has been working magnificently since employed at the end of 2016, and we should continue to maximize portfolio growth and protection in the months, years, and decades to come.
Vailshire Partners, LPour long/short, healthcare- and technology-focused hedge fund–achieved a net return of 2.18% in the turbulent 2nd quarter of 2018. Year-to-date (YTD), our net returns are 5.62%. This isn’t too shabby when compared to the S&P 500’s total return of 1.95% over the same time frame, a 3.67% outperformance over the past six months.
**Returns of separately managed Vailshire accounts and individual VP clients may vary based on individual investment time, preferences, and/or strategies.**
 
A second chart shows the effects of Vailshire’s “Grow and Protect” strategy since it began 18-months ago:
What would you do with an extra $610,000?
Clearly, these returns are nothing to sneeze at. That is because a 12.2% outperformance in 18 months can have a material impact on your personal finances. In fact, a $5 million investment in the S&P 500 at the beginning of 2017 would today be worth $6,190,000 (not including any brokerage, index, or other fees). But the same $5 million investment in Vailshire Partners, LP would be worth $6,800,000–an extra $610,000 in your pocket; and this value is net of all fees.
The “Secret Sauce”
Over the past 18 months, Vailshire Partner’s market-beating returns can be attributed to regular access to–and copious review of–some the world’s best investment analysis, a working knowledge of the ever-changing healthcare industry, an accurate vision of how technology is transforming our culture day-by-day, disciplined position sizing, a well-diversified investment portfolio, and strict adherence to trailing stop losses.
For those who like a little more data, our historical performance (as of June 30, 2018) is shown in the following table:
Year-to-Date Net VP Returns 5.6%
Year-to-Date S&P 500 Returns 2.0%
18-Month Net VP Returns 36.0%
18-Month S&P 500 Returns 23.8%
3-Year VP Returns 15.4%
3-Year S&P 500 Returns 36.5%
Although very few of you reading this were actually invested in the fund during its “soft opening” approximately two to four years ago while I was still working as a physician, I am not proud of Vailshire Partner’s early investment returns, to say the least. This early performance blemish taught me much about investing professionally and constantly motivates me to continue striving to ensure that future periods of market underperformance are short-lived and kept to a minimum. In light of this, you can absolutely rest-assured that you and your hard-earned investment dollars at Vailshire are being treated like royalty.
Our systematic long/short approach, which began in earnest in December 2016, has provided a wonderful marriage of conservative portfolio management techniques and my love for studying and choosing the greatest companies that are performing well throughout the healthcare, technology, and other promising sectors.
Current Holdings of Vailshire Partners LP
While primarily focused in the healthcare and transformative technology sectors, Vailshire’s willingness to diversify into the best investments across multiple asset classes is part of what distinguishes it from the competition. The following graph shows Vailshire Partners’ most recent asset allocation, which is almost unchanged since the end of Q1 2018:

**Not included in the chart are Vailshire Partners’ short positions, which currently encompass -10% of the portfolio total. Net portfolio leverage as of 6/30/18 is 36%**
VALUExVail 2018


I was honored to be invited back to VALUEx Vail 2018 this year from June 27-29. If you do not already know, this annual conference brings together 40 of the best hard-core value investors from around the world to discuss their top investment ideas with each other.
About half of the attendees, including me, gave formal lectures to the rest of the group. This year, my presentation was entitled: A Top-Down Approach to Investing in Healthcare. In it, I broke down the entire healthcare sector into eight investable subsectors. Within each subsector, I gave actionable investment ideas… many of which I currently use within Vailshire Partners LP and many of Vailshire’s separately managed accounts. This amount of information was not easy to deliver in only 25 minutes! That said, the presentation was received well and the question and answer section following the lecture was lively and interesting.
If you are interested in seeing the PowerPoint slides for yourself, just reply to this email and I will send a copy directly to you as an email attachment.
In conclusion…
While many individual and professional investors continue to watch from the sidelines during this new year of political uncertainty and market volatility, we continue to Grow and Protect our assets with powerful and time-tested investment techniques. As per usual, I cannot tell you when the next recession and bear market will occur, but I can tell you that we are well-prepared for whatever comes our way.
At Vailshire, we remain committed to our strategy of owning the greatest businesses that are trending ever higher, and avoiding or shorting the worst or most problematic businesses that are heading lower. When coupled with cutting-edge portfolio management techniques, reasonable position sizes, shrewd usage of leverage, and diversified asset allocation, Vailshire Partners is well-positioned to perform beautifully in the coming years and decades.
If you remain on the sidelines, I believe that now is a great time to invest for the long-haul… especially given Vailshire’s diversified and systematic approach. This allows the best investments to grow for as long as possible, while cutting short losers before they significantly harm overall portfolio performance.
Thank you again for the opportunity to serve you, your family, family office, endowment, fund of funds, or other investment vehicle this year and in the decades to come. I am truly honored by the trust that you have placed in me.

My ongoing goal is to delight my clients regularly via personalized service and wise, often-contrarian investment strategies. Vailshire continues to grow rapidly thanks to investors like you placing increasing trust and corresponding assets into its proven, alternative, long-term techniques. If you wish to increase your investment in Vailshire’s comprehensive portfolio management expertise, or know a friend or family member who might benefit, please let me know.

Thanks,
Jeff