I am presenting to you the 6th quarter results for this fund. This is the first time, however, that we have had a down quarter, which I dive into in more detail below.
Results
2021 Q3 results
July 1st
September 30th, 2021
$ change
% change
Jones Fund
$411,816.42
$381,002.99
-$(30,813.43)
-7.5%
S&P 500
$4,297.50
$4,306.24
+$8.74
+0.2%
Difference
-7.7%
Year-over-year results
September 30, 2020
September 30, 2021
$ change
% change
Jones Fund(normalized)
$118.33
$147.46
+$29.13
+24.62%
S&P 500
$3,363.00
$4,306.24
+$943.24
+28.05%
Difference
-3.43%
* We are currently at around $132,859 in cash.
Why are we down?
In some ways, we should expect these down periods. Unfortunately, my gut still clenches when it does. There are two primary factors that explain it:
This fund is primarily an“event-driven” fund. This means that we only buy companies when they are experiencing some sort of event that makes the market fearful and thereby drop in price. To reference a“famous” example: Chipotle and their Salmonella food poisoning. In the short term, people sold a lot of Chipotle stock causing it to drop down to about $350. Many long term investors thought that there was no possible way this could be a serious long term event and so they bought in. It stayed down for months(some companies stay down for years). Now, a few years later, it’s sitting around $2,000.
The“trick” is that whatever event the company is facing must be a short-term, non-bankrupting event. The hope is to spot events that will resolve with a 3-year period.
We do not time the market, we price the market. We find a price that we consider 50% off its“intrinsic value”(also known as“fair value”), and we buy as soon as the price gets to that level, assuming we still believe in the long term value of the company. That doesn’t mean that we hit the bottom of the dip, we often buy on the way down. We also try to buy in trenches, so as the price lowers, we buy more. If we have $100,000 set aside for a company, we might have each trench at $25,000. We might also buy all our trenches and the company might still be going down from the event. Here’s an example using Chipotle’s graph to illustrate.
click to enlarge
At the“Significant drop” and for about a month after the price was verylow. When this happens, we say a company has“gone on sale”. It also means that for that time we have an unrealized loss from our original purchase price to the“significant drop”.
“You’ve got to be prepared when you buy a stock having them down 50 percent or more and be comfortable with it — as long as you’re comfortable with the holding.”
- Warren Buffett
This is what I believe is happening. We found a new wonderful company and have trenched in(completely), and it has continued to go down. I feel very confident that this is a discounted company, and we are shoulder-to-shoulder with many other top-tier investors(such as Charlie Munger). The underlying fundamentals are very strong and continue to improve.
There is always a chance I am wrong, but I wanted you to know what I believe is happening. I am very excited about the company and also have another company on my radar that is experiencing an event right now.
Fund update
I’ve been pretty heads down much of this quarter trying to finalize the fund formation. I took and passed a Series 65 course and licensing exam, which enables me to act as an investment adviser. At the same time, I have been finalizing the many documents and papers required for the fund formation and expect it to complete in early Q4.
The way that the fund will work is that I will operate Firefly Capital, LLC — which will be registered as an investment adviser. This is separate from Firefly Capital, LP which is the Limited Partnership-- which we will all be in together. Firefly Capital, LLC will act as the General Partner with full liability while each of you will be Limited Partners.
If this sounds confusing, you’re not the only one. I’ve put together this flow chart to help.
Results
Why are we down?
Fund update