Somar Turns 1 – May 2017

Somar Turns 1

One year ago, we partnered to start the Somar journey. 12 months later we are off to a good start and look forward to the future with strong confidence. My conviction that Somar will deliver superior risk-adjusted returns to our investors has never been higher: our performance is ramping up nicely; we have a highly professional, cohesive and committed team; and a stable and growing group of investors.

Since its inception, Somar had a gross return of 12.37% and a net return of 6.93% vs. 17.46% for the S&P500, and 20.21% for the Eurostoxx 50 indexes.

Throughout the first year we have kept our net exposure at 50%. That means we expect to have half of the risk of the market. Therefore, if the market is up 10% we expect to be up 5%. And conversely, if the market is down 10% we expect to be down 5%. Any return above this expectation should be viewed as value being added by our stock-picking ability.
We strive to offer you the highest service and peace of mind. We have built Somar into a high-performance organization with the highest professional standards. We keep improving and are always looking to increase the service we offer you. Please let us know if there are areas where we can do better for you.

Since our inception we have been blessed to have you as our partner. You have shared our vision of investing long-term in secular winners. As one of you told me: “In the long term, the stock price will follow the sustainable growth in profit”. We are happy to report that in the first 12 months some of you have continued to reinforce your original investment in Somar and, as I write these lines, we have not received a single notice for redemption. This, together with our performance has allowed us to grow our assets more than 50% in our first year, and we have recently crossed above $25mn of AUM.

We continue to have substantially more attractive investment opportunities than capital to deploy. We will close the fund well in advance of that being close to a consideration. Currently we plan a first close when we reach $100mn. We are finding a lot of opportunities in emerging secular winners in Europe and the US. Attached we share a summary of our investment in Zooplus, the European online pet retail leader which is a good illustration of the type of investments we focus on.

A personal note

I realize the current media narrative around active management has not been supportive over the past 12
months. Therefore, it took courage and vision for you to join our project. I am grateful for your trust and
committed to reward you by continuing to deliver superior risk-adjusted returns.

We are off to a great start and we see a large opportunity ahead. Given the large amount of secular change
and speed of change we believe the future years will come to be known as the golden age of secular investing
and value creation. Thanks for joining us on this exciting journey.


A Personal Story – April 2017

A Personal Story

My dad is a medical doctor. He started his career in a hospital, working all night at the emergency room.
His passion was serving as a community doctor. Therefore, when I was 10, he moved our family to the
Portuguese countryside and built his practice there. Every day he put in long hours: leaving home by daylight
and coming back for dinner at around 8PM. Most nights, he would see patients after dinner at our house and
occasionally he drove at night to do domicile consultations. He built a stellar reputation: one of my
schoolmates’ family told me that my father saved the life of his grandfather. It is hard to overstate how
proud I am of him.

My dad taught me the value of hard work and of striving to be the best you can at your craft. As a normal
boy, I wished my parents would give me a computer or a guitar. They always provided for my basics but
made me earn for my extra-curricular “toys”. So routinely, I took part-time jobs to gather the money needed
to buy them.

One night after dinner, a patient called my dad. His mother was feeling very sick and he needed my dad to
see her. I asked my dad to go with him. The house was far, on top of a mountain with no public illumination.
The night was cold and the road was quite bumpy, filled with potholes. After 20 adventurous minutes we
arrived. My dad tended to the patient, a very poor old lady. On our return, I reminded my dad that I was two
thousand Portuguese escudos (the equivalent of 10 euros) short of the price of the guitar I wanted to buy.
Could he give me the money he got from this visit? He told me, “Pedro, this is a very poor family. They
can’t pay for my services. But they needed a doctor now and I had to come serve them. A doctor’s job is to
bring people back to health.”

This made a profound impression on me. After a full day of hard work, on a cold winter night, rather than
staying at home after dinner and relaxing, my dad generously got out to serve a person in need. And he
didn’t charge a single cent. In fact, he had to pay for gas. He did this out of the generosity of his heart. But
he didn’t see it that way. He believed that his calling was to be a doctor, and the talents he was given were
to be put to the service of the community, regardless of ability to pay. He set for himself the highest
professional standards as a doctor. And he saw that calling as a blessing.

I wanted to follow in his footsteps but medicine wasn’t my calling. The sight of people in pain and bleeding
is hard for me and doesn’t allow me to perform at the peak. My calling is to assist people and institutions in
building and establishing a legacy. That is why I founded Somar Capital. I believe people and institutions
should be able to take control of their financial destiny, dream big and fund those dreams by relying on a
high return on their savings for decades to come. I believe they should be able to plan beyond normal human
life expectancy and build legacies that will benefit generations to come. My family and I have benefitted
from legacies from Mr. Andrew Carnegie (New York Public Library) and Mr. George Baker (Harvard
Business School) to name just a few. I’m inspired by them.

To fulfill this vision, the team has built Somar with the same highest professional standards that my dad
used to build his practice. We are humbled by the trust you put in us and we come to work every day
determined to be worthy of that trust. Our guiding values are: Honest, Humble and Hungry1.
We look for high returns by partnering with extremely attractive businesses that have a superior value
proposition to offer their customers. We look for businesses can sustain their superior customer proposition
over time and have only penetrated a fraction of their target customers. This allows them to grow and build
shareholder value at high rates regardless of the macro-economic cycle.
* * *
A few months ago, my dad approached me to invest his life savings in Somar. He said: “I can’t think of any
better place to put my savings”. Humbled by his confidence and conscious of the weight of this
responsibility I accepted. In addition, I invested my daughters’ savings in Somar. We have three generation
of the Ramos family fully aligned with you, our investors. We look forward to seeing you succeed and
playing our part in funding your aspirations for this and future generations.

Portfolio Construction Process – March 2017

Portfolio Construction Process

We believe Somar’s portfolio management process is accretive to our returns. Our process allows us to

  • Quantify and monitor our expected portfolio performance for the next 12 months
  • Easily weigh trade-offs between opportunities and risks among different industries and geographies
  • Use market volatility to our investors’ advantage by sizing up positions on weakness when their risk-reward improves and harvesting positions on strength as their risk-reward declines

Small is Beautiful – February 2017

Small is Beautiful

Since the beginning of 2017 a combination of our performance and the addition of new investors has seen Somar cross the $20mn AUM mark. Currently, we are approaching the mid 20s. We are encouraged by our momentum and the confidence that you, our partners, have placed with us.

Idea Generation: International Diffusion of Secular Change – January 2017

Idea Generation: International Diffusion of Secular Change

One consistent source of idea generation for Somar is the diffusion of secular change across borders. We study the winners and losers in the area where the change originated and leverage those learnings to other geographies giving us an early read into opportunities for longs and shorts there.

Investment Strategy: Our Opportunity – December 2016

Investment Strategy: Our Opportunity

“Don’t judge each day by the harvest you reap but by the seeds that you plant” – Robert Louis Stevenson

Investors, both in managers and in companies, have a very difficult task: make commitments today in the hope of getting a reward in the future, amidst imperfect information. Making matters worse, progress is not linear and therefore, early investment results aren’t necessarily indicative of the ultimate outcome. So the intelligent investor needs to have a clearly defined investment strategy and execute it with intensity and discipline.
At Somar we follow a proven Investment Strategy rooted in 3 key beliefs:

Case Study: Healthequity (HQY) – November 2016

The performance this month fell short of what we expect from Somar in a month with similar performance from the indexes. Yet this was no normal month. In the wake of the election of Donald Trump as the next US president the markets reassessed their perspective and made violent rotations among sectors. The sectors in which Somar invests were sold. Meanwhile, our companies reported very strong performance in line or ahead of our expectations. So we look to the future with confidence and will take the opportunities the market is giving.

Additional Metrics – October 2016

Additional Metrics

Volatility remained high in October as uncertainty about the upcoming US election weighed on investors’ conviction to build long term positions. Our long term focus led us to build positions in extremely attractive businesses when their valuation opened very attractive risk-reward profiles.

Short Illustration – September 2016

Volatility picked up in September and we used the market swings to continue adding to our portfolio. We are extremely sensitive to valuation and maintain high standards for adding new and existing positions.
A volatile flat market like the one we experienced in September plays to Somar’s strengths. Virtually all of our performance in September came from stock selection. Since inception more than two thirds of our profits came from stock selection while the rest of the profits came from market appreciation1.

Secular Change – August 2016

Secular Change

As we move forward we would like to provide you with more details about our portfolio. We prefer to discuss individual positions close to the time of harvest. We do this to avoid a common pitfall that humans tend to fall into while analyzing complex situations: commitment and consistency. To say it another way, once an individual announces publicly his position on a topic it is very hard for him to change his mind even in the face of opposing evidence. In fact, this trait is so strong and pervasive that people tend to only look for additional information that confirms their stated position and ignore any additional information that doesn’t (confirmation bias)1.