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
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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.

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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.
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Investment Strategy: Our Opportunity – December 2016

We are not happy to report these results, as the performance falls short of what we expect from Somar and the businesses we invest in. We have analyzed the causes of this gap and concluded the following:

  • Operationally the businesses are performing well, meeting or exceeding our expectations
  • There has been no single or small group of positions that caused the underperformance
  • Short book has performed well, with a marginal loss in a rising market1
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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.

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Additional Metrics – October 2016

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.

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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.

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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.

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Uncertainty and Risk – July 2016

During the month we continued to take advantage of the market dislocation to build our portfolio with investments at highly attractive risk-rewards. A large proportion of these businesses reported in the second half of the month and we were pleased with each company’s evolution and its prospects for continued value creation. This leaves us extremely excited about the prospects of our portfolio going forward.

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Market Volatility – June 2016

Markets were highly volatile during the month in response to the buildup and outcome of the Brexit vote. The volatility and market dislocation opened opportunities for us to start building our portfolio at very attractive valuations.

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