2021 September CAD

Back to archives

4.89% MTD
24.00% YTD

When you don't know what you don't know, blindly following is hazardous.

We want to offer a seasonal explanation of this investing proverb: If you haven't spent your summers (and shoulder weekends) at a cottage in Canada, then you don't know that lake water gets frigid in October. Since it's not uncommon to have warm, clear sunny days in October, and most lake locals think 16 Celsius water is swimming temperature, then jumping off the dock with them can result in serious shock and panic. The same goes for investing.

We are regularly asked how Caravel Capital produces its impressive returns. This month’s letter briefly explains how we do it.

Every week, we tear apart tons of opportunities to determine if there is anything worthy. The vast majority get tossed in the trash. By the way, we have colossal garbage cans, which are overflowing by week’s end. For the ones that survive, we take a deeper dive. If we like what we see, we begin identifying their exogenous and endogenous risk profile (things that will negatively impact the investment). Next, we use derivative securities and other proprietary hedging techniques to mitigate exposure so that the risk to capital is marginal relative to the potential investment return.

If and only if this is achievable, then we put the money to work. Next, we monitor the investment and the temperament of the markets every day, regularly tweaking the positions and their hedges until we sell. It's essential to keep in mind that we temper the size of each investment proportionate to our ability to offset or eliminate the known risks. When the risk profile changes, we adjust.  We don't pray. We have learned that praying pays better dividends when conducted in a place of worship. God doesn't care about market risk, so don’t pray when havoc is being wreaked on your portfolio.

To summarize: With 50 years of experience in dissecting investment opportunities, we've become pretty good at picking winners and at identifying their risks. Since we eat, sleep, and breathe our jobs, we can identify, adapt, and sometimes even invent the tools used to mitigate risk.

We hope the explanation of our daily process makes it easier to understand how the fund produced 460-basis points of positive return in a month when the broad markets lost the same.

We thank you for your confidence and capital.

Glen and Jeff

Monthly Performance (net of all fees)

JanFebMarAprMayJunJulAugSepOctNovDec YTD

Risk vs. Return Comparisons Across Indexes

Month Return YTD Return Volatility Sharpe Sortino Beta Best Month Worst Month Annualized
S&P 500-4.65%15.91%15.08%1.061.320.0812.82%-12.35%16.59%

Growth of $1000 since inception

Commentary Archives