Striving to Consistently Outpace The S&P 500 Index
0% Management Fee, Performance Fee Only.
7/1/2018 – 6/30/2019
Letter To Limited Partners
Cavallini Capital LLP.
Greg Cavallini
1080 Brickell Ave. Miami, FL 33131
Results in 2019
The S&P 500 Index including dividends reinvested (hereinafter called the S&P) had an overall gain of 10.42%. Cavallini Capital including dividends reinvested (hereinafter called CC) had an overall gain of 5.09%.
Bonds & Major Indexes
It seems in today’s investing environment that expectations are a little out of sorts when it comes to returns. In casual (and, not so casual) conversations, I consistently hear investors complaining about low bond yields and passive income indexes such as the S&P. These are two separate issues I would like to address.
a) Current Bond Yields: In this asset class, I tend to agree with my not so content fellow investors. Historically speaking we are at all-time lows with interest rates and have been since the great recession. This was partly executed by the FED to create stimulus and get business moving. The low yields have caused investors to place larger allocations than usual in stocks. This has created a situation in which many stocks are overvalued. In the desperate search for returns, sometimes investors lose sight of the all-important intrinsic value of whatever it is that they are buying.
b) S&P Index: When it comes to the major indexes (especially the S&P) I could not disagree more with many investors. Historically
speaking since 1926, the S&P has given about a 9.5% annual return before taxes. Stocks in the US have a history that goes back more than 200 years and we find similar results of about 9.5% annual returns with dividends reinvested.
The two points mentioned above lead me to believe that overall returns in the coming years will be less than what history has been so generous in giving. I am not in the business of predicting where the market will be a year from now (hopefully I am wrong and it is higher) or in judging business cycles. If you think this is important for long-term investing and the building of wealth over time, you should not be in the partnership. I only mention the cautious tone given the sentiment that I hear from both the casual investor and the not so casual investor.
The Yardstick
In the world of professional money management, it seems it is a bit unclear as to what constitutes a good or a bad performance. To me, it is important to make this distinction and what I hope to achieve for myself and my partners. The first priority is the preservation of capital and the second priority is a reasonable return to investors in the long term. The question becomes what is a reasonable return on a long term basis? Below are my conclusions:
a) 5 to 8 percentage points over the S&P. Since we know the S&P historically has given investors about a 9.5% return, I am aiming for a range of 15% to 18% return.
b) Long term basis denotes a minimum of 3 years (Preferably 5 years). This assumes no prolonged bear market.
I in no way can guarantee these results, but I thought it fair that my partners know what my aims and targets are. I will not abandon my conservative investment style (or so what my analysis tells me are undervalued or fairly valued stocks) simply to reach the range of return I
believe to be adequate. If it cannot be accomplished, I will say so immediately. In a year when CC has a negative return (which will happen from time to time), it would not necessarily make it a bad year from my perspective. For example, if the S&P has a negative 15% return for the year but the partnership has a negative 7% return, I would consider that a successful year. The idea is to gain an edge over the market / averages. I would much prefer to have a year in which the market declines by 10% but the partnership only by 5% then to have a year when the market gains 20% and the partnership 21%.
Ana and I have the majority of our net worth in CC and so long as CC is in operation, this will always be the case.
I can’t promise results, but I can guarantee that Ana and I’s wealth will be in lockstep with yours.
Sincerely Yours, Greg Cavallini
Track Record
To view track record, please contact Greg Cavallini at greg@cavallinicapital.com
0% Management Fee, Performance Fee Only
Notes:
The record above displays Cavallini Capital’s track record since inception on July 1, 2017.