Q2 2025 letters for Week #2
The list of letters that we uploaded to our website
The Q2 letters are flowing in! We added the following letters to our database.
Just click on the fund name or search the name of the fund here.
Enjoy!
Fund letters with noteworthy commentaries:
The market has clearly favored lower quality and/or laggards, and our portfolio has not been able to keep pace with the ‘dash for trash’. In our opinion, this is typical early cycle behavior for small caps. After steep declines, it’s usually the most beat up, flotsam and jetsam, that rallies first and fastest as investors conclude things may not be as bad as feared.
On the economic front the United States has moved aggressively toward protectionism, raising tariffs significantly and seeming to turn its back on the free-trade gospel of the past few decades. Other countries, not to be outdone, have followed suit leading to more complexity, confusion, and the predictable result of everyone blaming everyone else. What’s striking is that much of this has been carried out not through established international norms and institutions, but through tactics that often resemble playground bullying more than principled diplomacy.
Markets and economies swung wildly in the first half of 2025, generally propelled by geopolitical drivers—most of those emanating from the U.S. Many companies downplayed their outlooks either in response or in advance of tariff-induced cost increases. Yet markets have a remarkable way of absorbing those concerns, pricing them in, and forecasting improvements. For example, most Federal Reserve watchers anticipate rate reductions later this year. However, many investors are cautious regarding the intended and unintended consequences of the newly enacted massive tax and spending bill.
Our preferred valuation metric is looking at the relative yield of dividend stocks compared to the S&P 500. Relative yield is defined as a stock’s or portfolio’s dividend yield divided by the S&P 500 dividend yield. A high relative yield compared to its long-term history indicates a low valuation for the stock or portfolio, while a low relative yield ratio indicates a high valuation, all else equal. At the end of the second quarter, the relative yield of the Dividend Income Fund was 2.1x the S&P 500 and 1.3x the Russell1000 Value Index, both at the very high end of their historical ranges. In our view, dividend stocks continue to be on sale relative to the broad market.
There are signs of mania in today’s market. Special purpose acquisition companies, or SPACs, are again coming to market. As a reminder, in 2021 SPACs led to tremendous short term returns for SPAC sponsors and short term investors, but the typical SPAC over the long term, fell over 90%. Similarly, bitcoin treasury companies, public companies whose primary function is to own bitcoin, are both becoming more numerous and generally trade at a premium to the value of their bitcoin. Those leadership teams, led by MicroStrategyInc’ success, found the unlikely Infinite Money Machine where companies issue shares to buy bitcoin and repeat, without a mainline business, as their shares trade for more than the purchased bitcoin. It’s great for the leadership of those companies, and while the mania progresses, good for the companies’ shareholders. When itends, shareholders will lose, but the absolute dollars destroyed will hopefully be relatively small. It’s more important as a sign that this market seems willing to push trends to an extreme.
The role business quality played in terms of longterm compounding was of particular interest to us. In this report, the proxy for business quality was the extent of the drawdown: the smaller the drawdown, the higher the business quality, and vice versa. Critically, the study shows that while the largest drawdown (lowest quality) businesses produced the highest returns from the bottom, they generally did not compound from their pre-drawdown peak.
Specifically, the quintile of stocks with the largest drawdowns recovered just 80% of prior peak value five years after the draw down bottom. On the other hand, the quintile of stocks with the smallest drawdowns (a.k.a. the highest quality stocks) nearly doubled in value from their prior peak value five years after bottoming.
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Quarterly investor letters
Stock pitches by investment funds
Media appearances of prominent investors
and last but not least, a Collection of investment classic
