Shakespeare(I apologize to VFI investors for the interruption),
Thank you for your interest in the Fund. However, it is not open to
the public, for I am not seeking any additional capital from other
clients at the moment.
As its manager, there are a couple things I'd like to point out:
First, this fund is not official; it is experimental, and it is only
open to family and friends. I'm in the middle of testing particular
market theories and strategies that I've put together, and the result
was the creation of my fund.
I have decided to put those theories and ideas under testing, at least
for one year, beginning on September 11, 1996. So I've only come about
half way. I am satisfied with the results.
The fund is a combination of styles from the greatest fund managers/
investors in our time, Warren Buffett, Peter Lynch, and George Soros,
if such styles can be combined. With Mr. Buffett claiming to be 15%
Philip Fisher and 85% Benjamin Graham, you can see a lot of confusion
can go on.
The structure is that of a hedge fund, where I can simultaneously hold
both long and short positions in the market, the purpose of which is
to reduce volatility and risk, should the hedging operations be
successful. In addition, leverage can be used, and often the positions
can be extremely concentrated in a few issues.
Modern portfolio theory, which I hope all of us understand, has led to
the widespread acceptance of diversification, beta, correlation co-
efficients, and other esoteric concepts, some of which are more useful
than others. Studies show that diversifiable risk is almost entirely
reduced once a portfolio has about 20 holdings, and can be further
reduced if international stocks are included. After about 9 holdings,
however, the reduction in risk is marginal.
Anyways, I believe diversification should not be over-stressed. I will
take flak from the die-hard diversification fans out there who believe
in diversifying further.
I do not diversify for the sake of diversification. The portfolio
holdings' diversification is purely dependent on the number of issues
in the market that meet my ultra-strict criteria. I only search for
perfect companies that fit those criteria, and if there aren't any,
the result is a higher percentage of the portfolio that is allocated
to that stock. In my opinion, you would have to be joking if you can
find 20 perfect companies out there. The most issues that I've ever
had in my portfolio is about 6, so it is not for weak-willed. I ask
clients to allocate to the fund an amount equal to what they will
put into one holding out of their whole portfolio. So this is NOT a
complete investment program. I also ask clients to think of this as
a single stock with built-in diversification characterisitics, that
will forever seek to reach its fair value, for I immediately dump all
stocks in my portfolio that reach its fair value, in exchange for
those that have not.
I am the greatest critic of my strategies, and I realize that I need
more acquisitions, at least 9. If I can't find enough issues, that
money is going to have to sit in money market funds, for I will not
allocate funds in a stock that provides no margin of safety.
Well, this is getting long. The primary concept is finding fast
growing, well-managed companies that are selling at a considerable
discount to their fair value, such that a considerable margin of
safety is present upon acquisition. In other words, my goal is to
NOT LOSE MONEY and to make it as fast as possible.
The concentrated portfolio structure has left me bruised in this
correction. From last week, my fund has declined 11.5% from its peak,
so that should tell you that even good stocks can get beaten up a bit.
But the goal remains intact: I have not lost any money. The fund is
up 44.9% for the 6 month-plus period I've been managing it, though
lower than the 63.7% peak of last week. I'm not concerned about this
short term volatility. I may increase my holdings.
Well, I hope this has given some insight into the fund's workings;
Should anybody else have questions, please address them to my email,
which you can find by clicking on my name up above, in the personal
profile, so that VFI investors will be spared future interruptions.
I wish you all good luck in this market, and if any of you have
suggestions for acquisitions, I would be very glad to hear them.
Thank you.
Sincerely,
Rainier Trinidad |
