You’ve entrusted your hard-earned savings with us and, as such, it should bring you comfort to know we always strive for perfection. What may not be as comforting to you is that we know we’ll never achieve it. We accepted a long time ago that we’ll make mistakes. Though we try to minimize the impact of any mistake by building portfolios diversified by business idea. So when they happen (and trust us, nobody is immune) the impact is typically offset by those other ideas.
Click below for the full story behind the mistake.†
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EdgePoint Global Portfolio, Series A
Annualized total return, net of fees (0.80%), performance in C$ as at December 31, 2023
EdgePoint Global Portfolio, Series A
YTD: 11.76%; 1-year: 11.76%; 3-year: 7.29%; 5-year: 6.69%; 10-year: 8.98%; 15-year: 11.49% since inception (Nov. 17, 2008 to Nov. 30, 2023): 12.13%.
2009-12-02: GameStop Corp.
What it does
One of the world’s largest video game distributors.
Why we liked it
We believed gamers weren’t going anywhere so GameStop would continue to expand and also grow its sales per store. Concern at the time we bought it was that video games were increasingly being distributed on the internet. We didn’t buy into this theory given they took over 24 hours on average to download onto the most popular consoles of the day.
What happened?
We felt that GameStop likely wouldn’t be able to withstand competitive pricing pressure from stores like Toys “R” Us and Wal-Mart and sold our position as a result.
GameStop's holding-period return* was -21.51%.
*October 15, 2009 to December 2, 2009.
2010-07-02: Connaught PLC
What it does
U.K.-based company operating in the social housing, public sector and compliance markets.
Why we liked it
At the time there was a shortage of social housing in England and half of all rental units were earmarked for repair. We believed Connaught was well-positioned on both the maintenance and compliance sides of its business, which would provide continued growth opportunities.
What happened?
Connaught’s share price fell substantially following new government legislation and budget cuts that would significantly impact the company’s future profits. The cuts were greater than we predicted and we immediately sold our entire position.
Connaught's holding-period return* was -69.03%.
*June 18, 2009 to July 2, 2010.
2011-09-12: Bank of New York Mellon Corp.
What it does
Banking and financial services company.
Why we liked it
As a global custodian, there were few players that had BNY Mellon’s reach. Interest rates were low when we bought it and we liked the banks leverage to rising rates over time.
What happened?
We found a more attractive opportunity in Markel Corp.
Bank of New York Mellon's holding-period return* was -31.25%.
*January 4, 2011 to September 12, 2011.
2012-01-30: Takata Corp.
What it does
An auto-parts manufacturer well known for its airbags.
Why we liked it
When we started looking at Takata, auto sales were at decades-low levels. It was a leading player in a small auto parts oligopoly so its competitors faced huge barriers to entry. We believed the industry would rebound and parts manufacturers would bounce back with it.
What happened?
We opted for what we believed were relatively more attractive opportunities in the auto parts space, including BorgWarner Inc. and Harman International Industries. Both were derivatives of the same rebound idea outlined above, but we believed they represented better risk/reward than Takata. Less than a year after we sold, Takata became embroiled in a defective airbag recall.
Takata's holding-period return* was -26.36%.
*November 16, 2010 to January 30, 2012.
2012-06-07: Cisco Systems Inc.
What it does
Develops, manufactures and sells networking hardware, telecommunications equipment and other high-technology products and services.
Why we liked it
Cisco was the largest player in IP-based networking equipment including routers and switches for direct data, voice and video traffic (think of it as the internet’s plumber). We believed Cisco was a strong business because people had become so reliant on the web that it would continue to function no matter the state of the economy.
What happened?
We became aware of intelligent software that could replace hardware and seriously eat into Cisco’s sales. In just over a month this development went from being a story buried in an obscure magazine to the subject of widely broadcasted conference calls. Though Cisco was in the midst of building an in-house solution, we didn’t know the long-term impact of the new technology on it. With so many questions there was no reason to stay invested, especially when we saw better opportunities.
Cisco's holding-period return* was -9.44%.
*November 17, 2008 to June 7, 2012.
2012-06-29: Research In Motion
What it does
Former developer of Blackberry smartphones and tablets.
Why we liked it
We believed in the future of mobile computing and that RIM was at the center of it as one of three legitimate players (in addition to Apple and Android) with an operating system for smartphones and tablets. We felt that if RIM retained even a small share of the mobile market that it would substantially grow its long-term value.
What happened?
Missteps along the way included short-term gaps in new product releases and management’s failure to effectively promote Blackberry’s security and network efficiency. Though we saw these issues and took some profits early in our ownership, we misjudged how harsh the market’s reaction toward RIM would be. Our mistake was not selling more of the business at much higher prices when we had the chance.
RIM's holding-period return* was -67.99%.
*November 17, 2008 to June 29, 2012.
2012-11-28: Western Union Co.
What it does
Western Union offers person-to-person money transfers, money orders, business payments and commercial services.
Why we liked it
With more global penetration, its logo was once as recognizable as the golden arches. It was a world leader and often the only option for people who needed cash-to-cash transfers. At the time we bought, the lion’s share of Western Union’s earnings came from this part of its operations primarily because it didn’t have a lot of competition.
What happened?
Global money transfers grew, but they were mostly account based and Western Union hadn’t cornered this side of the market. While we recognized that the account-to-account segment would be the main source of future growth, we misjudged the speed at which cash-to-cash transactions declined. Western Union’s competitors were able to offer lower prices because they didn’t have physical locations whereas when Western Union did the same that ate into its profits so we sold the business.
Western Union's holding-period return* was -28.07%.
*January 27, 2010 to November 28, 2012.
2015-10-09: Jacobs Engineering Group
What it does
Engineering and construction firm.
Why we liked it
Natural gas prices had fallen and Jacobs was a feedstock for chemical plants on the Gulf Coast. Given lower gas prices, these plants in particular were suddenly the lowest-cost producers of chemicals worldwide. Jacobs had expertise in building such facilities and we thought it was going to benefit.
What happened?
While we were waiting for chemical plants to be built, oil prices also fell. This hurt the side of Jacobs’ business that focused on oil and gas infrastructure. More importantly, many oil-related companies saw their stock prices drop, including PrairieSky Royalty Ltd. At the lower price, PrairieSky was suddenly a better idea than Jacobs so we made the swap.
Jacobs' holding-period return* was -11.09%.
*May 30, 2013 to October 9, 2015.
2017-08-01: Team Inc.
What it does
Provides maintenance services to large facilities like refineries and chemical plants.
Why we liked it
Team is a low-margin, cyclical business that does onsite inspections, routine service calls and small repairs during planned plant shutdowns. It can be feast or famine for Team as customers tend to put off servicing in lean times. We felt others failed to see that there’s only so long a plant can run maintenance-free before it can’t function properly. If you could stomach Team’s profit declines during a downturn, we believed that patience would be rewarded during an upturn.
What happened?
Team made some eyebrow-raising acquisitions and issued stock at depressed prices to acquire competitors, exposing a trend of what we believe was poor capital allocation that we missed. We also failed to identify what could be a dramatic shift toward automation. Questioning whether Team’s earnings power had been permanently impacted, we parted ways with the company after two years.
Team’s holding-period return* was -39.19%.
*August 5, 2009 to August 1, 2017.
2019-11-06: Delticom AG
What it does
An online tire retailer based in Germany.
Why we liked it
We saw an opportunity for growth through growth of online tire sales.
What happened?
We missed a competitor that was willing to operate at losses for years in an effort to gain market share – this disrupted the profitability of Delticom.
Delticom's holding-period return* was -85.44%.
*June 4, 2012 to November 6, 2019.
2020-01-30: DuPont de Nemours, Inc.
What it does
World-leading, specialty chemical company
Why we liked it
At the time we purchased DuPont in early 2019, it was one of three spin-offs from DowDuPont, which split into three separate businesses. Our idea was based on two future factors not being priced into its shares: operational improvements and strategic re-organization. We believed that DuPont’s ability to successfully execute these initiatives was tied to the company’s Executive Chair, Ed Breen. Along with leading the re-organization of DuPont’s predecessor since 2015, he had a history of transforming both Tyco and Motorola’s broadband communication division. Our analysis suggested that Breen could achieve value by cutting costs, taking advantage of pricing power and improving margins.
What happened?
When DuPont sold its best business to International Flavours and Fragrances, we re-deployed our capital into the purchaser.
DuPont's holding-period return* was -14.43%.
*June 3, 2019 to January 30, 2020.
2020-01-31: Sogou, Inc.
What it does
Chinese technology company with a focus on web searches and other applications
Why we liked it
Sogou operates China’s second-largest search engine and we believed it had the potential to grow its 18% market share. It also makes the fourth largest app in China (a keyboard input app), the most widely used Chinese speech search app and has a stake in the Chinese equivalent to Quora. Future lines of growth included both healthcare and law-related apps, two potentially large markets. Sogou partnered with Chinese tech giant Tencent to integrate its search engine into two of Tencent’s applications – WeChat and its main search page. With WeChat responsible for 60% of the country’s mobile usage, we believed this would result in significant increase in market share.
What happened?
Sogou’s growth was affected by the slowdown in the Chinese economy as advertising growth rates declined. We were concerned about the management team’s decision not to repurchase shares despite a drop in the share price (the stock was trading just above their cash balance) despite the significant cash available.
Sogou's holding-period return* was -45.4%.
*July 31, 2018 to January 31, 2020.
2020-03-23: Toyota Industries Corp.
What it does
Japanese machine manufacturer
Why we liked it
We saw the potential for growth in its logistical business as more distribution centres were being built to accommodate e-commerce.
What happened?
The COVID-19 pandemic caused markets to sell off and we decided to redeploy the capital into higher-conviction ideas within the Portfolio.
Toyota’s holding-period return* was -18.9%.
*February 6, 2020 to March 23, 2020.
2020-04-06: Air Canada
What it does
Canada's largest domestic and international airline service
Why we liked it
We initially purchased Air Canada after it brought its loyalty program, Aeroplan, back in-house. Our view was that Air Canada was transitioning from a decade-long period of investing in the company to reaping the benefits of those investments. We believed that this change would result in improved income without additional significant costs. Our internal projections showed that it could generate about 50% of its market value between 2019 and 2021 in income after expenses. Management indicated that this money would be returned to shareholders in the form of share repurchases. While Air Canada looked objectively attractive based on this 2019-2021 forecast, we believed Air Canada was also an appealing business based on how we expected it to perform in a downturn. The business had materially improved its costs and overall finances. We believed Air Canada could withstand events like the previous SARS pandemic and 2008/09 Financial Crisis with minimal long-term effect.
What happened?
COVID-19 materially worsened Air Canada's outlook and the near-term impacts on its business were harsher than any scenario we ever envisioned. As an example, Air Canada announced that it would reduce its Q2-2020 capacity by 85% to 90%. A similar decrease in revenue could be assumed for Q3-2020. This was far worse than the annual 15% decline in revenues Air Canada experienced during SARS and the 2008/09 Financial Crisis. Our initial assumption of its finances not being materially impaired following a downturn would likely be incorrect. This also meant a very high probability that our assumptions about income and capital return wouldn’t materialize, invalidating our original idea in Air Canada. In order to own Air Canada from this point forward, one needs to take a view on an economic recovery and the progression of physical distancing measures, along with many other questions we did not envision when we purchased the business. We sold Air Canada at a loss and redeployed this capital into other ideas where we had stronger convictions in.
Air Canada's holding-period return* was -65.52%.
*May 13, 2019 to Apr. 6, 2020.
2020-04-09: Realogy Holdings Corp.
What it does
Real estate franchisor providing real estate and relocation services around the globe
Why we liked it
When we first purchased Realogy in 2014, it was the largest real estate broker in the U.S. with 20% market share. It owned several real estate brands such as Century 21, Coldwell Banker and Sotheby's. Realogy had two main sources of income: royalties (real estate agents operating under a Realogy brand) and brokerage (directly employing agents). Our thesis focused on real estate transactions keeping pace with population growth and inflation, along with a return to historical averages of real estate transactions compared to total population as the country recovered from the Financial Crisis. We believed that Realogy could grow by double-digits each year based on this. Its management team paid down existing debt and the business required minimal capital deployment and therefore high returns on capital.
What happened?
Although we predicted both traditional competitors and possible disruption from other sources, we didn’t foresee another competitor with both a willingness to lose money for several years and well-financed backers. Compass, funded by Japan’s SoftBank, began gathering top agents by offering them 100% of the commission. This meant that Compass earned no money but created relationships with the best performers. Compass started to adjust the commission split, but when COVID-19 struck, we believed that the industry’s business model may have changed and decided the sell the remaining position because we didn’t think neither buyers nor sellers would be interested in traditional home sales involving open houses and visits.
Realogy's holding-period return* was -81.84%.
*May 5, 2014 to April 9, 2020.
2020-04-22: Aramark Corp.
What it does
A global provider of food, facilities and uniform services
Why we liked it
Aramark is one of the world’s largest foodservices providers and the second-largest uniform services company in the world. The foodservice industry, which represents 85% of the company’s operating profit, has attractive growth potential as a significant chunk was still performed in-house. In the U.S. only about 35% of foodservice was outsourced. Given most of the Aramark’s food service business is in the U.S., we believed it had potential to benefit from higher future growth rates. The company focused on the two industries with the lowest outsourcing adoption rates – education and healthcare/senior facilities. In 2018, Aramark purchased a large food buying organization, closing the gap with its competitors and allowing for more competitive bids on new contracts. We believed its organic growth in the low single-digits combined with expanding margins could result in both double-digit earnings per share and returns.
What happened?
The management team’s history of handling recessions in the early 2000s and the Financial Crisis made us believe that Aramark would be able to weather any storm. We knew this was a business that could do well in recessions. The main issue was that 20% of Aramark’s business was related to sporting event concessions and we couldn’t predict what the next three-to-five years would look like given COVID-19 and its impacts on social events. We redeployed the capital into other areas.
Aramark's holding-period return* was -13.75%.
*November 15, 2018 to April 22, 2020.
2020-05-08: Wells Fargo & Co.
What it does
A top U.S. bank and diversified financial services company
Why we liked it
We believed the company was undervalued following the Financial Crisis and it had the potential to grow faster than the economy, cut expenses and use their excess capital for stock buybacks and dividends. Several regulatory issues occurred during our holding period and the bank became subject to consent orders while also being hindered by an unprecedented Federal reserve cap on its balance sheet growth. A new CEO was brought in who had spent over half of his career working for Jamie Dimon, a leader we admire. We believed he would be able to reignite the business, accelerate earnings growth with share buybacks and add significant shareholder value by growing the business once they weren’t subjected to government restrictions due to previous violations.
What happened?
Despite overcoming several regulatory hurdles, politicians and regulators continued making Wells Fargo an example for previous violations and maintained the US$1.95 trillion asset cap, the maximum amount the bank could manage. After pleading with the regulators to let them participate in the small business lending program to help businesses during the COVID-19 pandemic, the regulators temporarily and narrowly lifted this restriction. We concluded that regulators were not going to permanently lift the asset cap any time soon (other than exceptional events like COVID-19). In addition, their high cost structure relative to revenue was a headwind during the COVID-19 downturn, as their competitors were able to weather the storm better. We exited the position and deployed the proceeds into another financial business.
Wells Fargo's holding-period return* was -21.16%.
*November 23, 2009 to May 8, 2020.
2020-05-19: T&D Holdings, Inc.
What it does
Japanese insurance company
Why we liked it
We believed T&D was a misunderstood business for two reasons. First, the low interest rates make it difficult for insurers investing only in government bonds to make money. But T&D has a different asset mix, it also holds corporate bonds and equities. Second, despite the aging population in Japan, the market is still very large. T&D is still gaining market share and growing their book value by about 5% per year. We thought that the combination of the asset mix and market share growth meant that it could grow by high-single digits each year.
What happened?
We chose to sell T&D because we didn’t agree with management’s decision to buy another company, Fortitude Re, instead of buying back more shares.
T&D's holding-period return* was -28.0%.
*November 17, 2017 to May 19, 2020.
2021-02-05: Seritage Growth Properties REIT
What it does
Owner of retail properties across the U.S. (spin-off from Sears Holdings Corp.).
Why we liked it
The consensus view was that the U.S. had too many malls and Sears (Seritage’s anchor tenant) was a struggling retailer. While we agreed with both of these conclusions, we believed that investors were looking at the business in static terms. Seritage had the largest redevelopment pipeline of any REIT we had come across. Due to its history, Sears typically had the best location within a mall as well as large parcels of excess land with potential for redevelopment. Additionally, Sears was paying significantly below-market rents. Seritage’s strategy was to replace Sears as the anchor tenant with growing retailers that could more effectively use the space and were willing to pay higher rents. Seritage also had 30 premiere properties that could be transformed into mixed-use developments (multi-family, hotels and office buildings).
What happened?
The COVID-19 pandemic negatively impacted Seritage. The cash flows of the business were not predictable due to a lack of re-occurring revenue and the pandemic slowed down development and leasing opportunities. Although land values could rise over the long term, the unpredictable cash flows became problematic and we decided to exit our stake.
Seritage's holding-period return* was -41.3%.
*December 22, 2017 to February 5, 2021.
2021-02-22: Indus Towers Ltd. (formerly Bharti Infratel Ltd.)
What it does
Indian telecom-tower infrastructure provider
Why we liked it
Only 25% of India’s population had smartphones at the time of purchase. We believed that as smartphone prices continued to fall (many are now already below $100 in emerging markets) that more people would purchase them, which translated to more traffic to the towers. At the same time, 50% of the rural population of India didn’t have a mobile phone, so growth in new towers from that group was a big opportunity. Telecom in India was a fragmented market with eight different providers and 11 tower operators. Being the number-one tower operator should have meant that more antennas would gravitate over to its towers over time. We expected these three factors would drive growth for the business.
What happened?
Indian telecom providers consolidated down to three players which reduced the amount of equipment on towers. The third player – Vodafone, was one of Indus’s major customers. Vodafone had a lot of leverage and it looked increasingly likely that they would be unable to remain competitive in the market, which would eventually lead to a two-player market and a major loss for Indus.
Indus' holding-period return* was -21.18%.
*March 3, 2017 to February 22, 2021.
2021-11-04: EchoStar Corp.
What it does
Worldwide provider of satellite communication and Internet services
Why we liked it
EchoStar went through a large capital investment program. We believed the program would start generating revenue and the decline in capital spending would lead to significant free cash flow. Additionally, EchoStar had a significant amount of cash on hand that it could use for external investment that could generate higher returns than a short-term cash equivalent investment. Finally, it had a significant amount of unused terrestrial spectrum in Europe that we considered to be valuable, but wasn’t reflected in its share price.
What happened?
The satellite that EchoStar was building took much longer than expected due to COVID-19-related delays. While the company was completing the satellite, alternative options became available, including Starlink and fixed wireless access (broadband over the mobile network). This led to increased competition and ultimately led to our decision to redeploy the capital to more attractive opportunities.
EchoStar's holding-period return* was -44.32%.
*March 10, 2017 to November 4, 2021.
2022-01-31: Mitsubishi Electric Corp.
What it does
Japanese multinational electronics and electrical equipment manufacturer
Why we liked it
Mitsubishi Electric is a collection of businesses with wide moats and strong long-term demand drivers. Examples of these high-quality businesses inside their portfolio included elevators, escalators and automation. We believed there was an opportunity for margin expansion across their collection of businesses. The majority of their competitors who had comparable businesses had higher margins. Additionally, Mitsubishi suffered from overly conservative capital management. For example, the business was run with a large net-cash position on their balance sheet. There was a change in management incentive structure that resulted in management incentives being aligned with the creation of shareholder value. The change in incentive structure resulted in us believing that returns on capital were about to materially improve, and in turn drive shareholder returns.
What happened?
In 2021, the CEO resigned due to falsified inspection data in one of their divisions. A new CEO was appointed. After interviews with the new CEO and other senior management team members, we came away believing that the company was taking positive steps to improve their practices. However, we also believed that the issues would take longer than was generally expected by the market to resolve. As such, we sold our position and redeployed the capital into what we believed were better ideas.
Mitsubishi's holding-period return* was -11.83%.
*October 19, 2017 to January 31, 2022.
2022-09-20: Evonik Industries AG
What it does
German specialty chemicals company
Why we liked it
Evonik was undergoing a transformation by divesting low-margin commodity businesses and expanding in specialized fields. Its growth areas included mRNA vaccines, membrane for hydrogen production and transportation, active cosmetics and bio-based ingredients for the household and personal care space. As Evonik's margins and free cash flow conversion improved, we anticipated achieving low double-digit returns. We also believed that the market would eventually acknowledge its transformation into a specialty chemicals business instead of a commodity business, resulting in improved multiples that are more in line with its industry.
What happened?
Evonik is an energy intensive company, and 60% of its production base is in Europe. When Russia reduced gas supplies to Europe in June 2022, our thesis on Evonik changed in a number of ways. It pushed out the sale of its performance materials business, one of the last remaining pieces of the commodity chemicals business, which postponed the transition to a pure play specialty chemicals business. It also materially increased Evonik’s cost structure for the foreseeable future. After a call with management where they failed to articulate how they would weather a downside scenario of forced gas rationing in Europe until 2025, we exited the position and reallocated the capital to other European names that hard also been hit had by the uncertainty, including Alfa Laval.
Evonik's holding-period return* was -33.04%.
*December 1, 2021 to September 20, 2022.
2022-10-11: Flowserve Corp.
What it does
Manufacturer and aftermarket service provider of flow control systems (pumps, valves and seals)
Why we liked it
In 2014, the company’s share price declined while oil prices were collapsing, despite the business only having 10% of their revenue exposed to upstream oil/gas. The company had a very disciplined capital-allocation approach and had a strong differentiation from competitors. We believed that the markets were discounting the business by an unreasonable amount due to the fears about end-market exposure.
What happened?
The drop in oil demand following the COVID-19 pandemic resulted in a decline in orders. Although we saw signs of recovery, we recognized the potential for growth in other areas due to the shift towards renewable energy. Consequently, we explored alternative ideas that we believed offered similar opportunities.
Flowserve's holding-period return* was -23.19%.
*December 2, 2014 to October 11, 2022.
2022-11-30: Alibaba Group Holdings Ltd.
What it does
Chinese multinational technology company specializing in e-commerce, retail, Internet and technology
Why we liked it
Alibaba had a dominant position in the rapidly growing Chinese e-commerce industry with 60% market share. The market value on its marketplaces was expected to double in the next five years. In addition, the fees for transactions and search ads for merchants were only 4%, while global competitors charged in the high single digits, so we believed the company would be able to raise the commission rate that they charged. Combining these two factors with an attractive valuation the company was trading at provided a strong prospect for buying growth for free.
What happened?
The business lost market share in its core e-commerce business, management’s strategy has proved ineffective in stemming loss in share, and we also feel they have made poor ongoing capital allocation decisions.
Alibaba's holding-period return* was -62.46%.
*May 4, 2021 to November 30, 2022.
2022-12-02: Subaru Corp.
What it does
Japanese auto OEM
Why we liked it
Subaru was one of the most profitable automotive companies in the world. It had built a reputation for quality and safety with a relatively limited product line-up. After careful consideration, Subaru decided to enter the full-size SUV market with the launch of the Ascent. The full-size SUV market is one of the most profitable auto categories. We believed Subaru’s strong brand, particularly with U.S. consumers, would drive sales of the Ascent and lead to both volume growth and provide a favourable mix shift. We believed we were getting this growth for free as the business was purchased at an attractive valuation of 6x the enterprise value to free cash flow.
What happened?
Shortly after the onset of the COVID-19 pandemic, Subaru became supply constrained as it became difficult to source parts and components. In addition, the semiconductor manufacturers prioritized larger auto OEMs in allocating supply, constraining Subaru’s production even further. While this situation would eventually resolve itself, interim cash generation was poor. Given that our production growth thesis was impaired, we reallocated our Subaru position to higher-conviction ideas.
Subaru's holding-period return* was -32.35%.
*May 11, 2017 to December 2, 2022.
2022-12-12: Fidelity National Information Services, Inc. (FIS)
What it does
International technology and solutions provider for the financial industry
Why we liked it
FIS was a leader in helping banks digitize processes. From core banking offerings such as deposit taking to more specialized offerings like trading platforms, FIS had built a reputation for delivering high-quality products. It was well known that it was less expensive for small- and medium-sized banks to outsource to FIS than try and build the services in house. Our proprietary view was that large banks, for the first time, were going to start procuring FIS’s digital offerings instead of building them in house. This would result in a long runway for growth for FIS that we thought the market wasn’t pricing in.
What happened?
Large banks started procuring FIS’s offerings and growth accelerated. However, just as our thesis was playing out, FIS made a substantial acquisition in the payments space. Payments was a new business for FIS, and it was attracting a lot of competition. As time went on, we came to believe that FIS made a mistake by acquiring the payments business and that the mistake was substantial enough to negate the benefits of their move into the large-bank space.
FIS's holding-period return* was -10.38%.
*June 21, 2018 to December 12, 2022.
2023-01-30: DISH Network Corp.
What it does
International technology and solutions provider for the financial industry
Why we liked it
Originally a television (satellite and over-the-internet) TV service provider, DISH was building its own mobile-wireless network that the market wasn’t pricing into the shares. A traditional wireless network is difficult to set up, but DISH focused on software rather than hardware as the system’s foundation. Existing towers would be used as relays and the computing work would be done using cloud-based computing.
What happened?
As interest rates increased quicker than expected, it became harder for DISH to access capital. While the value of its wireless spectrum assets remained material relative to the market price of the securities, the timeline and path to realising that value became much more opaque.
DISH’s holding-period return* was -34.2%
*December 23, 2020 to January 30, 2023.
2023-03-28: Signature Bank
What it does
U.S. commercial bank with branches in five states
Why we liked it
Signature was one of the lowest-cost, most-efficient banks in the U.S. Its expense ratio (costs divided by revenue) was half of the industry average. Its loan losses were significantly lower than the banking industry average, while none of its growth came from acquisitions. We believed future growth could come from expansion to other states and in its home state of New York, where it only had a 3% deposit market share.
What happened?
Unfortunately, Signature was impacted by problems at Silicon Valley Bank (SVB), which had suffered a deposit run as technology and venture capital companies pulled deposits. SVB lost 25% of its deposits in 24 hours, which caused increased scrutiny on other banks with large deposits exceeding the FDIC’s US$250,000 insurance limit. Signature’s business model of having apartment owners and law firms as banking clients meant that most of their deposits were also above the FDIC limit. An external event at another bank created a crisis of confidence in the entire sector that led depositors to flee to JPMorgan and other “too-big-to-fail” banks.
Signature’s holding-period return* was -99.5%
*July 22, 2022 to March 28, 2023.