Dear Partner,
In the third quarter of 2021, Woodbridge Capital Partners (the “Partnership”) returned -0.24% while the S&P 500 returned 0.58% (with dividends reinvested). Since its inception on September 1st, 2018, the Partnership has returned 128.40% compared to the S&P 500’s 56.96%.
This result represents a period in which both our portfolio and the S&P 500 were effectively flat. As far as quarterly returns are concerned, the market was hardly more active than money sitting in a checking account. This, however, is far from the case for the businesses in our portfolio.
During this period, one of our businesses engaged in major acquisitions valued at over a billion dollars, another announced a share buyback initiative with the intent of retiring approximately 10% of their market cap per year, while yet another is investing tens of billions of dollars in factory construction projects.
All of this isn’t to say that our businesses are on the brink of some explosive growth. In fact, we suspect that some of these ventures will not pan out in the way management envisions. Instead, our businesses’ constant pursuit of improvement serves as a reminder: We invest in businesses,
the stocks of which merely represent the market price of the right to a portion of their cash flows. With regards to these cash flows, our views have not changed much since the end of our last quarter. We estimate the earnings-yield on our portfolio to be well-over 10% which compares favorably to the market’s ~5% estimated forward yield. Our businesses’ superior yields continue to be well-protected by their competitive advantages.
At present, we consider the presence of inflationary pressures, some of which have already come to fruition, to be the most looming singular threat to the accumulation of wealth in the coming decades. The Fed claims that inflation will be transitory – and they may be right. Inflation might
subside as supply-chain bottlenecks are resolved. But we don’t feel comfortable ignoring, among other factors, the trillions of dollars in fiscal stimulus combined with the sharp rise in the Personal Saving Rate. We prefer to remain cautious and are positioned accordingly. Our diverse
set of investments includes both businesses that will benefit from sustained inflation and those that would prefer it be transitory.
We remain confident that the Partnership will outperform the S&P 500 over the long term. Over the short-term, your guess is as good as ours. Your patience and trust has been a blessing for which we are grateful. We do not take that trust lightly. If you ever have questions or concerns about your investment, please do not hesitate to reach out to us. As always, we remain committed to your investment success.
Thank you,
Kyosuke Mitsuishi & Jesse Flowers