About
Background
Woodbridge Capital Management is the general partner of Woodbridge Capital Partners I, LP, a value-oriented, long-biased fund that focuses primarily on U.S. equities.
WCM was founded by Jesse Flowers and Kyosuke Mitsuishi while they were students at Columbia University in 2018. WCM is committed to generating superior long-term returns for partners through a consistent and disciplined approach. The current fund managed by WCM — Woodbridge Capital Partners I, LP — has returned 167.5% since inception (4/7/2020 – 3/31/2024) while the S&P 500 returned 116.7% over the same period with dividends reinvested.
Our Investment Philosophy
Stocks make the best long-term investment
Stocks make the best investment because they have historically delivered the highest return of any asset class and because over the long term they are one of the safest investments. In 1929 the stock market crashed and the worst recession in U.S. history began. Nevertheless, a $1,000 investment in the S&P 500 (with dividends reinvested) in 1928 would have grown to over $5 million by 2020. That is an annual return of 9.7% annually before taxes and inflation. A similar investment in 10-year U.S. Treasury bonds, for example, would have compounded to only $8,012.89.
Stocks make the best long-term investment
A stock’s price converges to its intrinsic value over the long term
The value of any asset is the present value of its expected future cash flows. In the short term stock prices are often fueled by emotion, but in the long term they must reflect the value of the underlying business. Therefore, if we assess the value of a company correctly the stock price will eventually move accordingly. In our assessment of candidate companies we look at a wide range of available information including past earnings reports, management biographies, employee incentive programs, insider transactions, and dissenting opinions. It is important to keep in mind that patience is a crucial component of this process; one must be able to tolerate short-term price fluctuations. If a strategy worked every day of every year then everyone would do it, and it would no longer work.
A stock’s price converges to its intrinsic value over the long term
Preseve Capital First
The objective of investment success is so important to us, both personally and as a moral obligation to our partners, that we avoid any situation that would jeopardize that goal. Before making any investment decision we think first about what we could lose, then second about what we can gain. For this reason we rarely use leverage — and only to a limited extent when we do — as a margin call turns a temporary loss into a permanent loss. Even if we short, we do so through options that limit losses. The economist John Maynard Keynes said that “the market can stay irrational longer than you can stay solvent.” Financial history is filled with the obituaries of investment funds that failed to heed his warning.
Preserve capital first
Why Value Investing?
Value investing has a long history of delivering excellent results and has been applied by many successful investors such as Warren Buffett, Joel Greenblatt, and Michael Burry, to name a few.
Historically, companies with high earnings yields (equivalent to low P/E) have outperformed the market. This can be seen in Exhibit A below. Exhibit B shows the hypothetical returns of investing in those companies which had the highest earnings yields and highest returns on capital (a high return on capital is often an indicator of a high-quality business) between 1988-2019. The results are striking and demonstrate the inherent link between stock prices and business fundamentals over the long term. By focusing on companies with a high earnings yield and a high return on capital, and then supplementing that with rigorous research, we have been able to outperform the market significantly since inception.
EXHIBIT A
Exhibit B
How Do We Compare to Other Investment Options?
Those interested in participating in the stock market have a few options available to them. Two of the most popular are index funds and mutual funds.
Stock market indices are a great way to guarantee a performance equal to that of the market while incurring minimal fees. However, stock market indices make the systematic mistake of buying more of a stock as it gets more expensive and selling as it gets cheaper.
Mutual funds, on the other hand, actively seek out stocks that they believe will outperform. However, most institutional money managers face significant pressure to perform well in the short term because investors are generally impatient. As predicting stock prices over the next week or even quarter is nearly impossible, many managers play it safe by simply mirroring an index like the S&P 500.
Moreover, due to the sheer size of many institutional funds, the universe of stocks accessible to money managers is often restricted to mid and large-cap companies. Unsurprisingly, many of the mispriced stocks are smaller companies that are overlooked by the majority of investors. In addition, mutual funds face many limitations on what sort of trades they are allowed to make, which can hamper their returns and make them particularly vulnerable in the event of a market decline. Our small size and long-term investment horizon are two of our most significant advantages.
Aligned Incentives
Fee structure is critical for aligning the interests of managers with those of partners. Most financial advisors and mutual funds charge fees based on a percentage of the assets they manage, regardless of how they perform. As a result, they have little incentive to deliver superior investment returns. Performance to them is only a secondary concern; it is important insofar as it allows them to attract and retain investors. As such, their investors often receive mediocre performance for a hefty fee.
We, on the other hand, do not charge fees based on a percentage of assets under management. We hope that eschewing incentives which do not align our interests with those of partners will demonstrate our commitment to continue delivering superior returns.
Thank you for your interest in Woodbridge Capital Management. We hope that this brief summary of our investment philosophy and research process will be a useful aid when making your next investment. We pledge to maintain our dedication to the investment success of our partners.