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Investment Philosophy

38x Holdings is a fundamentally-oriented investment firm that follows a research-intensive, concentrated strategy. We invest globally in companies that dominate their niche and that face few competitors or substitute products.

 

These companies are usually well-known to the market to be high-quality, so we wait for their share prices to "glitch" and then invest into them with conviction. 

 

It is almost certain that we will not achieve our objective of compounding our clients' capital at 20% per annum over the long run (this is a very, very ambitious objective). However, we started 38x Holdings with a clean slate and asked ourselves "If an investment firm were to try to achieve this, what would / wouldn't the firm do?"

Our core beliefs are that it's impossible for a manager to compound at 20% net to investors over time if:

  • The manager charges exorbitant fees. We minimize our fees to maximize your returns. 38x Holdings does not charge a performance fee and our management fee declines annually for each investor as a form of loyalty discount. For more information please read 38x Holdings' article on fees and / or contact 38x Holdings directly.

  • The manager runs massively underinvested (e.g. if he/she only invested $20 into equities for every $100 of client assets, and put the other $80 into cash). 38x Holdings typically invests with a >100% gross long exposure. Investors can alternatively choose to invest in our long only strategy, which has the same long positions as in the long/short structure. We believe this is a better way of investing than the traditional hedge fund structure (whereby many hedge funds run underinvested in their long book, despite having downside protection from their short book). For more information please contact 38x Holdings directly.

  • The managers' equity investments appreciate at a rate substantially lower than 20% per annum over the long-run (since consistently timing when to buy & sell stocks is a fool's game). Our portfolio holdings won't compound at 20% if they act fraudulently, get disintermediated, make poor capital allocation decisions or simply can't grow their free cash flow per share by 20% over time. So, we focus only on monopolistic companies run by capable, honest & aligned management teams and with a large runway to reinvest capital internally at attractive rates of return.

 

Our strategy is "long-biased". We have a concentrated portfolio of 4-10 core long positions. We will never hold large cash positions, we don't have views on most macro-economic events, and we usually eschew the use of derivatives. We believe time in the market is more valuable than timing the market. A small percentage of companies generate the majority of total market returns and we expect the same will be true within our portfolio.

"The single most important decision in evaluating a business is pricing power. If you've got the power to raise prices without losing business to a competitor, you've got a very good business. And if you have to have a prayer session before raising the price by a tenth of a cent, then you've got a terrible business. I've been in both, and I know the difference."

- Warren Buffett

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