Monthly Letter April 2014

Some young men have a fear of being caught as a handholder in shopping malls with their girlfriends. We don’t care. Let them worry about their cool- ness if they want. At Madrague we hold on to anything that increases our con dence when we invest long or short in the market. Earnings are the most visible, but maybe the most elusive factor to hold on to. Very vis- ible to anyone with an internet connec on, but hard to get right. A fur- ther problem comes when you do get the earnings right: the fair mul ple is not an exact science. Changing risk premia, changing market environment, changing macro environment, changing rela ve valua ons are but a few reasons to why the valua on of a company could be plus or minus 20% of a perceived “fair value” without it being wrong. What we de nitely can say though is that the odds get skewed when the valua on is too far from that fair value.

The Madrague Eq. Long/Short fund consists of c100 posi ons. When we believe the market value deviates substan ally from the fair value we invest long or short. Our investment thesis is that the market over me is ra onal. We do however bear in mind Keynes infamous quote: “The mar- ket can stay irra onal longer than you can stay solvent”. If we are wrong we have our own saying: “It is never too late to panic”. You should read that as our way of saying that stop levels are never at the most opportune mes, but however costly we can always u lize them and nd new investment opportuni es.

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