Q1 2022 Investor Audibles: Laughing Water Capital, Greenhaven Road Capital, Alta Fox Capital

Episode Summary

Executive Summary: The transcript consists of sponsor reads followed by three 2022 Q1 investor letters (Laughing Water Capital, Greenhaven Road Capital, and AltaFox). Across all three, the managers argue that macro fear, rising rates, inflation, and war have depressed prices more than fundamentals. They defend concentrated holdings in special situations, software, and niche operating businesses, emphasize long-term compounding, insider/management alignment, and highlight several portfolio names they believe are materially undervalued.

Main Topics: Macro fear vs. business fundamentals (Priority: 5/5): All three letters frame Q1 2022 as a period where inflation, rate hikes, war in Ukraine, and recession fears drove broad multiple compression, but where underlying business fundamentals in their portfolios remained mostly intact. Long-term investing and process discipline (Priority: 5/5): Managers repeatedly stress patience, avoiding pundit noise, buying cheap businesses with temporary problems, and letting time and operating performance drive returns rather than short-term market sentiment. Portfolio-specific deep dives and catalysts (Priority: 5/5): Each manager discusses specific holdings, explaining why recent drawdowns are temporary and pointing to catalysts such as buybacks, asset sales, activist involvement, management changes, or accelerating growth. Special situations and structural mispricings (Priority: 4/5): Laughing Water Capital emphasizes special situations like AMIA, HMHC, and Countryside; Greenhaven highlights misclassified or misunderstood businesses; AltaFox focuses on underfollowed, underappreciated businesses with strong secular tailwinds. Shareholder alignment, insiders, and activism (Priority: 4/5): Insider buying, share repurchases, activist board changes, and management ownership are presented as evidence that management teams and shareholders are aligned and that capital allocation can improve outcomes. Portfolio underperformance as an opportunity (Priority: 4/5): Despite poor quarterly results, the letters argue that drawdowns have improved forward returns by lowering entry prices, increasing future upside, and creating optionality through cash or monetization events.

Key Arguments: Macro conditions are scary, but the investors argue that headline risk is often priced in long before sentiment improves. Owning businesses with strong secular tailwinds and temporary problems is preferable to reacting to pundit forecasts or holding cash out of fear. Several portfolio companies are materially undervalued because of short-term issues, classification errors, low liquidity, or misunderstood business models. Management actions such as insider buying, share repurchases, and activist board changes support the case that these stocks may be long-term winners. For many holdings, the downside is limited while the upside could be substantial if operations normalize or catalysts play out. Process and time horizon matter more than near-term market direction; the managers believe normalized earnings power will ultimately determine valuation. In special situations, corporate actions like sales, tender offers, or buybacks can unlock value even if the market remains volatile. Some names, especially software and platform businesses, are being penalized for temporary concerns despite continued growth and strong unit economics.

Data Points: Laughing Water Capital Q1 2022 return: -12.5% - Net after fees and expenses for Q1 2022 S&P 500 Q1 2022 return: -4.6% - Benchmark performance cited by Laughing Water Capital Russell 2000 Q1 2022 return: -7.5% - Benchmark performance cited by Laughing Water Capital Small cap index drawdown period: mid-November 2021 to mid-January 2022 - Laughing Water Capital notes small cap indexes entered a bear market in this window Portfolio companies with insider buying: about half - Laughing Water Capital says about half the portfolio saw insiders buy shares in the open market Portfolio companies with buybacks: about a third - Laughing Water Capital says about a third repurchased shares AMIA cash proceeds per share: C$5.58 - Expected proceeds from sale of minority investment in PLM AMIA stock price: a touch above C$5 - Laughing Water Capital notes the stock traded slightly above this level AMIA capital return commitment: $75 million - Company committed to return capital to investors via share repurchases MSOS ETF Q1 decline: more than 20% - Used as proxy for cannabis stocks in Laughing Water Capital letter Countryside potential float repurchase: roughly 36% to almost 50% - Estimated float retirement over two years, depending on activist-adjusted float HMHC sale price: $21 per share - Veritas Capital tender offer discussed in Laughing Water Capital letter HMHC believed strategic value: as much as $30 per share - Author’s estimate for strategic buyer value Thrive planned SaaS growth: more than 5x by 2027, then 4x again by 2032 - Investor day guidance discussed by Laughing Water Capital Transact stock decline in Q1: about 30% - Laughing Water Capital portfolio commentary Greenhaven Road Capital Q1 2022 return: -26.5% - Net return for the quarter Physical cash withdrawn by manager: enough for a prolonged cyber attack; half taken on spring break - Greenhaven manager describes personal precaution amid war/cyber fears KKR share price: $58.47 - Greenhaven cites quarter-end price KKR book value per share: $28 - Includes cash, unrealized incentive fees, Global Atlantic, and debt items KKR fee-paying AUM that is perpetual/non-redeemable: 44% - Greenhaven’s valuation and durability analysis KKR management fees growth: 44% last year - Cited as evidence of asset gathering strength KKR callable capital: over $100 billion - Future fee-generating dry powder PAR market capitalization: approximately $1.1 billion - Used in valuation discussion PAR installed base: 16,000 locations - POS system footprint Elastic revenue growth: 42% last quarter - Elastic core business performance Elastic cloud growth: 79% - Most important piece of Elastic business Teladoc valuation: approximately 4.5x this year's revenue - Greenhaven compares current multiple to pre-COVID and peak Digital Turbine device footprint: over 1.5 billion devices - Scale and distribution advantage discussed Digital Turbine management guide: triple revenues and 10x profits over 3-5 years - Long-term growth target cited AltaFox Q1 2022 gross return: -11.71% - Fund return for the quarter AltaFox Q1 2022 net return: -11.91% - Net return for the quarter AltaFox since-inception gross return: 561.7% - Since April 2018 AltaFox since-inception net return: 371.16% - Since April 2018 S&P 500 since-inception return: 84.18% - Comparator cited by AltaFox Russell 2000 since-inception return: 42.39% - Comparator cited by AltaFox NeoGames decline from highs: over 70% - AltaFox argues valuation disconnected from fundamentals NeoGames valuation: 9x 2023 earnings - AltaFox's described entry multiple Desecchi normalized forward FCFE yield: 20% - AltaFox valuation estimate Expel penetration of PPF on U.S. luxury vehicles: roughly 5% - AltaFox market-size discussion Expel penetration of PPF on total U.S. vehicles: less than 2% - AltaFox growth thesis Expel forward multiple peak to trough: from 60x to 18x - AltaFox says valuation compressed materially

Pivotal Quotes: "fear is not a strategy" — Laughing Water Capital: Used to argue against panic selling during macro turmoil "the optimists made the money" — Greenhaven Road Capital: Citing a Housel/market lesson that pessimists may sound smart while long-term optimists earn returns "buying high-quality and underfollowed businesses at cheap prices will deliver attractive, absolute, and relative returns" — AltaFox: Core articulation of AltaFox’s investment approach

Implications: The letters suggest that investors should expect continued volatility, but that current dislocations may offer attractive long-term entry points. They also imply that activism, buybacks, and disciplined fundamental research are likely to matter more than macro predictions.