Q4 2023 Investor Audibles: PFH Capital, Sohra Peak Capital, Old West Management

Episode Summary

Executive Summary: The transcript stitches together three annual investor letters that share a common value-investing mindset: patience, alignment, and a preference for underfollowed assets with asymmetric upside. Across gold, coal, uranium, select operating businesses, and macro commentary, the speakers argue that persistent U.S. deficits and geopolitical fragmentation are bullish for real assets, while disciplined selectivity and owner-operated companies remain the best path to long-term compounding.

Main Topics: Macro inflation, deficits, and currency debasement: PFH Capital and Old West both argue that persistent U.S. fiscal deficits, rising debt, and reduced foreign appetite for Treasuries will eventually drive higher inflation, currency weakness, and stronger demand for gold and commodities. Gold and precious-metal exposure: PFH frames gold as a reserve asset benefitting from a multipolar world and central-bank demand, while noting its exposure through Polymetal International and the possibility of substantial rerating if gold rises or assets are normalized. Coal and energy as undervalued inflation hedges: PFH increases exposure to coal through Natural Resource Partners, Whitehaven Coal, and similar names, arguing that coal remains necessary for steel and power and that market pricing remains too cheap relative to cash flow and asset value. Uranium and nuclear power thesis: PFH maintains that uranium fundamentals are tightening as inventories fall, demand for nuclear power rises, and supply must respond to support a larger reactor fleet over time. Patience, selectivity, and mentorship in investing: Both PFH and Sora Peak emphasize saying no, avoiding mediocre opportunities, and waiting for rare high-quality pitches; Charlie Munger is presented as the model for disciplined, low-activity capital allocation. Small-cap, off-the-beaten-path compounders: Sora Peak highlights its portfolio of underfollowed non-U.S. businesses with strong management and high returns on capital, arguing that mispricing is more common in less visible markets. Owner-operated businesses and concentrated portfolios: Old West emphasizes founder/owner alignment, highlighting U-Haul as a high-conviction example of a company run for long-term value creation rather than analyst-friendly optics.

Key Arguments: Persistent government deficits and rising debt supply create the structural conditions for inflation and eventual currency debasement. Gold becomes more attractive in a multipolar geopolitical world because central banks and reserve managers seek assets outside the U.S. dollar system. Polymetal remains compelling because the market is pricing in severe geopolitical risk while ignoring its Kazakhstan assets and potential cash value after restructuring. Coal still has meaningful long-term demand because steel production and electricity generation continue to require it, especially in Asia. Whitehaven’s acquisition of premier mines appears extremely cheap on earnings power, making the market’s reaction overly cautious. Natural Resource Partners offers both royalty-linked coal exposure and hidden optionality in carbon sequestration and other subsurface rights. Uranium supply/demand remains tight after years of underinvestment, and higher prices are needed to incentivize enough future production. The best investments are often found where public-market visibility is poor, investor access is limited, or the business is simply overlooked. Investors should avoid settling for 'good enough' when the goal is exceptional compounding; patience and discipline improve long-term outcomes. Owner-operators with massive personal stakes are preferred because their incentives are strongly aligned with outside shareholders. Concentration can be justified when a portfolio is built from a small number of high-conviction ideas with large upside and limited downside. Macro risks, including debt refinancing, commercial real estate stress, and passive-driven market concentration, increase the appeal of value and real assets over mega-cap growth.

Data Points: PFH 2023 new positions: 1 major new position in the first 11 months; 2 positions by year-end after December addition - PFH says it said no repeatedly and added very few new holdings in 2023. U.S. fiscal deficit (2023): $1.7 trillion - PFH cites the increase from $1.4 trillion to $1.7 trillion during fiscal 2023. Federal debt held by the public: $26.3 trillion - PFH notes debt rose from $24.3 trillion to $26.3 trillion in 2023. CBO debt-to-GDP outlook: Above 100% in 2024; above 180% by 2053 - PFH references long-run public debt projections. M2 money supply since Feb. 2020: More than a quarter of all U.S. dollars created in history - PFH argues monetary expansion has been extreme since 2020. Central bank gold buying: Record amounts in 2022 and 2023 - PFH uses this as evidence of reserve diversification away from dollars. Polymetal purchase price: Just over 1x 2021 earnings - PFH bought after the share price collapsed 90% in three weeks. Polymetal share price at year-end: About $4.50 per share - PFH says this approximated post-sale net cash, with Kazakhstan mines effectively free. PFH energy exposure: Increased from 37% to 42% - PFH expanded exposure to coal, oil, and uranium in 2023. NRP market cap at entry: About $700 million - PFH says implied yield was 20% to 40% based on expected future distributions. Whitehaven acquisition valuation: About 2x to 5x after-tax earnings for acquired mines - PFH models pricing under bullish vs bearish coal assumptions. Global Atomic second-half 2023 return: 41% - PFH says the uranium trade from stock to commodity worked well. Global Atomic valuation: Mid-single-digit multiple of roughly $100 million annual free cash flow - PFH frames this as attractive on long-term uranium pricing. Commercial uranium stocks: Down from 415 million lbs in 2018 to 250 million lbs end-2023 - PFH argues inventories are tight relative to demand. Uranium reactor count: 440 operable reactors - PFH uses this to contextualize current uranium demand. U.S. primary energy from nuclear: 4% - PFH notes current nuclear contribution is small relative to potential future growth. Sora Peak Q4 2023 return: 13.5% net - Sora Peak outperformed the S&P 500's 11.7% in the quarter. Sora Peak 2023 return: 82% net - The partnership had unusually strong annual performance. Sora Peak portfolio holdings: 13 holdings - The fund remained concentrated. Sora Peak top-five concentration: 74.5% - Higher than usual due to incoming subscriptions. Sora Peak non-U.S. exposure: 71% - The portfolio is heavily invested outside the U.S. Sora Peak average market cap: $269 million - Indicates a micro-cap/small-cap bias. Old West 2023 S&P 500 return: 24% - Benchmark performance cited in the year-end letter. Old West 2023 Russell 2000 return: 17% - Small-cap benchmark performance cited. Magnificent Seven contribution: 70% of S&P 500 gain - Old West highlights extreme market concentration. Buffett indicator: 180% - Old West says this is above the dot-com peak ratio of 159%. Apple valuation: 31x earnings - Old West notes Apple is expensive relative to history. Microsoft valuation: 36x earnings - Old West cites modest growth alongside a high multiple. Public companies losing money: 42% - Old West argues this resembles recessionary conditions. U.S. total government debt: $34 trillion - Old West says debt surpassed this level in the days before the letter. Treasury market vs banking system: 14% bigger - Old West uses this to illustrate scale of government financing needs. 2024 maturing debt: $7.6 trillion - Old West argues refinancing needs could pressure rates. Commercial real estate debt due: $500 billion in 2024 and another $500 billion in 2025 - Old West flags CRE refinancing as a major risk. U-Haul ownership stake: 55% - CEO Joe Schoen owns a controlling stake. U-Haul annual compensation: $1 million - Used to illustrate alignment with shareholders. U-Haul revenue (FY2023): $5.75 billion - Old West cites strong operating scale. U-Haul GAAP net income: $923 million - FY2023 profitability figure. U-Haul share price: $67 - Used to calculate valuation at 14x earnings. U-Haul P/E: 14x earnings - Old West argues it is attractively priced for a quality owner-operated business. U-Haul market cap: $12.8 billion - Current equity value cited in the letter. PAX Global IRR: 22% - Result from a sold position in the Hong Kong-listed company. Faisal Islamic Bank IRR: 25% - Return from the Egyptian bank investment before exit. Tethys Oil result: Approximately break-even net of dividends - Old West exited due to mature field decline risk.

Pivotal Quotes: "If you ask Charlie something and he says no, then we put all of our money in it." — Warren Buffett: PFH uses Buffett’s description of Charlie Munger to illustrate extreme selectivity. "You don't have to swing at everything, you can wait for your pitch." — Warren Buffett: Sora Peak cites Buffett to support patience and disciplined opportunity selection. "This is a slow-motion train wreck, with the primary uncertainty being time to impact." — PFH Capital: PFH describes persistent U.S. deficits and debt accumulation as the core macro risk.

Implications: The letters argue for a portfolio anchored in hard assets, owner-aligned businesses, and patience. For investors, the message is to resist crowded mega-cap trades, expect volatility, and look beyond mainstream markets for mispriced compounding opportunities.