Our competitive advantage lies in our twenty years of dedicated focus on selected industries married with our proven agility to seize security mis-pricings and market dislocations created by inefficient sectors and volatile investor sentiment.
When traveling to a new city, smart diners want to forgo the touristy restaurants promoted by tourguides in favor of restaurants where the locals eat. However, the truly savvy eaters seek out the restaurants where the chefs eat. While those restaurants may not always be the hottest, biggest or fanciest places featured on the cover of glossy magazines, they often serve among the best food. They have usually stood the test of time and have earned the chefs’ respect. So what does this have to do with Esplanade? Several hedge fund and other professional money managers (the “chefs”) are investors in Esplanade for their personal investments. We are proud that Esplanade has become a place where the chefs eat. Moreover, the chef writing this letter eats his own cooking, as my family is a large investor in both of our funds.
(2009 year-end letter)
We have shared two vignettes from our quarterly letters entitled “Esplanations”
While investor and media attention rightly fixates on high-flying and more viscerally appealing FANG (Facebook, Amazon, Netflix, and Google) shares, Esplanade instead concentrates on those existing and potential holdings we classify as OUCH:
Out-of-fashion
Undiscovered or Underfollowed
Cheap
Hated
OUCH opportunities generally offer significantly more potential outsized returns but are also generally disregarded by market participants who instead seek more beloved, less controversial, and more expensive positions. Though just one tactic in our rigorous investment strategy, OUCH screening has yielded some of the fund’s most profitable ideas.
(2018 second quarter letter)