Whitney R. Tilson phone: 212 277 5606 Managing Partner WTilson@KaseCapital.com
Carnegie Hall Tower, 152 West 57th Street, 46th Floor, New York, NY 10019
January 28, 2013Dear Partner:I hope you had wonderful holidays and wish you a happy new year!In each annual letter (this is my 14
th
) I seek to frankly assess
the fund’s
performance, reiteratemy core investment philosophy, and share my thoughts on various matters. In addition, I discloseall of
the fund’s
long positions and in Appendix A explain my thinking behind each one so youcan better understand
why I’ve purchased
these stocks, how I invest, and why I am veryconfident in our fund
’
s future prospects.
Now that I’m managing money solo, I’ve adopted the name “Kase”, so our fund is now
doingbusiness as
the Kase Fund. The letters of “Kase” come from the four most
important people inmy life: my wife, Susan, and three daughters, Alison, Emily, and Katharine. May they bring all
of us as much good fortune as they’ve brought me!
Also, please note our new address and phonenumber on this page.
Performance
Our fund was down slightly in 2012, significantly lagging the major indices, as this table shows:
December 4
th
Quarter Full YearTotalSinceInceptionAnnualizedSinceInception
Kase Fund (net) 0.1% -3.0% -1.7% 110.6% 5.5%
S&P 500 0.9% -0.4% 16.0% 49.8% 2.9%Dow 0.8% -1.7% 10.2% 98.0% 5.0%NASDAQ 1.0% -2.3% 17.6% 45.3% 2.7%
Past performance is not indicative of future results. Please refer to the disclosure section at the end of this letter. The T2Accredited Fund (dba the Kase Fund) was launched on 1/1/99.
-2-
This chart shows our
fund’s net
performance since inception:
Past performance is not indicative of future results.
And this table shows our
fund’s net
performance by month since inception:
Past performance is not indicative of future results.Note: Returns in 2001, 2003, and 2009 reflect the benefit of the high-water mark, assuming an investor at inception.
-40-20020406080100120140160180200Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
(%)
Kase Fund S&P 500
Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&P Kase S&PFund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500 Fund 500January 7.8
4.1
-6.3
-5.0
4.4
3.6
-1.8
-1.5
-5.5
-2.6
4.7
1.8
1.1
-2.4
1.9
2.7
2.4
1.7
1.9
-5.9
-3.6
-8.4
-1.6
-3.6
-2.8
2.4
12.6
4.5
February -2.9
-3.1
6.2
-1.9
-0.6
-9.2
-1.1
-2.0
2.9
-1.6
7.0
1.5
2.1
2.0
-3.1
0.2
-3.3
-2.1
-6.9
-3.3
-8.9
-10.8
7.3
3.1
4.1
3.4
-0.8
4.3
March 4.1
4.0
10.3
9.8
-2.6
-6.4
3.0
3.7
1.4
0.9
3.9
-1.5
3.9
-1.7
3.9
1.3
-0.8
1.1
-2.3
-0.5
2.9
9.0
4.6
6.0
-4.1
0.0
10.9
3.3
April 2.1
3.7
-5.1
-3.0
5.1
7.8
-0.2
-6.0
10.5
8.2
2.4
-1.5
0.6
-1.9
2.2
1.4
4.4
4.6
-0.9
4.9
20.1
9.6
-2.1
1.6
1.9
3.0
1.3
-0.6
May -5.7
-2.5
-2.8
-2.0
1.8
0.6
0.0
-0.8
6.6
5.3
-1.4
1.4
-2.6
3.2
1.8
-2.9
2.5
3.3
7.9
1.2
8.1
5.5
-2.6
-8.0
-1.9
-1.1
-13.6
-6.0
June 2.2
5.8
4.1
2.4
4.6
-2.4
-7.3
-7.1
2.9
1.3
0.1
1.9
-3.1
0.1
-0.2
0.2
-3.0
-1.5
-1.2
-8.4
-5.0
0.2
4.5
-5.2
-2.4
-1.7
0.5
4.1
July -0.7
-3.2
-3.6
-1.6
-1.1
-1.0
-5.0
-7.9
2.3
1.7
4.6
-3.4
0.5
3.7
-0.9
0.7
-5.4
-3.0
-2.5
-0.9
6.8
7.6
3.5
7.0
-4.6
-2.0
0.2
1.4
August 4.1
-0.4
5.4
6.1
2.5
-6.3
-4.3
0.5
0.4
1.9
-0.9
0.4
-3.2
-1.0
2.9
2.3
1.7
1.5
-3.3
1.3
6.3
3.6
-1.5
-4.5
-13.9
-5.4
-7.2
2.3
September -3.3
-2.7
-7.2
-5.3
-6.1
-8.1
-5.4
-10.9
1.7
-1.0
-1.6
1.1
-1.5
0.8
5.0
2.6
-1.1
3.6
15.9
-9.1
5.9
3.7
1.7
8.9
-9.3
-7.0
0.0
2.6
October 8.1
6.4
-4.5
-0.3
-0.8
1.9
2.8
8.8
6.2
5.6
-0.4
1.5
3.5
-1.6
6.3
3.5
8.2
1.7
-12.5
-16.8
-1.9
-1.8
-1.7
3.8
7.0
10.9
1.6
-1.9
November 2.8
2.0
-1.5
-7.9
2.3
7.6
4.1
5.8
2.2
0.8
0.8
4.0
3.1
3.7
1.9
1.7
-3.6
-4.2
-8.9
-7.1
-1.2
6.0
-1.9
0.0
-0.6
-0.2
-4.5
0.6
December 9.8
5.9
2.3
0.5
6.5
0.9
-7.4
-5.8
-0.4
5.3
-0.2
3.4
-1.3
0.0
1.4
1.4
-4.3
-0.7
-4.0
1.1
5.5
1.9
0.5
6.7
0.1
1.0
0.1
0.9
YTDTOTAL31.0 21.0 -4.5 -9.1 16.5 -11.9 -22.2 -22.1 35.1 28.6 20.6 10.9 2.6 4.9 25.2 15.8 -3.2 5.5 -18.1 -37.0 37.1 26.5 10.5 15.1 -24.9 2.1 -1.7 16.02004 20112005 2006 2007 2008 2009 2010 20121999 2000 2001 2002 2003
-3-
After 11½ strong years, the fund has lagged badly over the last 2½ years. To turn things around,
I’ve made many chan
ges (discussed below), most importantly returning to my roots of managingmoney solo.In June, Glenn and I decided to each run our own funds, and began doing so on July 1
st
. As partof this process, I took our fund to cash so that I could rebuild the portfolio from scratch.However
, I wasn’t able to exit a handful of illiquid positions, most notably the Iridium warrants
,
which impacted performance in the second half of the year, but today I’m pleased to say that
theportfolio is where I want it, conservatively positioned in my very best ideas. My mind is clearand focused on the long term,
and I’m looking forward with confidence and optimism.
These feelings were bolstered recently when Netflix, which is by far the most controversial andheavily shorted s
tock we own, reported blowout earnings and the stock rose 71% last week (it’s
more than tripled since its lows of last summer). Thanks in large part to Netflix, our fund is upnearly 4% so far this month, despite its very low gross and net exposure, so 2013 is off to a solidstart (all data and prices in this letter are as of the market close on 1/25/13).
Longs
Since I took over as sole portfolio manager seven months ago, I have purchased/repurchasedonly eight stocks, seven of which have risen
–
and are currently the seven largest positions in thefund (we took a small loss on Apple, which I sold). If I can maintain an .875 batting average overtime, we will do very well indeed.
I am pleased with the fund’s concentrated yet well
-diversified long portfolio, which I believewill substantially outperform the market over time. Here is a list of every long position the fundholds today, ranked in descending order of size (each is discussed in Appendix A):1.
Berkshire Hathaway2.
AIG3.
Howard Hughes4.
Citigroup5.
Goldman Sachs6.
Netflix7.
Canadian Pacific8.
dELiA*s9.
Grupo Prisa10.
Iridium11.
Spencer Holdings (private placement)12.
Japan side fund (private placement)13.
Spark NetworksNote that the illiquid legacy positions that hurt our performance in the second half of 2012
–
most notably, dELiA*s, Iridium, and Grupo Prisa
–
were approximately 30% of capital on July1
st
, but are now under 10%. With the benefit of hindsight, I of cours
e wish that I’d sold more of
them last summer
, but today I think they are attractive “mispriced options” that will do well from
current depressed levels.
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