I
NCANDESCENT
C
APITAL
28-07 Jackson Ave, 5
th
Floor
• New York, NY 11101 • 64
6-912-8886
•
March 31
st
, 2023
Dear Investor
i
: Our portfolio declined -2.40% in Q4 of 2022
versus the S&P 500’s
rise of 7.57%. The charts below show our performance figures year-to-date and since inception:
Incandescent S&P 500 2022 Year
-27.09% -18.10%
Since Inception (2013)
165.12% 226.68%
CAGR 10.24% 12.56%
0%50%100%150%200%250%300%350%
J a n - 1 3 J u n - 1 3 N o v - 1 3 A p r - 1 4 S e p - 1 4 F e b - 1 5 J u l - 1 5 D e c - 1 5 M a y - 1 6 O c t - 1 6 M a r - 1 7 A u g - 1 7 J a n - 1 8 J u n - 1 8 N o v - 1 8 A p r - 1 9 S e p - 1 9 F e b - 2 0 J u l - 2 0 D e c - 2 0 M a y - 2 1 O c t - 2 1 M a r - 2 2 A u g - 2 2
Returns Since Inception
Incandescent S&P 500 Total Return(15.0%)(10.0%)(5.0%)0.0%5.0%10.0%15.0%J F M A M J J A S O N D
Last 12 Monthly Returns
Incandescent S&P 500 Total Return
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I
NCANDESCENT
C
APITAL
Customary Preamble & Portfolio Breakdown
For the benefit of new investors receiving this letter, allow me to repeat what I’ve written in
previous memos: short-term performance numbers as precise as the ones given above should be taken with a grain of salt. Industry standards compel me to report the numbers, but philosophically, I think of our investments like a business owner, and business owners are typically not in the habit of running out and getting valuation opinions on their enterprises on a monthly basis. Indeed, the only times that price should matter is 1.) when a business is being bought, and 2.) when a business is being sold. I generally save discussions of specific securities for my annual letter (although this is not an iron clad commandment as I will occasionally bring up names as examples for a discussion topic
I am musing on). The reason behind the “secrecy” is multi
-fold. 1.
We often traffic in illiquid securities whose price can easily be manipulated with a few hundred shares, 2.
This letter goes out to people who are not currently invested with us and I do not want to promote to them a long/short recommendation that I would not be accountable to if/when the facts change, and 3.
It helps me avoid the psychological bias of wanting to defend a position just because I made it public, even if circumstances change and I ought to reverse course. Item number three is probably the most important. Value investing is a constant battle against emotions and irrationality, and erecting psychological defenses against innate human biases is critical
1
. It naturally becomes more difficult to admit mistakes if ego gets involved, and believe
me, mistakes will be made. So it’s far better if I simply no
t go there at all. Final housekeeping item to note: Depending on when your account was on-boarded, your results may differ slightly from the main reference account reported above. It takes a bit of time to sync each account to the same exposure as I buy/sell according to the ebb and flow of the market. Your patience is asked for as I tune your individual portfolios, but rest assured: what you own, I own. I am committed to eating my own cooking
2
. ***
1
Charlie Munger has called understanding the psychology of human misjudgment a “superpower”
.
2
The main reference account Interactive Brokers statement is available upon request from any investor.
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I
NCANDESCENT
C
APITAL
Portfolio Review
Here are our positions sizes by percentage and their geographic split as of the end of the quarter:
And here are our positions broken down by investment “type” and by sector:
As a reminder: “Compounders” are businesses I believe have long, predictable runways for growth that we’ve invested in at fair, if not arguably bargain prices. “Mispriced” are businesses
undergoing transformation or have fallen out of favor with the market and are thus in my opinion widely misunderstood and misvalued.
22.9%13.9%12.5%8.9%7.8%14.6%
Position Size by %
Cash
8.7%91.3%
Geographic Split
Canada USA
Mispriced37.7%Compounders62.3%
Investment "Type"
Tech9.2%Financials32.8%Power16.8%Consumer Cyclicals17.9%Telecom11.7%Other11.6%
Sectors