A best ideas approach to investing.
The frenetic buying and selling of securities among investment managers all but ensures mediocre long-term performance.
Constantly churning the portfolio adds frictional costs, increases investor taxes, elevates risk, and disrupts the most powerful force for wealth creation: the long-term compounding of your capital.
At the Alchemist Fund, we practice a best ideas approach.
We search across asset classes, industries and geographies for mispriced securities that support our objective to significantly outperform the market while deliberately limiting our risk of permanent loss. When the market presents us with such an opportunity, we invest with conviction.
We invest for the long term.
Most managers are focused on their annual or quarterly performance; searching for investments they hope will generate above-average returns over the next few months. This short-term orientation causes managers to constantly second-guess their investment decisions, leading to high turnover and weak returns.
When the rest of the industry is focused on near-term performance, a true long-term orientation is a powerful advantage.
At the Alchemist Fund, we seek to cut through the noise to focus on what really drives the underlying business. Once a security is purchased, we maintain a focus on the underlying economics of the business to inform us of our success, knowing that attractive economics will eventually be acknowledged by the market.
Your Manager Is Invested Alongside You
We believe our interests are most closely aligned with those of our clients when the principal’s own capital is invested on the same basis as the Fund’s clients.
Kingman Penniman, Jr., your manager, invests his and his family’s investable wealth in The Alchemist Fund, alongside his client’s.
Managing risk is our first thought
Not an afterthought.
Whereas many managers define risk based on price volatility relative to an index, we define risk in absolute terms: the probability and possible extent of permanent loss.
To assess risk, we thoroughly analyze the balance sheets of our businesses, the durability of their competitive positions, our ability to accurately appraise the long-term economics of the businesses, and the certainty with which management can be relied upon to allocate capital wisely and act in the interests of long-term owners.
If the business fundamentals are able to meet our hurdles, we proceed only if we are able to purchase the business at a significant discount to our appraisal of intrinsic value. This margin of safety provides downside support if the economics of a business evolve toward our weak-case scenario.
A flexible mandate allows us to be opportunistic.
Most funds pursue a narrow strategy that fits neatly into style-boxes favored by consultants and industry observers. Managing to such a rigid mandate inevitably results in forced ownership of an expensive asset class over the course of a cycle, increasing risk.
The Alchemist Fund maintains a flexible and opportunistic mandate.
We are able to invest across asset classes, geographies, and in businesses large and small as opportunities shift. The Alchemist Fund also utilizes cash as a natural hedge when valuations are excessive. This strategy is of tremendous value when financial markets inevitably cycle downward and attractive opportunities arise.
Choice of Fee Structure
An alignment of incentives.
We believe investors should have a choice when it comes to fees. The Alchemist Fund is able to offer qualified investors a choice of fee structures. They are:
An annual management fee equal to 2% of assets under management. Or;
Investors are provided the first 6% of annual returns at no charge. Returns in excess of 6% are shared between the client and the Fund on a 3:1 basis. (Available to qualified investors). Or;
Returns generated in excess of the Standard & Poors 500 Index over a three year period are shared between the client and the Fund on a 2:1 basis. In addition, a 0.5% annual management fee is charged. (Available to qualified investors).