Old West Investment Management Q1 2022 Letter to Investors


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Dear investor,

The first quarter of 2022 could be described as “all hell breaks loose” as inflation soared and war broke out in Europe. The stock market held up quite well with the S&P 500 down 4.6%. In In addition to stock market losses, the bond market recorded its largest quarterly loss, down 5.58%, which surpassed the previous record loss of 5.4% in 1980. The bull market in US Treasuries which has started in 1981 finally came to an end, as the Bloomberg Barclays US Treasury Index fell 22% from its peak in March 2020. The 10-year Treasury hit a low of 0.318% at that time. It was a nearly 40-year run for the bond bull market, the longest in history.

Old West portfolios had a terrific quarter with our segregated long only accounts up 12% to 18% and our LPs up 14.5% to 23% net of all fees.

We can now see how ridiculous past Fed policy has been, with Fed officials not happy that inflation was below their 2% target. For years I have asked what is wrong with no inflation or very little inflation. I compared Fed officials to Dr. Frankenstein mixing chemicals in the lab. Watch what you want. The inflation genie is out of the bottle and there will be a lot of pain trying to control it.

The war in Ukraine only exacerbates the situation because “the breadbasket of Europe” is besieged. No one knows how this war will play out, but consumers around the world are the big losers. Whether it’s paying $120 to fill your tank or emptying store shelves, I think a recession is inevitable given these cost pressures. Americans used to feel good for the past two years thanks to government assistance during Covid, but now the money has run out and people are starting to max out their credit cards again.

In my year-end letter, I said the stock market was the most expensive in history by most metrics, and it’s impressive that it’s only 5% off its all-time high. However, the S&P 500 masks the carnage suffered by many stocks in the quarter like Netflix (NFLX) down 38%, Paypal (PYPL) down 30%, Facebook (FB) down 26% in one day and the NASDAQ down 20% from its high. I didn’t like the market outlook heading into the new year and I like it much less today.

I am extremely grateful to our talented and hardworking team who continue to come up with original research and action ideas that have generated outstanding performance. When our partner Brian Laks first recommended investing in uranium mining five years ago, you rarely heard of the many benefits of nuclear energy. Today, it is widely accepted that nuclear energy is crucial in the fight against global warming. There are many other examples of investments we’ve made that aren’t popular and never mentioned on CNBC. We have stubbornly owned gold mining stocks for several years, and with what is happening on the inflation front as well as the war raging in Europe, gold is once again seen as the ultimate safe haven. . Our contrarian thinking and intense research has allowed us to outperform the market.

I’ve always been drawn to boring companies in boring industries, especially companies that are growing revenue and revenue and have strong balance sheets. bunge ltd. is one of the largest agricultural companies in the world. My description of boring refers to the market’s love of tech stocks over the past decade, with stocks valued on multiples of revenue and earnings far into the future, if ever.


Bunge (pronounced BUN-GEE) Ltd (BG) is one of the largest food and beverage companies in the world. Four global companies dominate the sector, the others being Archer-Daniels-Midland Cargill and Dreyfuss. One of our favorite ways to filter out new ideas is to track insider buying. When I saw the Form 4 filed by new Bunge CEO Greg Heckman, his $9 million purchase of BG stock intrigued me. My first thought was that the company had given him the shares as a signing bonus. I contacted BG Investor Relations and asked if it was a signing bonus or if Heckman had in fact written a check for $9 million. IR assured me that it was his own hard-earned money that he invested in the business he was about to run.

Heckman was a longtime executive at Conagra Foods who clearly sensed an opportunity at BG. One of his first decisions as CEO was to move the company’s headquarters from New York to St. Louis, right in the middle of America’s breadbasket. BG had been plagued for years by poor decisions made by underperforming management. Heckman’s decision to move to St. Louis was indicative of a pragmatic style, and he would begin cutting expenses and selling non-essential assets.

BG’s activities extend from the farmer to the consumer. The company is a leading producer of oilseeds, vegetable oils and protein meals. It is a global grain processor, marketer of packaged vegetable oils, producer of wheat flour, baking mixes and dry-milled corn products. BG also produces sugar and ethanol in Brazil. The Company’s main businesses include Agribusiness, Edible Petroleum Products, Milling Products and Fertilizers segments.

The Agribusiness segment is an integrated global business involved in the purchase, storage, transportation, processing and sale of agricultural products. Agricultural activities are located in North and South America, Europe and Asia-Pacific.

The Edible Oil Products segment sells vegetable oils and fats, including cooking oils, shortenings, margarines, mayonnaise and specialty ingredients.

The Milling Products segment includes businesses that sell wheat flours, bakery mixes and corn products. These operations are located in North and South America.

The Fertilizer segment is involved in the production, blending and distribution of fertilizer products for the agricultural industry in South America, with operations in Argentina, Uruguay and Paraguay, and port facilities in Argentina and Brazil.

We first bought BG shares in June 2020 for $44 per share. At the time the company’s shares were trading at 10 times earnings, the market capitalization was $5.8 billion and the shares had a dividend yield of 5%. Today, the stock trades at $124 per share, has a market cap of $16 billion, and the PE ratio has fallen to 9, with earnings per share hitting $13 per share from $4.50 when Heckman took over.

CEO Heckman has done a masterful job of turning the company around. While EVERYONE is clamoring to buy tech stocks based on an earnings multiple, our contrarian bias draws us to companies with strong balance sheets and steadily growing earnings. BG has $4 billion in net debt, a debt-to-equity ratio of just 1.6, and a current dividend yield of 1.8%.

Revenue has grown more than 50% per year since Heckman became CEO.

The war in Ukraine will have a dramatic effect on the food supply. World wheat and maize production will be severely affected by the war, and since BG’s operations are heavily oriented to the Americas, BG will benefit from shortages and high prices. When investing, you are often surprised by an unknown event, and we have had them in our favor and against us.

When the price you pay includes a margin of safety, the risk of injury is minimized. One investment rule I believe in is “never sell a big company”. Greg Heckman could very well make Bunge a big company, which means we could own it for a very long time.

Thank you for your continued support and we look forward to an exciting end to the year.


Joseph Boskovich, Sr.

President and Chief Investment Officer

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Editor’s note: The summary bullet points for this article were chosen by the Seeking Alpha editors.


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