July 1, 2021
Dear Friends and Clients,
I am pleased to report another positive quarter for the Intrepid Capital Fund (“the Fund”), with results of +6.29% for calendar Q2. This brings calendar year-to-date results to +11.93%. This compares favorably to the Fund’s benchmark, which consists of a similar blend of stocks, bonds, and cash that had a return of +5.20% for calendar Q2 and +8.84% for calendar YTD. Our activity was very muted compared to the similar period last year. Then, unlike now, volatility was high, fear rampant, and prices lower. Many securities we purchased last year, both stocks and bonds, have led to these results.
In a world now “anchored” by the 10- year Treasury yielding less than 1.50%, I am now hearing a refrain that was popular over twenty years ago, prior to the “Tech Bubble” bear market of 2000-2002, which is T.I.N.A. aka “There Is No Alternative” to owning stocks with returns barely visible on cash/money markets accounts. Well, that period didn’t end so well for many market participants at the time either.
I bring this up because there is always an alternative, it is simply a question of how far afield you are willing to go to find it. Housing, Bitcoin, crude oil, corn, copper are just few that come to mind that have done well since the pandemic lows of March 2020 and the subsequent Federal Reserve intervention in the capital markets.
Some of the activity in “Meme” stocks such as AMC Entertainment also gives me pause. Traders utilizing Robinhood have focused on companies in which a large percentage of shares are sold short. Then they can “hit the bid” enough as a group and watch the shares soar as those shorting the shares scramble to cover their short positions in an effort to cut their losses. On the other side of the table, so to speak, the CEO of AMC Entertainment has both issued new shares, taking shares outstanding from 104 million to 534 million, as well as sold his personal shares into this feeding frenzy. I guess you could say in this situation, much like youth soccer, everyone is a winner!
This game of musical chairs continues to be predicated on the omnipresent and all-knowing Federal Reserve. I continue to contend that the faith required in the “Fed” to steer an 18 trillion-dollar US economy with a short-term interest rate is one in which I am skeptical for a Goldilocks outcome. I feel certain I am in the minority here. I will point out for the good of the order here, I was able to navigate both the “tech bubble” and “financial crisis” half a dozen years apart with similar skepticism.
One change we have discussed in the past is an effort to “water our flowers” and allow the magic of compound interest to work for us. This is even more timely in light of the sea change in the control of the House of Representatives, Senate, and the US Presidency and the proposed tax increases on high income earners and investors, which are often one in the same. By deferring transactions, we can hopefully defer tax liability. Keep in mind one part (and a large one at that!) is the proposed elimination of the “stepped up basis,” effectively requiring capital gains taxes at death, as opposed to allowing those inheriting the asset to take a “step up” with new costs being established the day assets were passed on to them. If this were to pass, it would wreak havoc on farmers, small business owners, and others with interests in assets that do not trade in a readily liquid market. Time will tell on this one.
As an alternative to a singular investment in the S&P index and the corresponding dividend yield of ~1.5%, the Fund’s portfolio of stocks and bonds offered a higher income from the combination of the above, with some risk reduction as stocks currently comprise roughly 70% of the portfolio. I do believe those seeking more income than a singular equity index may find it here.
Looking forward, we are happy with our current holdings and continue to believe that management of these companies will compound capital at attractive rates. The “fly in the ointment” is, as is often, Washington, with whatever legislative or Federal Reserve changes occur that the financial markets view unfavorably.
Thank you for your continued support. If there is anything we can do to assist you, please don’t hesitate to call.
Top 5 Contributors for the quarter:
- Skechers (SKX) +19.48%
- Alphabet (GOOGL) +18.39%
- Copart (CPRT) +21.38%
- Jefferies (JEF) +14.32%
- Great Western Petroleum 12% 9/01/2025 (Bond) +16.49%
Bottom Detractors for the quarter (only 2 securities were down during the quarter!):
- Turning Point Brands (TPB) -12.16%
- Trulieve Cannabis (TRUL CN) -17.52%
Mark F. Travis, President
Intrepid Capital Fund Portfolio Manager
Mutual fund investing involves risk.
All investments involve risk. Principal loss is possible. The Fund is subject to special risks including volatility due to investments in smaller companies, which involve additional risks such as limited liquidity and greater volatility. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments by the Fund in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. The Fund may invest in foreign securities which involve greater volatility and political, economic and currency risks and differences in accounting methods. The risks of owning ETFs generally reflect the risks of owning the underlying securities they are designed to track. ETFs also have management fees that increase their costs versus the costs of owning the underlying securities directly.