Talguard

Talguard Value Fund LP 2017 Annual Letter

by Talguard•Monday, April 17, 2017

There are two stories here. One is about our continuing growth as more investors sign up to our compelling investment strategy. The other is about success and what we continue to achieve for those investors who have put their trust in us.

The Talguard Value Fund LP (“Talguard”) has tripled in size over the past 12 months.

But is that the whole story? Let me try to explain how and why we continue to prosper and the principles that make our investment strategy so resilient.

Photo of a bull - Wall Street 2017 Survival and Growth

The Stock Market growth has continued through the first quarter of 2017.

Survival, and Growth:
The Stock Market (“the Market”) fell in the three months leading up to the Presidential Election in the U.S. This was followed by a recovery and growth that has continued through the first quarter of 2017.

In the short term (typically less than 2 years), the Market as a whole goes up or down. But investing in a general spread of stocks means that to recover lost ground, and then progress, requires remarkable performance.

Our view is simply that there is a better way: that the Market will reward those who take the time to understand more about the companies they invest in – not just in terms of their immediate outlook – but in terms of their ability to generate returns. Concentrating investments here will, we believe, provide the maximum payback, in good times and in bad.

Our fundamental investment principle is to seek out companies that have a proven history of generating consistent levels of cash flow.

Too often, companies without this singular capability are over-valued. Why?

Sometimes because they promise to introduce a ‘disruptive’ approach – to change the world in their favor, through a new business model, new technology or both.

Sometimes they have charismatic executives, capable of headline-grabbing. Some are just great at PR, and are seen to have perceived potential even with negative income or non-existent revenue.

But potential is not enough to survive. In the short term, companies like these have to either borrow against that future potential, or to issue more shares. Either way, they increase the potential volatility of their existence with leverage, or they dilute shareholders’ investments with follow-on offerings.

Companies like these have a high risk profile, which means that they often fail to survive a business cycle downturn.

Our way of doing things is different.

We look for companies that have high cash flow, particularly ones that accrete value to their shareholders through share repurchases. Of course, as well as leading to higher earnings per share growth, a factor that will necessarily lead to increases in stock value, these companies have the ability to pay consistent - and often growing – dividends.

Companies that can do this over a longer period of time are rare. If they can be found though (and we think our performance shows that we can), it is worth maintaining faith with them. Only very special companies can maintain this kind of performance over a run of ten years or so. But it is precisely these companies that will remain financially healthy during inevitable downturns – either a recession in a particular industry or a full-blown economic recession.

At Talguard, our investment style concentrates on long-term value investing, searching out solid investments that will remain strong in any market environment.

We choose to specialize too, in certain industries that have fundamentally attractive features for investment. We focus on these industries at the expense of others, ones that are characterized by huge turnover, are driven by potential rather than performance, and are highly price driven.

In the sections that follow, I want to look at the sectors we favor and our reasoning.

Dan H. Chen Wins Top Award For International Stock Idea

by Talguard•Saturday, February 11, 2017

We are thrilled to announce that Dan H. Chen’s investment thesis on Novo Nordisk wins top award for the SumZero "Top Stocks for 2017 Challenge". Dan has a true contrarian, long term approach to investing. He is attracted to dominant companies in industries that are out of favor. In this case, Novo Nordisk fits that mold as a company in an industry that has faced a lot of headwinds. This has created an attractive valuation for Novo Nordisk, the #1 diabetes pharmaceutical company in the world.

For the Challenge, a panel of 27 judges consisting of peers and institutional investors evaluated ideas from over 150 fund managers worldwide. Dan H. Chen’s investment thesis on Novo Nordisk was voted by consensus as one of the top ideas.

Read the full investment thesis by clicking here: PDF Link To Dan's Novo Nordisk Investment Thesis.

We welcome your thoughts. Contact us at investors@talguard.com.

Best,
Dan H. Chen
Talguard Investments LLC

Dan H. Chen Wins Top Award For International Stock Idea

Text Version Of Dan's Novo Nordisk Investment Thesis:

Thesis Executive Summary:

The Market is oversold on concerns on Novo Nordisk’s stock while it undervalues 12 catalysts that I highlight in regards to this cash flow king. Novo Nordisk (“Novo” or the “Company”) is currently undervalued by more than 35%. This thesis is for Novo’s U.S. ADRs Class B common shares. Novo has all the qualities I like for a long term investment and it provides good value based on current prices. The Company has decades of steadily growing cash flow even through the last two recessions. Novo has tremendous new growth opportunities that the Market fails to realize as it is focused on the Company’s risks. The Company has a long track record of consistent share repurchases over the past 20 years. Management has stepped up repurchases amidst the current downturn in prices. This is exactly the right time to strike.

Novo Nordisk is a dividend blue chip as it has increased dividends every year for nearly two decades regardless of industry or economic downturns. Revenues are expected to grow 5% instead of 15% but there is real upside. The key is that revenues and EPS will continue to grow. At the same time, the Market values the Company as if it is losing both revenues and profitability. Novo’s businesses have consistent and growing demand through recessions. Novo generates over 40% operating margins even after factoring intensified competition and 20% net income margins. Currency fluctuations have negatively affected operating income by 8%. This situation will pass as time goes on. Primary and Secondary Research shows that Novo has a sterling reputation for its branded products and delivery systems.

Talguard Investor Letter On The 2016 Election's Business Implications

by Talguard•Thursday, November 10, 2016

The 2016 historic U.S. Presidential Election is unprecedented. For the first time in history, one party will control all three Federal Branches of Government, two-thirds of governorships, and two-thirds of state legislatures.

Just like you, I too have observed and lived through this historic U.S. Presidential Election. The U.S. Stock Market had quite a week. Stocks jumped higher on Monday due to a likely Clinton victory based on the polls. However, Donald Trump pulled out an electoral victory on Tuesday. The Market decreased by over 5% on Tuesday evening as it became evident Mr. Trump was going to win. Then the Market rallied on Wednesday and it was volatile on Thursday. Many of you may wonder how I am handling the current volatility and how Talguard is doing in this extraordinary week.

I write this note because the political landscape has shifted in a dramatic way and some of the business climate along with it. No one can predict what will happen with all industries based on this election. I do not make rash decisions based on this outcome. This is why I make my investment decisions based on each individual stock’s prospects and its underlying business. I am not opining on the election and I stay away from partisan discussions. I am writing this note as an investor and businessman. I am writing this note based on the facts that we do know and the implications for some of the industries affected.

The market has experienced volatility and will likely do so in the coming weeks and months. This is because an historic election has resulted in a highly unexpected outcome. The market likes certainty. There is an element of uncertainty with the election of a businessman who has never held office and many policy positions are unknown. One thing is for sure, markets also tend to be volatile when one party controls both the Executive and Legislative branches. In this election, I would like to point out that one party will control much more than that. For the first time in history, one party will control all three Federal Branches of Government, two-thirds of governorships, and two-thirds of state legislatures. This is unprecedented.

Business Insider: 'The 800 pound gorilla': A hedge fund manager explains why a $200 billion company is set to take off

by blissla•Wednesday, September 7, 2016

Dan Chen, CEO of hedge fund Talguard Investments, knows a thing or two about investing.

He has been a professional investor for almost 20 years and has worked on the sell side in investment banking as well as on the buy side in private equity and fund management before founding Talguard eights years ago.

SumZero sat down with Chen to learn about his search for permanent value in great companies and why Visa is his top pick for a great investment opportunity.

Chen argues that the "800 pound gorilla" nature of the company combined with a huge opportunity for international growth in China create a "perfect storm" of a great investment.Read below for his top reasons on why Visa represents a long term growth opportunity:

(Photo credit: Justin Sullivan/Getty Images)

SumZero: What about Visa initially caught your attention as a value investor?

At the 2016 Berkshire Hathaway Meeting

by blissla•Saturday, April 30, 2016

I have had the pleasure to speak with both Warren Buffett and Charlie Munger a few times over the years now. I firmly believe in concentrated long term value investing is the best course to produce outsized returns and to achieve permanent value. Recently, I spoke with Warren and Charlie at the 2016 Berkshire Hathaway meeting in front of 35,000 attendees and many more as it was broadcasted live on Yahoo Finance.

Click here to watch:
https://finance.yahoo.com/news/seven-reasons-the-berkshire-hathaway-meeting-is-like-hogwarts-172114459.html

Best,
Dan H. Chen
President
Talguard Investments LLC
https://www.Talguard.com

Photo of Dan H. Chen speaking with Warren and Charlie at the 2016 Berkshire Hathaway annual meeting.