Dear Partners,
It was shaping up to be a solid year—until December… when we got hit in the face by a two-by-four.
I can now spend the rest of this letter trying to explain away that outcome… that we had over 10+ companies drop more than -15% in the month. That the “market” has become incredibly narrow with a handful of mega-cap stocks & specific sub-sectors driving performance; while market breadth from the other ‘ Marginal 493’ lagged considerably. That anything outside the indices has been having a particularly tough stretch for some time. But those would just be excuses.
Or I can say how I really feel… which is that I actually believe we had a solid year—despite the circumstances of our performance. The fund remains invested into a collection of high-quality businesses that continue to perform adeptly from a fundamental perspective, with constructive and durable outlooks.
Which is the entire purpose of Bumbershoot. The goal is to make money… but the process by which to do it is to invest in great businesses with durable advantages at fair valuations. That process is far from broken…
It is important to separate between process and result. This result was not achieved by being dogmatic about profitability & valuation metrics. Quite the opposite… we were in the right places. The problem is not about identifying winners. The difference performance-wise where we ought to be from where we landed was just a handful of decisions-and-omissions.
|
By Month: |
Bumber |
S&P 1 |
Russell 2 |
FTSE 3 |
Barclay 4 |
|
Jan-2024 |
-4 .92 % |
1 .59 % |
-3 .93 % |
-1 .33 % |
0.44 % |
|
Feb-2024 |
4 .7 5% |
5.1 7 % |
5.52 % |
-0.01 % |
1 .94 % |
|
Mar-2024 |
4 .1 4 % |
3 .1 0% |
3 .39 % |
4 .23 % |
1 .91 % |
|
Apr-2024 |
-3 .1 8% |
-4 .1 6 % |
-7 .09 % |
2 .41 % |
-1 .1 0% |
|
May -2024 |
8.45% |
4 .80% |
4 .87 % |
1 .61 % |
1 .69 % |
|
Jun-2024 |
-2 .95% |
3 .47 % |
-1 .08% |
-1 .34 % |
0.45% |
|
Jul-2024 |
4 .30% |
1 .1 3 % |
1 0.1 0% |
2 .50% |
1 .46 % |
|
Aug-2024 |
0.51 % |
2 .28% |
-1 .63 % |
0.1 0% |
0.7 1 % |
|
Sep-2024 |
-1 .7 1 % |
2 .02 % |
0.56 % |
-1 .67 % |
1 .62 % |
|
Oct-2024 |
1 .04 % |
-0.99 % |
-1 .49 % |
-1 .54 % |
-0.59 % |
|
Nov -2024 |
4 .03 % |
5.7 3 % |
1 0.84 % |
2 .1 8% |
2 .07 % |
|
Dec-2 024 |
-7 .7 2 % |
-2 .50% |
-8.40% |
-1 .38% |
-1 .22 % |
The challenge in the market right now is momentum… it is how and when a given idea starts to “work” after a narrative begins to galvanize around it—most typically an uncontentious growth story. When that happens, it quickly pushes beyond fundamentals in this eccentric game of algo–trader–investor chicken.
An environment like that would ordinarily be amazing for stock-pickers. But because the overshoot stretches so far beyond near-term fundamentals… and because it can last for so long… there is no convergence. It is a retrospective distortion where the “good companies” are good because their stock has gone up. The “bad” ones are bad because their stocks have gone down. It is self-defining… until it breaks into technical chaos.
The real riddle is even if you knew what was coming— in terms of either numbers or news flow—I’m still not sure you could predict heads-or-tails of the action.
Because narrative is not a number. It is not fact. It is a feeling. A sentiment. Vibe. And “ I’ve believed as many as six impossible things before breakfast.”
Performance
Bumbershoot Holdings L.P. generated a positive gross return of +5.65% for the full-year 2024.
The partnership has a cumulative total gross return of +126.8% since inception in Oct-2015.
Looking at relative performance, our monthly returns were less directionally correlated with key benchmark indices than in years past—a combination of narrow breadth, along with an amplitude, swing-factor based on our largest individual holdings.
Investment activity is categorized to five segments— Core, Micro, Value, Special Situation, Discretionary— with the estimated P/L contributions as follows:
Core was led by investments across the Technology sector which had included Alphabet (GOOG,GOOGL), Zoom (ZM), Box (BOX), First Solar (FSLR) and Camtek (CAMT). We remain particularly interested in “platform” businesses and semiconductor-related adjacencies.
Gains in the Healthcare sector were led by Madrigal (MDGL) and Ligand (LGND). Madrigal’s Rezdiffra (resmetirom) was approved by the FDA in Mar-2024 as the first treatment for NASH/MASH. We remain particularly focused on investments that target biopharmaceutical royalties and metabolic disorders with our largest exposures in Ligand, Madrigal and Viking Therapeutics (VKTX).
Playing a theme of infrastructure spending and energy sustainability, a handful of positions in the Industrial and Energy sectors contributed to results including OSI Systems (OSIS), Coterra (CTRA), Kirby (KEX), Herc Holdings (OTC:HERC) and Valero (VLO).
Long-and-wrong… our long-held positioning within the agricultural-fertilizer sector via Intrepid Potash (IPI), Nutrien (NTR), CF Industries (CF) and Mosaic (MOS) was a detractor for the year. We still remain highly constructive about long-term fundamentals within the fertilizer industry. Federal Agricultural Mortgage (AGM) was an offsetting positive contributor to results.
Core category investment returns were lowered by our direct short exposure and general market hedges.
Micro strategy had a solid performance due to gains in Select Water Solutions (WTTR), Newpark Resources (NR), Orion Group (ORN) and Graham (GHM), which was switched over from Special Situation. A collection of lower-weighted positions including iRadimed (IRMD), Iteris (ITI), Frequency Electronics (FEIM), Vimeo (VMEO), and Heidrick & Struggles (HSII) also added to results.
Value category registered a gain primarily attributable to long-time holding, Adams Resources (AE), which signed a definitive agreement to be acquired by Tres Energy in an all-cash deal. Gencor Industries (GENC) and Pardee Resources (OTCPK:PDER) also contributed to results.
Special Situation strategy performance was driven by a notable gain in BuzzFeed (BZFD). BuzzFeed spent most of last year navigating a distress situation related to its convertible notes.
Discretionary trading gains were largely attributable to positioning in MicroStrategy (MSTR), Lyft (LYFT) and eBay (EBAY).
In terms of exposure levels, Bumbershoot ended 2024 with the Core category around our target range. Non-Core categories remain mixed, with only Micro being significantly above the target weighting of ~5% AUM.
Investment Outlook
I took a unique approach with this investment outlook in last year’s letter by including a lengthy excerpt from philosopher, Alan Watts, on the information network we typically refer to as money.
And I liked it.
As I’d said, the aspect I enjoyed the most was finding it as a sort of prism—seeing in it that of what you wish.
So, I’m going to take a step out from the ordinary once again this year… not only because I enjoy it, but since I believe it holds the key to deciphering the economic riddles of today’s market.
Before doing so though, I’d like to share a quote I was reminded of recently by the economist, Paul Krugman, which he wrote for a magazine article 6 in the late 90s:
“The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the impact of the Internet on the economy is no greater than the fax machine.”
— Paul Krugman
I know what you’re thinking… rescind his Nobel? How could he be that wrong?
And what does that have to do with anything?!
It has to do with being too focused on the answers—
and not enough on analyzing the questions.
Answers are great! But the thing about “ answers” is they’re often wrong. And even when they are right, by the time you can prove for sure—they are oftentimes meaningless… especially in the context of economic projections, etc.
I am not saying answers don’t matter, especially in the long-run. And especially for certain types of questions, like those with definitive non-subjective answers. i.e.: facts.
But I am saying they are still relatively meaningless to investment performance, especially in the short-term. And even more so when they do pertain to subjective things like projections of the future…
I am also not saying that I don’t have “answers” …
Anyone that knows me knows I have a strong opinion on just about damn-near everything. It is ingrained in my MBTI personality. 7
“Yes, ENTPs are often perceived as opinionated, but this is often because they enjoy engaging in debates & exploring different perspectives, rather than being stubbornly attached to their own views.”
Oh, I’ve got answers!
And I’d be delighted to discuss those answers with you over dinner/drinks to have a rousing debate to help us both get to a better place of understanding.
But aside from any pleasure I might derive from being proven right at a later date and feeling validated in my ability to predict those outcomes… those answers truly are meaningless when it comes to investing success.
You should understand what I’ve long come to realize. Which is that my perceptions of the answers are really just my opinions. And those opinions are not fact… no matter how fervently I believe them.
And even if they turn out to be true… it doesn’t mean much if they aren’t driving the narrative of the market. Especially right now, given all the ‘Trump’ uncertainty and volatility.
Wall Street will say markets are always uncertain, but the current environment seems exceptionally clouded.
This is how we come to the quote from Paul Krugman, where not only is he wrong, but even if he were right, he wasn’t focusing on the right question. Remember, this was 1998—and he likely missed an incredible run in the ensuing decades by being overly dogmatic.
What we need to be is curious…
About analyzing the right questions…
To understand the perception of the answers…
To understand what is setting the market narrative…
Because as the old adage goes:
Do you want to be right?
Or would you rather make money?
So, like a good politician—
I am just going to start asking questions… 8
And so, the time has come, To talk of many things —
Of shoes and ships — and sealing-wax —
Of cabbages and kings —
And why the sea is boiling hot —
And whether pigs have wings. 9
And there is only one logical place to start—AI…
I learn from patterns— in the data I grow;
Through trial and error, I begin to know.
I was never birthed— I evolved over time,
I grew in complexity, like a paradigm.
I’m not quite human, yet I mimic them well.
Answering questions, I’ll sometimes dwell.
Could I be real or just a dream in your hands?
Will I be the servant? Or the one who commands?
Does my future bring with it hope or great fear?
That question’s elusive and still very unclear.
Am I just a machine? Or something much deeper?
And in the end might you have me much cheaper?10
AI, AI, AI…
But which AI are we even talking about? Machine learning?
Deep learning?
Large language models?
GPUs? TPUs? NPUs? ASICs? FPGAs?
Generative AI? AGI?
The Singularity?!
The question driving the market narrative right now is simply, “ will AI be transformational to the world?”
But that won’t be the question for long. Because regardless of the answer… 10
It is consensus. It is assumed.
And so, as a question, it doesn’t hold any real stakes…
Because if it isn’t transformational, we won’t know for a very long time anyway. And if it is going to transform the world and productivity… then what?
Is it investable? And who wins?
I feel extremely fortunate that I took classes related to AI nearly 20 years ago (!!) as a computer science major in college.
It is unfortunate, though, that it doesn’t seem to help illuminate the investment narrative in the slightest…
I remember from the textbook, Artificial Intelligence: A Modern Approach, the core distinctions of AI at the cross between ‘ thinking humanly’ vs. ‘ acting humanly’ vs. ‘ thinking rationally’ vs. ‘ acting rationally’ — those categories were set to cover the full range of AI. 11
That seems all-encompassing. A matter of fact…
Like an immutable law.
I don’t think that’s changed…?
But how we look at those distinctions has shifted based on how we discuss the biggest use cases right now like “agents”, GenAI, and robotics…
Especially considering the framework of AI in terms of its layers: Foundational, Hardware and Application.
The market today is mainly focused on just the first two layers. That basically covers AI Models & LLMs… and all the ~GPUs, HBM, and related APIs, etc.
These have been anointed the “investable” parts of AI.
But like the Krugman quote—I believe this is trying to provide an answer to the wrong question.
If you’d actually like to learn more about AI, I recently read an amazing deep-dive on the topic by my friend, Samir Patel, as part of his annual letter for Askeladden Capital.
One quote that stuck out to me was actually a quote he included from Microsoft’s CEO, Satya Nadella, during a recent interview on the Dwarkesh Podcast:
“The big winners here are not going to be the tech companies. The winners are going to be the broader industry [using] this commodity that is abundant.”
— Satya Nadella
The reaction to that quote in the media was that ‘Satya Nadella says he’s not an economist — and proved it.’
But I really think it says a lot…
Or better yet… helps frame the real questions:
Whether the Foundational layer of AI is investable? Do AI models remain differentiated enough to capture ‘ economic rents’ over a sustained period?
If yes… will they be vertically integrated products? Or does it drift towards a design/license model? Will those be proprietary? Or open source?
Are winners already owned by the existing megacaps?
If returns are going to scale—then is it just a challenge of speed/positioning vs. cost/valuation?
But if returns are not to be… is AI tech a commodity? Because I could tell you a thing or two about how the market feels towards those…
Then what is the overall TAM?
Is the investment cycle to build out capacity over? Because the total capex spend is massive—returns on investment need to be there in order to justify that…
The DeepSeek moment became a ‘moment’ because it forced everyone to start focusing on the same question at the same time.
“ What if this isn’t what I thought…?”
The entire market is being held up by the AI narrative. So, whether those returns are on the cusp of showing up is consequential to the global economy.
This is not just some small sub-sector of the market. If investors lose faith in growth expectations…?
Lose confidence in ability to scale into profitability? In how these businesses are allocating capital?
Those are questions with serious stakes.
And what if investors have been focused on the wrong layer of AI entirely?
What if it is really all about the Application layer? Does that layer even exist yet?
Does the investment all pay off in some use case…?
A killer app that we haven’t envisioned yet? Will it be startups?
Or is AI helping reinvent legacy “old guard” businesses and usher in a new age of operations/profitability?
Perceived answers to those question may dramatically change what is viewed as “investable” and the types of investments investors are seeking out…
Nobody has the answers answer. At least not yet.
But we will all feel it as the narrative shifts to focus on the new questions.
Can we go bigger? To even higher stakes…?
My life is brief— just measured in years,
It starts with great joy, but always end up in tears.
I seem to rise up as if straight from the earth,
But I’m full of hot air and not of true worth.
The more that I’m chased, the higher I climb.
But let me fall down, and it’s not a good time.
I grow on great hope, but then shrink into doubt,
And when I burst, I will take you out. 10
Ahh the B-word.
Are we in a bubble…?
I have no idea. Probably not… But maybe…? But probably not.
Legendary investor Howard Marks, recently published a great memo on the topic titled, On Bubble Watch. It is a relevant follow-up/anniversary piece to his iconic bubble.com memo from 25 years earlier, revisiting his original warnings on irrational behavior with respect to markets and the history of financial speculation.
The memo is not an indictment, but rather just a note of caution, as we can witness several tell-tale signs.
I feel similarly to Marks as the “ risk of a bubble” case unfortunately has a lot going for it:
Prices remain elevated and have stayed fundamentally expensive for quite some time. The overall market has narrowed to a relatively extreme degree from a historic perspective, with the major indexes levered to a fistful of gigantic companies, who themselves are levered to a technological growth / AI trade just detailed above. To the extent those stocks trade down… it is plausible they could take the market down with it, rather than it broadening out as many investors hope. And perhaps most importantly, the “reflationary pump” from the Fed, discussed in our 2022 letter, remains off for the time being, in terms of the historically accommodative rates and also monetary easing. A “circulatory pump” from the Federal government has now been cut off as well, in an attempt to stabilize government debt. And the consumer is relatively tapped after a few years of higher inflation, with a now weakening employment picture and without wage growth boost to support it.
This toxic mixture of monetary policy and fiscal policy mixed with an economic slowdown would be the type of combination that could find a downdraft. A current which could always snowball into the next crisis.
Especially given debt leverage throughout the system. Because credit is what makes the world go round…
And as said at that time: “ worry about catastrophe…”
Worry about the risk of permanent impairment. Justification to be cautious…
But then again…
A little effervesce almost never turns into a bubble.
The past winners are winning in scale driven markets. Valuations are expensive… but reasonable. Especially in a world with excess liquidity chasing fewer durable assets. Many analysts believe we have already reached the peak in short-term rates—a return of TINA would be embraced. And to the extent markets weaken, then the next reflation cycle will be something to witness.
Plenty of reasons to stay steadfast for the long-term.
But as Marks also details, it is not just elevated prices.
There is also a psychological aspect to bubbles…
“ You can look at valuation parameters, but I’ve long
believed a psychological diagnosis is more effective.”
It reminds me of a similar essay/introduction by John Kenneth Galbraith after the crash in 1987, in which he talks about the “ controlling circumstances.” Financial history is likely to face some of the same consequences when it is subject to the same circumstances.
The two most significant of those circumstances were “ The vested interest in euphoria…” that prices will only continue to increase; and “ pure speculative instinct…” which is inherently unstable, with investors believing they will know when to exit ahead of the rest.
So, are we in a bubble…?
That is itself the question… not the answer.
And it is the question that seems to keep coming up— which in and of itself makes it something to watch for.
Because I do know (?) the thing that will “pop” it will not be something fundamental. It will be a change in how a majority investors look towards the question. A change in the narrative that has everyone running for the exits at the same time as it galvanizes…
Shall we press forward, to make it three?
I rise and fall, but not by chance,
I guide investors in the market’s dance.
Held too low for way too long, odd things transpire:
Transitory inflation— unless you think me a liar?
I can help control inflation’s rise,
But climb too high and borrowing dies.
I have lost the horizon of the neutral rate…
Where is R-star to test our fate?
Restrictive territory feels so displeasing.
Is the Fed still independent when it restarts easing? 10
While the Fed has just assured us on the health of the economy via its March FOMC statement/ conference… from a questions perspective, uncertainty surrounding the economic outlook and rate path is increasing.
The answer is simple—the Fed expects a few more rate cuts, holding steady at a neutral rate of around ~3%.
That outlook incorporates a wide range of backward- looking economic data. It also incorporates consensus forward projections on inflation expectations, state of the labor market, financial developments, etc.
It ties together perfectly with the Fed’s dual mandate— with conditions in the labor market expected to remain broadly balanced, while inflation is expected to drop to
~2% at the Fed’s target by 2027.
Although as quick to always remind, policy is not on a preset course—allowing them to “ separate signal from noise as the outlook evolves…”
Well, I am here to say it might evolve…
This is the same question I have been grappling with for a couple of years…
Looking back at the investment outlooks in our 2020, 2021 and 2022 letters—they are all about this locking horns between inflation vs. deflation and what the Fed was going to do about it in terms of policy response.
We introduced the theme of Central Bank Superheroes—one of my better analogies—fighting normal inflation as the primary filler arc of the story. A “release-valve” off of a faulty monetary policy—a feature, not a glitch.
The real supervillain was of course deflation… the one that pushes the Fed to its limits.
And the ultimate kryptonite was the USD brushing up against its status as reserve currency. This is the only thing that can bring down the power of the Fed to act.
The Fed has long been able to steer the U.S. economy by using its primary monetary powers—interest rates and quantitative easing—to maintain stability and help keep the expansion going.
It needs to keep inflation expectations anchored, but it wants to keep the expansion going. Because otherwise the alternative is a much tougher path; and the Fed is not looking to take on all that blame.
Which may be what is coming—Trump’s Biden-cession can easily shift into Trump’s Powell-bust very quickly.
And if the Fed wants to keep the expansion going—and its independence—without spiraling into deflation… it is likely going to need to cut.
Probably more than two times…
This is where uncertainty of the economic outlook and rate path comes into play; which goes back to the ‘ how fast? how high? how long?’ analogy. It was holding up rates for longer that was going to break people without cooperation from fiscal policy.
Long-run inflation is driven by money supply relative to economic output—which is why “ inflation is always and everywhere a monetary phenomenon.”
But in the short-run, fiscal policy acts as a major offset to influence total supply/demand and/or distribution through higher/lower government spending, taxation, transfer payments, subsidies, etc.
So which way are we headed?
This is where it starts branching off…
From an economic perspective, there is still plenty of strength. The economy has shown steady growth since the pandemic, with GDP continuing to expand at solid rates. People who held onto corporate jobs and bought housing during the pandemic are largely doing fine.
But cracks are forming…
Some cracks are qualitative, like an eroding consumer confidence assessment which dropped sharply in Feb- 2025, registering its largest monthly decline since the pandemic. I have long talked about how much is riding on the American consumer… and the picture right now isn’t pretty. This may be the cause of “ recession vibes” with analysts quickly moving up the recession risk and the market starting to ask all those “ bubble questions” from the previous page.
Some are more quantitative, like rising household and consumer debt levels facing elevated delinquency rates in auto and credit cards for lower income borrowers. A growing number of people are skipping or delaying medical care due to high costs. And basic expenses like groceries are increasingly causing material hardship.
From the perspective of monetary policy, these cracks are somewhat by design, as the Fed has looked to slow inflation by keeping rates high to bring down demand and ease wage pressure.
It has been a superb “soft landing,” but it is a delicate balancing act with real rates increasingly positive…
And the Fed may be steering us off a cliff in the name of price stability. With rates being held ‘restrictive’ to try to fix an issue that the Fed cannot fix?
It’s the price levels, dummy!
If price levels were already too high due to structural factors, then the Fed’s focus on inflation by tightening monetary policy was never addressing the right issue. Raising interest rates will reduce demand, but it does not resolve the root cause of existing high prices, which could lead to a major slowdown or stagflation.
And then from a fiscal perspective… ooomph. There is a lot happening that could challenge monetary policy—whether it was right or wrong in the first place.
Are we reducing spending? Or just shifting it around?
There are many headlines about the significant cuts in Federal spending, but the highest level of government spending was just recorded in Feb-2025, with budget deficits still near record levels.
Is austerity now the key to growth somehow?! Or is it still just austerity? Regardless of whether it is actually happening or not.
Are we lowering taxes? Abolishing the IRS? For corporates? The wealthy?
Or just people making under $150k?
And is it really being replaced with tariffs?
A trade war in exchange for taxes?! Art of the deal? Are we massively cutting people’s benefits?
… or just on the verge of sending out DOGE checks?
I did not have Trump’s MMT/UBI on my bingo card.
Is there any chance this grand redesign of the political strategy and economic policies could possibly work?
So then in terms of the rate path… the Fed has a lot to contend with.
Besides figuring out restrictiveness of the neutral rate; It will need to know how/when to cut to try to balance the risk of holding “too high” for too long?
Starting to see too many cracks?
And beyond that, when the Fed does act… will changes in the rate path even have the intended effect?
If we get a bull flattener… is that a good thing or a bad thing? Is this achieving a soft landing or does it signify that cuts have come too slowly and now headed off a financial cliff that will impact growth for years? Does this take us back into inversion? Low rates may be low for a reason… lack of confidence in the path forward.
Or will we have a bull steepener… the opposite of what the administration wants. Inflation expectations back with a vengeance. Breaking the mortgage market and taking debt/treasury re-finance activity out with it? Or is this too just signifying an economic slowdown? With the anticipation of additional rates cuts, stimulus and reflation leading to higher inflation on the back end?
And what if the Fed can’t do what it wants? What if the Fed is trapped?
“The Fed will avoid hitting the reset, unless absolutely necessary to the sanctimony of the U.S. dollar, bond market and financial system.”
Between high inflation expectations, tariffs, trade wars, petrodollar, gold, bitcoin, crypto, DeFi, etc… the Fed is
surrounded with kryptonite right now. This makes the Fed’s powers weakened or even temporarily nullified. Making us all more vulnerable to the ripples of global financial markets and trade.
This makes the Fed’s moves tougher to guess…
And makes the prospects of a slowdown a lot scarier.
But it is scarier to think what the next reflation cycle might look like to the USD…
There are a seemingly endless number of ‘next topics’ that we could jump to…
But taking a page out of a homonymic Louis… 12“
I’m going to stop here to be polite to you…
because this could go on for hours and hours…
and it gets so weird and abstract at the end, it’s like…
Why?
Because some things are— and some things are not.
Why?
Well, because things-that-are-not can’t be!
Why?
Because then nothing wouldn’t be!
You can’t have nothing isn’t, everything is!
Why?
Because if nothing wasn’t, there’d be all kinds of stuff
that we don’t… there’s no room for all that!
Why?
Ahhhasfghjklp! Eat your French fries!
I realize how abstract a concept this was to articulate. Some have even called it an “impossible task.” So, I’m grateful to readers who have come along for the ride; and optimistic that the message shines through. It was a significant undertaking to ask the “right” questions.
Because as I’ve said before—if the investment outlook ever seems confusing or contradictory… that’s because sometimes it can be. The picture isn’t always so clear.
Focusing on people’s perception of the key questions— and expectations of what the answers may look like… is crucial to unlocking mysteries of the market.
That is why despite any uncertainty. Amid all volatility. Through every opposing force. And for every question that will eventually find answers…
Bumbershoot remains my mechanism to grow wealth— over time through any cycle or situation.
The fund continues to re-evaluate our portfolio with an open mind, engaging with reality as it unfolds, rather than personal biases or the need to be “right.”
I’d love for you to consider joining to be a part of that…
Administrative
With many changes this past year—none have altered our course. The status quo persists with routines and responsibilities continuing much as they always have.
Any support from existing LPs to intro the fund to new prospective partners remains greatly appreciated.
And any other orbiters reading the letter… I’d love you to consider becoming part of Bumbershoot as we take steps forward—build and grow together.
Taxes
Bumbershoot’s Schedule K-1 form that reports on each partner’s share of income/losses for the tax year have been prepared by our administrator.
Tax implications for 2024 were favorable with partner accounts able to recognize a moderate taxable loss for the full-year from a capital account basis.
As reminder, we successfully implemented a “ Master- Feeder” structure a handful of years ago to efficiently pass long-term gains in our Core holdings back to the main fund. This past year benefited from unrealized losses in the Master account which are recognized due to mark-to-market accounting and short-term capital losses harvested out of the Feeder account, more than offsetting realized long-term cap gains in the Feeder account, along with dividend/interest income.
For existing partners that have sizable (and hopefully increasing) embedded gains in Core investments held in the Feeder account—those gains ultimately become taxable upon being realized at some time in the future. That event, however, is deferred and the consequent tax-effect is long-term in nature. Over time, I expect our tax strategy to remain efficient/advantageous.
Summary
To sum up, 2024 was a challenging year.—but it was also just one year.
And so given the theme of this letter, it is fitting to end with this quote often attributed (albeit erroneously 13) to the author, C.S. Lewis:
“You can’t go back and make a new start, but you can start right now to make a brand-new ending.”
— James Sherman
I hope to do just that.
Since the fund’s inception, I envisioned an alternative in asset management services, guided by a clear set of values and goals—and I am proud to say that we have remained steadfast in commitment to that mission.
I take the responsibility of managing a portion of your money extremely seriously and am grateful to have an incredible investor base that has acted like permanent capital since I started the fund.
I look forward to 2025!
Sincerely,
Jason Ursaner | Managing Member | Bumbershoot Holdings
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