RV Capital's commentary for the second quarter ended June 30, 2025.
Dear Co-Investors,
The NAV of the Business Owner Fund was €1'290.68 on 30 June 2025. It increased by 7.6% since the start of the year and by 1'200.8% since its inception on 30 September 2008. The compound annual growth rate since inception is 16.5%.
| Year | Change in Business Owner (1) | Change in Dax (2) | Relative Results (1-2) |
|---|---|---|---|
| 2008 (3 months) | -13.4% | -17.5% | 4.1% |
| 2009 | 31.1% | 23.8% | 7.3% |
| 2010 | 27.0% | 16.1% | 10.9% |
| 2011 | 6.5% | -14.7% | 21.2% |
| 2012 | 18.4% | 29.1% | -10.7% |
| 2013 | 31.9% | 25.5% | 6.4% |
| 2014 | 24.9% | 2.7% | 22.2% |
| 2015 | 46.7% | 9.6% | 37.1% |
| 2016 | -1.1% | 6.9% | -8.0% |
| 2017 | 28.5% | 12.5% | 16.0% |
| 2018 | 1.6% | -18.3% | 19.9% |
| 2019 | 31.2% | 25.5% | 5.7% |
| 2020 | 17.3% | 3.5% | 13.7% |
| 2021 | 15.1% | 15.8% | -0.7% |
| 2022 | -47.6% | -12.4% | -35.2% |
| 2023 | 44.4% | 20.3% | 24.1% |
| 2024 | 57.9% | 18.8% | 39.0% |
| 2025 | 7.6% | 20.1% | -12.6% |
| Compounded Annual Gain | 16.5% | 7.6% | 8.9% |
| Cumulative Gain | 1'200.8% | 310.0% | 890.8% |
The Big Five
There were no new investments in the first half-year. As such, I will take the opportunity to update you on our largest investments and why our money is invested there. These investments have been in the portfolio for at least four years, and one dates back over ten years, so you can be forgiven for forgetting the original investment rationale.
Our top five investments, or “The Big Five,” are Carvana, Meta, Prosus, Credit Acceptance, and Wix. They account for two-thirds of the portfolio, so describing them focuses on what moves the needle. The remaining investments are mainly those in the energy sector and China, which I have written about in my last letter.
Carvana
Carvana is our largest investment, accounting for just over 20% of the fund. It is also the most recent of the Big Five. We first invested in 2021, and I wrote about it in my 2021 letter. The initial investment in Carvana was probably not my finest moment as an investor, given the subsequent crisis and the breathtaking drop in the share price (though the initial investment is now in the black). The latter investments possibly were. The lowest-price purchases are up almost 20 times.
This is water under the bridge. Is Carvana is a good investment today, especially given the torrid development of the share price from the lows?
When I initially bought our stake in Carvana, it was based on the hypothesis that its value proposition was so superior to the traditional used car dealer – in terms of price, selection and convenience – and that its business would be so difficult to replicate, that it would become not only the dominant used car retailer in the US but the dominant way that people purchase used cars. This remains my conviction today. The most significant difference between then and now is that whilst my conviction then was based upon a hypothesis, that hypothesis has now largely played out.
Today, Carvana is the most profitable used car retailer in the US, with an EBITDA margin of 11%, nearly double its most efficient peers. It has infrastructure in place to retail 3 million cars p.a., which would take it to approximately 8% market share. Of course, there is plenty still to do to get from the roughly 600 thousand cars it will retail this year to 3 million. However, in contrast to 2021, all the pieces of the jigsaw puzzle are in place. The game is Carvana’s to lose.
Today's valuation is no longer as attractive as it was at the depths of the crisis. That was likely a generational opportunity. However, Carvana is still at an early stage of development, and I am convinced the upside outweighs the downside. In terms of valuation, it should generate around $3 bn EBITDA in 2026. Much of this EBITDA will convert directly to cash, as it has little capex requirement, it is deleveraging rapidly, and it enjoys tax loss carry forwards. The EV to EBITDA multiple is around 25x - a high level but not inconsistent with many of the most highly sought-after businesses. In contrast to those businesses, though, Carvana should double its volumes every two to three years for a long time to come.
Despite or perhaps because of Carvana’s recent history, there continues to be significant scepticism about its business model and the people running it. I disagree vehemently. I am convinced by the character and the motivation of Ernie Garcia, the company’s founder, and the team of people he has collected around him. I wrote in the midst of the crisis in my H1 2022 letter:
As Carvana’s woes deepened, I read much negative commentary about Ernie. I firmly disagree with it and would do even if the company were to announce its bankruptcy tomorrow. He strikes me as a decent person who is completely dedicated to the company he founded. If Carvana fails, it will not be due to duplicity or want of trying on his part.
Given everything that has happened subsequently – how the management stuck with the company during the crisis and ultimately emerged from it stronger – I would repeat that conviction and argue that it is a proven fact. There is no need to take my word for it, though. Ernie plans to join our Annual Gathering in Engelberg this coming year, so form your own opinion.
Meta Platforms
Meta is the second largest investment, accounting for 14% of the fund. I wrote about Facebook, as it was then known, in my 2016 letter after our initial investment.
I recall once a potential investor looked at my portfolio and told me disdainfully that he would not pay someone to own a large, liquid stock like Meta. It is ironic - if ever there was a company where I earned my fee from holding it, it would be Meta. To say the ride has been choppy would be an understatement. It twice broke the record for the single largest one-day drop in market value, losing $119 billion on 26 July 2018 and $232 billion on 3 February 2022.
Whenever something goes wrong in the world, Meta tends to be identified, mostly unjustly, as the culprit. Where it is at fault, people generally fail to grasp the trade-offs involved – social media brings enormous upsides, but like everything, it has downsides. I feel like owning Meta has aged me, a passive observer, by ten years. It amazes me how well Mark Zuckerberg, the main person in the firing line, deals with the pressure. The ride, though, has been worth it. Our initial investment is up about 7x. We also bought a good chunk of stock close to the 2022 lows that has done similarly well over a much shorter time frame.
But what about today?
Is Meta’s moat as wide as when we first bought it? When I initially invested in Meta, I believed its main moat was the network effect from being the dominant platform where people connect online. It remains the largest social network outside China; however, this moat turned out to be less durable than I thought. Other services like TikTok, Twitter (X), and Snap have built scaled user bases. Only a fraction of time spent on Meta’s services – 7% on Instagram, 17% on Facebook – involves consuming content from online “friends”.
However, Meta has layered on several other moats. The network effect from being one of the main places people go online to discover content, particularly short video, has grown in importance. Scale is also increasingly a moat. Algorithmically generated content and advertising in a post-ATT world require enormous investments in datacentres and AI. Meta seems to be the only social network outside China with the scale to finance it. Another moat is, counterintuitively, regulation. Though often viewed by investors as negative, increasingly complex regulation has entrenched Meta’s position, as smaller players struggle to fund the fixed cost of compliance. On balance, I view Meta as having a wider moat today than when we first invested, albeit at the cost of greater capital intensity.
In terms of valuation, little has changed since our first investment in 2016. The share price is higher, but earnings are as well. Astonishingly, the company is still growing rapidly. It recently reported second-quarter revenue growth of 22%, a fourth straight quarter above 20%. At the same time, it has increased margins, reduced the share count and paid a (modest) dividend. The P/E, based on expectations of GAAP earnings per share of around $30, is inexpensive at 25x. GAAP earnings include around $8 per share of losses at Reality Labs. Reality Labs is tangential to its core business and would likely be shut down if the market does not develop as hoped. Excluding these losses, the P/E is an even cheaper 20x.
Meta’s valuation is cheap due to scepticism about the durability of its business and its role in the world. This puzzles me, given that nearly everyone uses its products every day, and so should either know better or stop using them. However, there seems to be little prospect of this scepticism diminishing. When something next goes wrong in the world, the narrative that Facebook is at fault and the business is doomed will find a ready audience. A large drop in share price will follow. I do not enjoy it when this happens – when I enter a room of fellow investors, some avoid meeting my eye. However, at least until now, we have been remunerated handsomely for the discomfort.
Prosus
Prosus is the third largest holding in the fund, accounting for 13% of the portfolio. I wrote about Prosus in my last letter in the context of our basket of Chinese stocks.
Prosus is a Dutch Internet holding company. I view it primarily as a way to own Tencent, which accounts for 120% of its market value today. I am less enthusiastic about its other businesses, but they do not move the needle individually and barely do collectively.
Tencent is an exceptional business, possibly the best in the world. Whereas most companies are good at one thing and mediocre at everything else, Tencent has multiple great businesses. It has an advertising business that rivals Meta’s, a payments business that rivals Mastercard’s, and a gaming business that is…peerless. These businesses have wide moats individually and an even wider moat collectively as they reinforce each other’s moats through the connective tissue of WeChat.
Tencent is Berkshire Hathaway-like in that its earnings power has multiple drivers. It is also Berkshire Hathaway-like in its capital allocation. It owns an extensive portfolio of listed and unlisted companies, conservatively valued at around $200 billion, and makes new investments on an ongoing basis. If Berkshire’s edge is Warren Buffett, Tencent’s edge is WeChat. WeChat gives Tencent proprietary data on Chinese consumers’ habits and helps it to spot which companies are gaining traction long before everyone else. It is as if Tencent has a Bloomberg terminal, and everyone else uses ticker tape. Tencent has exploited that data advantage to invest in many, if not most, of China’s best companies when they were startups, including PDD, Meituan and JD. Meta captures similar data and has used it to buy competitors like Instagram and WhatsApp. Tencent did the opposite: it bought minority stakes in companies adjacent to its business and leveraged WeChat to help them succeed. I prefer Tencent's strategy as it is an ongoing source of value creation. Meta, by contrast, can no longer buy peers.
The attraction of owning Prosus rather than Tencent directly is in part the discount – for every dollar you put in Prosus, you get Tencent shares worth 120 cents and 30 cents worth of other assets, implying a discount of 33%. More importantly, it is the value creation from share repurchases. Prosus sells Tencent shares and uses the proceeds to buy back its own shares. The term “buying dollars for 50 cents” tends to get overused in finance, but this is what Prosus at times has been doing. It sells one thing (Tencent) and buys something nearly identical for almost half the price.
Why can Prosus repurchase its own shares at such a large discount to its NAV?
The main reason seems to be scepticism about its management. To be clear, I too am sceptical. Prosus is now onto its third CEO since we bought five years ago. These are not people doing their life's work. And many of their decisions make little sense to me. They sell Tencent to buy back their stock when sitting on a pile of cash and non-core holdings. They pursue a synergy strategy when all the best holding companies are decentralised. And they have made poor acquisitions. Despite this, I believe such a large discount is unwarranted. The Tencent managers are running Prosus' main asset, not Prosus, and they are first-class. Furthermore, the value creation from share repurchases should far outweigh any missteps by Prosus' management. If the discount were ever to narrow meaningfully, though, I would switch our holding directly into Tencent.
Credit Acceptance
Credit Acceptance is the fourth largest holding in the portfolio, accounting for 9%. It has been in the portfolio the longest out of the Big Five. Our initial investment was in 2014; I wrote about it in my year-end letter that year.
I am unsure whether the rule with children that you are not allowed to have favourites also applies to investing. If it did not, I would likely choose Credit Acceptance. It is one of the most fascinating businesses I have ever come across. In my 2014 letter, I wrote:
I can imagine a botanist walking through a rainforest would not be drawn to the most conventionally beautiful creature, but the one with the most unusual adaptation to its environment. In this spirit, CAC is one of the most beautiful business models I have come across, as it is so perfectly adapted to its environment. I am not arguing CAC is the greatest business model I have ever come across - it is for sure no Coca-Cola - but it is the most perfectly adapted. I realise that lending businesses are not everyone’s cup of tea. I realise that subprime lending businesses are definitely not everyone’s cup of tea. But I recommend everyone who is passionate about businesses to study CAC. It is a fascinating specimen.
That is still my view today. For the uninitiated, the core of its business model is that it holds back part of the used car dealer’s compensation and makes it dependent on the subsequent performance of a pool of consumer loans. This brilliantly aligns the interests of the car purchaser, the dealer, and ultimately, Credit Acceptance, as it incentivises the dealer to sell a good car at a fair price.
Credit Acceptance is also run by some of the most decent and understated managers I have ever come across. Of course, there are many decent people in the world, but what makes the situation unusual at Credit Acceptance is the perception that subprime lending is somehow a little shady, and by extension, the people are too. Nothing could be further from the truth. As a test of character, Warren Buffett likes to pose the question:
Would you prefer to be the world's greatest lover and know privately that you're the worst—or would you prefer to know privately that you're the best lover in the world, but be considered the worst?
The question tests whether someone is intrinsically or extrinsically motivated. I am almost certain there is no other management team in the US where the gulf between how they are and how they are perceived is greater, at least outside the cognoscenti.
Since our initial purchase, Credit Acceptance’s share price is up about 4x, which, over a roughly 10-year holding period, makes for a good but not a spectacular return. In particular, over the last five years or so, the share price has lagged. This is at least partially deserved. More recent loan vintages, in particular 2022, missed expectations (though were still profitable), and the Company has lost ground to some competitors due to underinvestment in IT. The problems are not all self-made, though. A spike in delinquency post-COVID stimulus was an industry-wide phenomenon. The used car market contracted significantly due to the downstream impact of semiconductor shortages, disproportionately impacting Credit Acceptance’s customers, who are at the bottom of the food chain. And somewhat paradoxically, there was no major crisis. Credit Acceptance is the most profitable and conservatively financed auto lender, so the greater the industry-wide pain, the more it thrives (although its share price tends to get beaten up along with its peers).
What about now?
So much for the past. What is the situation today? I feel confident about Credit Acceptance’s short to mid-term prospects. Earnings should recover this year as the 2022 cohort rolls off and is replaced by more recent vintages which are performing better. The booking of a legal charge in the most recent quarter, though at first glance a negative, could suggest that the legal cases against it are nearing settlement, which would free up management time and save on lawyers’ fees. Most importantly, it has completed the foundational work on its new IT stack and anticipates rolling out innovations to dealers by next tax season. These include automations to allow dealers to generate loan offers directly from their dealer management system (reducing friction) and calculate the best deal structure (improving dealer economics). I recall how adding digital signing, a trivial innovation from today’s perspective, re-ignited loan volume growth in the mid-2010s. These changes seem far more consequential, and so too, I hope, will be the impact on loan growth.
Credit Acceptance has never been a company that commands a high trading multiple, and I doubt that it ever will, given the negative perception of subprime lending, at least with people who do not require its product. That being said, the valuation looks particularly depressed today. Assuming a normal economic environment, its adjusted earnings per share should recover to around $60 per share (GAAP earnings make no sense for Credit Acceptance, given the vagaries of GAAP accounting). This implies a p/e of just 8x. I do not expect it ever to be meaningfully higher, but this works in the favour of long-term investors as the company loves to buy back its stock. When we first invested, it had 20.6 million shares outstanding. Today, it is 11.2 million shares. Our ownership has nearly doubled over the ten-year holding period. Already this year, it has repurchased 5% of its shares outstanding.
Credit Acceptance and Carvana
One aspect of our continued investment in Credit Acceptance that may puzzle you is how I reconcile it with my optimism about Carvana, particularly that Carvana will take a big chunk of the used car market in the coming decades. What does this mean for Credit Acceptance in the long term?
I am not too worried. Even under the most optimistic assumptions of Carvana’s market share gains in the foreseeable future, there will be plenty of market share left for players like Credit Acceptance to go after. Credit Acceptance thrives during market dislocation, as it has shown repeatedly. Were Carvana market share gains to trigger concerns about the viability of independent lenders, something I do not anticipate, this would not necessarily be bad for Credit Acceptance. And, Credit Acceptance and Carvana have very different expectations priced into their shares. Carvana needs to be a much larger business in the decades to come for our investment to work, something I expect to happen. Credit Acceptance just needs to continue on its current track for 8 years for us to get our money back, something I also expect to happen.
Wix
Wix is the last of the big five, with a weight of 7% in the portfolio. It enables companies to build and manage their web presence.
Wix is about as good a company as you can imagine. It has a subscription business model, meaning its revenue is sticky and predictable. It is capital-light, meaning the business does not require significant capital to operate. In fact, as subscribers typically pay a year or two in advance, it operates with negative working capital. It grows thanks to untapped opportunity in DIY and, increasingly, professional users, and increases in the average revenue per user as it adds services such as email marketing, event management, and blogging to subscriptions. And, it is founder-led, and early-stage employees occupy most key positions. Many of you got to know Nir, the company’s COO, at our Annual Gathering in 2024.
Since our initial investment in 2019, described in my 2019 letter, the investment has at times looked like a home run. However, at today’s depressed share price, we have not lost money, but the ball is not flying out of the park either. This is despite the fact that the Company has performed well. Over our holding period, it has tripled revenue, increased its free cash flow margin from 15% to over 30% and generated cash. Although stock based compensation has been a perennial concern of investors, dilution has been moderate thanks to share buybacks in recent years. At year-end 2019, the shares outstanding totalled 51.5 million. At year-end 2024, they were 56.1 million. Going forward, the share count should decline.
So why has the share price not tracked the development of the business? The main reason seems to be fears over the potential impact of AI. The market’s view of AI and Wix has oscillated over time. When the first demonstrations of chatbots throwing up websites in seconds began to circulate two years ago, the view was that Wix was toast. Goldman Sachs included Wix in a short basket of AI losers. The initial pessimism subsequently mellowed as people realised AI could also be a tailwind to Wix’s business. AI can help users complete their website, one of the biggest bottlenecks to growth. Today, the AI doomers are back in the ascendancy.
So, what do I think?
I am aware of the risk of disruption. Many of you have reached out to me to draw my attention to it with no other agenda than to help me avoid a potential loss. I greatly appreciate it - it is not always easy to communicate what might be taken as an unpopular message.
However, I remain unconvinced that AI is bad for Wix, at least until humans delegate all aspects of their lives to AI agents and anything that is not first and foremost machine-readable goes the way of the typewriter.
Take RV Capital, a power user of Wix. Here are some, though by no means all, of the things that it uses Wix for:
- Hosting almost 20 years of content, including letters, memos, videos, podcasts, and user comments;
- Updating said content when I publish a new letter, such as this one, with tools that are simple and intuitive to use;
- Maintaining a database of 25 thousand registered users with usernames, passwords and site interaction history;
- Sending emails to said users, or not, if they opt no longer to receive them;
- Managing our Annual Gathering in Engelberg, allowing people to register, cancel their registration, add themselves to the waiting list, and interact with other attendees through the community function;
- And keeping the software powering this functionality up-to-date and secure.
For all this, I pay around €40 per month and outsource all aspects of managing the website to Wix except (I promise) the writing.
I do not believe this can be replicated by AI or, indeed, by AI in combination with an especially productive human programmer, at least not for the price I currently pay Wix. Nor do I believe this will change in the foreseeable future. If I am wrong, though, I would genuinely love to know – my dream is to enter the pantheon of investors, not letter writers. My website is public, and anyone can register to access it. Create a working copy using your LLM of choice and send it to me. If it is equivalent to my existing site, I will cancel my Wix subscription and sell my Wix stock in a heartbeat.
In the meantime, I remain convinced that Wix is an exceptional company at a depressed valuation. Despite all the attractions of its business model, it trades at around 16x owner earnings (free cash flow less stock-based comp). I am optimistic that the investment will work well over time.
Composition of the Business Owner Fund
In the spirit of recapping, I thought it would be helpful to remind you how I put the Business Owner Fund together and why it looks the way it does. I recently met someone who had seen the fund’s holdings but was unfamiliar with me and how I invest. The portfolio mystified him. It has none of the hallmarks he was used to. There is no country or sector focus. It mixes small and large caps. And it has just ten stocks.
So why is the portfolio the way it is?
One Investor’s Journey
Most importantly, it reflects my journey as an investor. That journey started in earnest in the early 2000s amid the dot-com crash. I did not know much then, but I did know that if I bought a company with a market cap of EUR 10 million and EUR 100 million in cash, I would likely do well. I did do well and was financially independent within a few years. It was most certainly not because I was a good investor but because the opportunity set was incredibly rich and, to give myself at least some credit, I was sufficiently independently minded to grasp it. I had the hardware (the temperament) but lacked the software (the ability to recognise a good investment).
I quickly realised I could do much better as an investor if I did more than tot up the cash on the balance sheet. I read every book on value investing I could get my hands on and tried out everything that seemed to make sense. When something worked, I did more of it; when it did not, I discarded it. The overarching aim was to avoid the losers (there were plenty in the early years) and maximise the winners (thankfully, there were more). This, in a nutshell, is what I have been doing ever since: Invest – Learn – Repeat. The result is the investor whose letter you hold in your hands now.
My idiosyncratic approach differs from that of large firms, which necessarily has a more rigid process that it expects its fund managers to adhere to. It is not for me to say which is best. In times of change, though, an adaptive approach may have merit.
Common Threads
Whilst the companies in the portfolio may not have much in common in terms of sector, country or size, I believe they do when viewed through a different lens.
I look for three main characteristics in an investment: a sustainable, ideally growing competitive advantage, an owner mentality in the people running the business, and an attractive valuation. I used to have a fourth criterion: “a business that will be flourishing in ten or more years”. I dropped this not because it is unimportant, but because I think the criterion of a sustainable competitive advantage covers it.
At the outset of an investment, I firmly believe that an investment holds all three properties. I explain why in my investor letters. If you are uncertain about any of the investments, I encourage you to look up what I wrote about them. The point is not necessarily to agree with my assessment. If you are so sure that your judgment is better, you should probably be managing your investments directly. The point is to convince yourself that I am investing within my self-imposed guardrails.
I am completely agnostic about other criteria such as country, sector, size (i.e., large or small cap), or style (e.g. value vs. growth). In my experience, countries, sectors, size, and quantitative characteristics such as cheap multiples or rapid growth come in and out of fashion. While there are, no doubt, some benefits to specialisation, they are, in my view, overwhelmed by the disadvantage of being restricted to a specific group of investments when there are obviously better opportunities elsewhere. In other words, the discrepancies between broader categories are far greater than those within categories.
One Criterion to Rule Them All
Every investor has one element of an investment case that really sets their pulse racing. For many, it is a bargain basement price (it was for me in the early part of my journey). For others, it is a huge market opportunity (finding the next Google). I have one investor friend who loves nothing more than, yes, corporate malfeasance. He views himself as a financial superhero who will rid the company of the bad guys. The world needs more people like him.
For me, it is none of these. What rings my bell is finding passionate managers who make building their business their life’s work. I love going to bed at night knowing they are taking care of my family’s and my investors’ money. I love following their development over many years, much like a sports fan enjoys following their team. And I love building a relationship with them when they are open to it. If there is one thread that links all the investments, it is passionate and engaged managers who think like owners or, ideally, are the owners. All the companies in the portfolio have this in common. It is one reason the fund is called the Business Owner Fund.
Concentration
Concentration tends to be high with the fund typically comprising around 10 companies. The main reason is that good investment opportunities are scarce. Businesses run by people making it their life’s work are the exception, not the rule. And even if there were an abundance of the types of companies I am looking for, they often do not meet the other criteria, most frequently, price. When opportunity knocks, it is crucial to buy and to buy big. For me, that has typically meant I should be willing to allocate at least 10% of the capital to an investment. There is nothing scientific about 10%. It is a big enough number to move the needle in the portfolio, but it is not so big that it would be tough to recover from a mistake.
Another reason for holding 10 stocks is that I like to get to know companies well before investing. While many companies look like the real deal, most are not. Sorting out the originals from the fakes involves research, travel, and relationship building. This precludes either owning many companies or owning a few but trading them frequently. Holding 10 stocks and not changing them too often allows me to balance knowing what we own well and having time to explore new ideas.
Ryman Healthcare Postmortem
I have a rule that I only discuss past investments in these letters if they have done poorly. I realise this frustrates some people, who wonder why a particular company is no longer in the portfolio. I prefer not to discuss the winners as there are usually fewer lessons to learn from them and, after all, nobody likes a show off. I discuss the losers as I feel an obligation to my investors to explain why I lost our money. More selfishly, I assume I am less likely to repeat the same mistakes after publicly chastising myself.
Ryman Healthcare, the New Zealand-based owner-operator of retirement villages, is an investment that did not work out. We first invested in 2017, and I wrote about it in my half-year letter that year. We bought our first shares for around NZ$8.60 in early 2017 and sold the last ones in early 2024 for around NZ$4.50. This makes it by far the worst investment I have ever made. In fact, it may be the first time we have ever lost money on an investment held for a long time.
So what went wrong?
To understand where Ryman went wrong, it is helpful to recount its origin story.
It began in 1983 when Kevin Hickman, a policeman, encountered a fire-damaged old villa converted to a rest home. He was struck by the poor standards of care and the abject conditions of the accommodation, with four people to a room and shared toilets down a corridor. The staff did the best they could, but they lacked resources. Kevin was motivated to create something better. Together with John Ryder, he founded Ryman Healthcare in 1984, combining their names to form "Ryman." They started with purchasing and converting units into their first rest home, focusing on high standards and care that would be “Good enough for Mum.” This foundation was based on reinvesting profits to grow the business. Over time, Ryman pioneered the "continuum of care" model, allowing residents to remain in one village through various stages of retirement care.
The part of this story that tends to resonate with people is the mission focus — building something "good enough for Mum”. However, what was no less important was a tight commercial focus. The root cause of the poor conditions Kevin encountered at the villa was not ill will on the part of the staff but a lack of money to do better. Furthermore, the only way to finance new villages was by using the profits of existing ones. The founders knew they could only achieve their mission if the business made money. Mission and commerciality went hand-in-hand.
At some point along the way, this insight was lost. Mission became the primary focus, and the company lost its commercial bearings. Existing villages were unprofitable. It bought too much land, often at prices that made recycling capital impossible. Construction projects came in late and over budget. And the head office headcount ballooned. As a result, cash flow was negative, debt spiralled (a problem aggravated by the continued dividend payment), and it was twice forced to raise capital. The first capital raise was in February 2023, which we supported. The second was in early 2025, which we did not. We had fully exited our position by then.
My goal here is not to dwell on the company's mistakes. There were many; however, I do not doubt that the people had, for the most part, the best intentions, and they would likely point out, with some justification, circumstances beyond their control, most notably the pandemic and regulatory headwinds.
What interests me more are the mistakes I made.
Most gallingly, given the centrality of management and ownership to my investment philosophy, I did not pay sufficient attention to organisational changes shortly after we invested. Long-time CEO Simon Challies stepped down as CEO in 2017, and Founder Kevin Hickman stepped down as Chairman in 2018, in both cases due to severe illness. Given the circumstances, I did not see these departures as red flags, and they were likely not. However, a big part of the Company’s culture, particularly frugality, was lost with their departures.
A further mistake was not acting when the Company’s debt grew. I hate debt and would normally never invest in a company with high debt levels. In the case of Ryman, though, there were several mitigating factors. The capital intensity of new villages increased as it switched its focus from freestanding units, which were simple to build and had quick turnarounds, to condominium-style buildings, which were more expensive to build and took much longer to complete. House price inflation was high, which increased the cost of its new builds, but, on the plus side, made its existing villages more valuable. And in early 2020, COVID hit, which delayed construction projects, led to significant cost inflation, and slowed down the sale of new and existing units as the housing market ground to a halt. There were good reasons why debt increased. Individually, they made sense. Collectively, they did not.
I was also not sufficiently critical of Ryman’s financial disclosure. Its central earnings figure, underlying profit, was not fit-for-purpose. It gave the company credit for non-cash earnings from house price inflation and masked its negative cash flow. I was conscious that the underlying earnings calculation was flawed, but I could form a reasonably complete picture of the financials through my research. Ultimately, the biggest problem was not that the company fooled me about the health of its business, but that it fooled itself.
The final issue I saw, but did not weigh appropriately, was the company’s dividend policy. Up until the first capital raise, Ryman continued to pay a dividend. This made no sense at a company whose capital requirements far exceeded the cash it was generating. I pressed the company to retain all earnings until it was free cash flow positive, but ultimately, they deferred to small but influential shareholders who valued regular dividends. It was a small but telling example of how the management and board were not thinking like owners but like professional managers trying to keep the peace. The dividend policy was not the root cause of the Company’s problems – that was the loss of commercial discipline – it was, though, an easy-to-spot sign of a deeper malaise.
Dumb, but not that Dumb
Seen through the lens of crisis and missed red flags, Ryman looks like an incredibly dumb investment idea. That is not entirely fair to me and, more importantly, Ryman. Ryman is a great company with many of the attributes of a great investment. It is a national treasure in New Zealand as it has positively impacted the lives of virtually every Kiwi. The “occupancy advance”, whereby incoming residents purchase a right to stay in their unit for the remainder of their lives, is a brilliant business model innovation. It perfectly aligns the interests of all stakeholders: the retiree (who is capital-rich, but income poor), Ryman (who needs capital to build villages), the shareholder (who can compound earnings in a capital-light way) and society (who wants to see its old folk taken care of and housing freed up for young families). It creates a win-win for all stakeholders when it works. And New Zealand’s and Australia’s ageing populations represent an enormous opportunity for Ryman for decades to come.
I wrote enthusiastically about Ryman in my 2017 half-year letter and would double down on that enthusiasm here. The problem was not that I misjudged its positive attributes. It was that I did not properly weigh them against the negative ones. No investment is ever perfect, and the skill is weighing the upsides against the downsides. In this case, I got the trade-off wrong.
Would I Reinvest?
If I could invest in the pre-2017 Ryman, I would do so in a heartbeat. It will be a long slog for the Company to get there, though. Some problems, for example, excess cost in central functions and lack of capital discipline, are fixable in the short term. Others, such as uneconomical contracts with existing residents, the high level of debt, and a culture that went astray, are less so. I am rooting for Ryman to fix itself and wish the new generation of leaders well in rebuilding the pre-2017 Ryman. If I had the line-of-sight to that company, I would consider reinvesting.
The AI Boom and the Dot-Com Bubble
Is the excitement around AI today a repeat of the dot-com Bubble in the late 90s?
It is a question I think about a lot. The dot-com bubble and subsequent crash in March 2000 happened early in my investing career and were formative experiences. I saw firsthand how you can lose a lot of money if you get caught up in the excitement during the boom, and make a lot of money if you ignore the pessimism in the subsequent bust. It was as good an introduction to how the market oscillates between euphoria and depression as you can get. When a friend gifted me a copy of "The Intelligent Investor” during the bust, Graham’s idea of Mr Market could not have fallen on more fertile ground, proving out the adage:
When the Student is ready, the teacher will appear.
So is history repeating itself?
There are certainly lots of parallels between the two eras.
It was already clear in the 1990s that the Internet would fundamentally change the world by connecting everyone and permitting the frictionless flow of information. For all the exuberance, if anything, the Internet’s impact was underestimated—it would be years before social networks, software as a service, and the sharing economy would be invented, to pick just a few examples. I feel the same way about AI today. There is no question in my mind that the impact of AI will be as transformative as the Internet and potentially more so. There was enormous excitement then, and there is enormous excitement today. It was justified then and likely will be today, too.
It was unclear then who the winners would be, except for the companies selling shovels in a gold rush. Here too, the situation seems similar today. The AI companies that emerge as the big winners may not even have been started yet. Most of the Internet’s big winners, such as Google and Meta, were founded after the dot-com era.
Enormous amounts of capex are flowing into physical infrastructure. Then, it was telecoms networks. Companies like Cisco, Ericsson and Nokia were the primary beneficiaries. Today, it is data centres, and companies like Nvidia, TSMC, and ASML are the big winners.
Companies were keen then to play up their Internet credentials, no matter how tenuous. This manifested most famously in companies adding “dot-com” to their name. Something similar seems to happen today with most companies claiming an AI strategy and declaring themselves AI winners.
And finally, there was no shortage of gurus then; and there is not today. The gurus then were a product of the Zeitgeist and as clueless as the rest of us about the future. I suspect the current batch proves no different. You could not have predicted Uber in 1995. Today, you cannot predict the new business models AI will enable 10 years from now.
Parallels between the two eras abound; however, on balance, I do not think the situation is comparable.
The defining characteristic of dot-coms was that 99.999% did not work as businesses. None of them made money. Many were pre-revenue, and some were even pre-business model. Amazon and eBay were almost the only companies out of the initial crop that succeeded.
The situation today is the opposite. Most of the leading AI companies are spectacularly profitable. This is most obviously the case with the enablers of the AI revolution, such as TSMC and Nvidia. Yes, you could argue that Cisco was too, but its revenue disappeared when the IPO market shut down. However, not just Nvidia is minting cash; its customers are too. And it is not just the Metas and the Microsofts. To pick one example, algorithmic trading funds are enormous consumers of GPUs and highly profitable. It is no coincidence that Deepseek came out of a hedge fund. Venture funding no doubt pays for a lot of GPUs, but it is not the only source of capital.
The dot-com bubble played out mainly in public equity markets. Between the start of the bubble around 1995 and the peak in March 2000, thousands of companies went public. When the music stopped, there was complete and utter carnage on world stock markets. The Nasdaq lost over 75% in the bust and did not regain its prior high until 15 years later in 2015.
Today, venture-backed companies stay private longer; few have gone public in recent years. IPOs on the New York, Frankfurt and London stock exchanges, the three hotspots in the 1990s, have almost dried up completely. I do not follow private markets closely, but I understand valuations are frothy. A correction would, however, not play out in public equity markets. A meltdown in the private market valuations of AI companies would have second-order effects on global stock markets, but there are simply not enough listed pure play AI stocks for a market crash of comparable breadth and magnitude.
In a nutshell: same same, but different.
To be clear, this is not a prediction that there will not be a stock market crash. That can happen at any time. Nor is it a prediction that excitement in AI, however justified, will not end up in a bubble. Most technological revolutions do. The situation today just strikes me as different from the late 1990s.
What does this mean for Business Owner?
From an investment perspective, the most important lesson from the dot-com boom was that it was virtually impossible to pick the winners as the Internet was still in its primordial soup stage of evolution. There was only one real winner at that time - Amazon - and if you had had the insight to find it and the conviction to put all your net worth into it, your reward would have been a more than 90% loss from the peak of the dot-com bubble to when Amazon bottomed out in late 2001.
The implication for Business Owner is clear: follow the space closely, wait until the winning business models emerge, and invest in the dominant companies when the odds are weighted in our favour.
2026 Annual Gathering
Our Annual Gathering will take place on the weekend of 10-11 January 2026. We opened registration earlier this year to give people more time to plan their travel and secure hotel rooms at good rates. If you did not get a spot, please try again in 2027. All places have been allocated, and hundreds of people are on the waitlist. The only exception is for our investors, who can register anytime.
In the meantime, enjoy the rest of the summer, and happy investing!
Rob
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