SVN Capital Fund 4Q 2023 Commentary

SVN Capital Fund’s commentary for the fourth quarter ended December 31, 2023.

Dear Partner,

SVN Capital Fund’s portfolio returned +36.2% net (subject to audit) for the year 2023. Your return will be different depending on when you invested.

Here is what I’d like to cover in this letter:

• why does the portfolio have only 9 names?
• the portfolio and performance highlights; and
• insights from the Kinsale Capital Group’s (KNSL) investor day, and my meetings with the CEOs of Evolution AB (EVO) and Old Dominion Freight Lines (ODFL).

Q4 2023 hedge fund letters, conferences and more

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Why does the portfolio have only 9 names? In late September 2023, I was on the road meeting with a few investors, their friends, and other souls interested in investing. I got a lot of good questions. I will try and answer some of them in a separate blog post later in the year. But in this letter, I’d like to address the question about why there are only nine names in the portfolio. As I was explaining the portfolio construction, one attendee interrupted the proceedings and asked, “Why only nine? Even Jesus chose twelve.” Since divinity manifested itself, I decided to disclose my answer to this question to a wider audience through this year-end letter.

So, why do I have so few stocks in the portfolio? While there are many reasons, I will give at least three for why such concentration makes sense to me.

First, some empirical evidence. “…[F]eeling like a pregnant woman at a convention of obstetricians” is how the advertising genius David Ogilvy expressed his enthusiasm for talking about creativity. That’s a pitch-perfect description of how I felt talking about the findings of Dr. Hendrik Bessembinder to my friends in the industry soon after his paper was released.

In 2017, Professor Hendrik Bessembinder of Arizona State University published a paper with the provocative title, “Do Stocks Outperform Treasury Bills?” Provocative because most of us would say, “Of course, stocks do outperform T-Bills.” Needless to say, his findings were illuminating. Fans, of which I am one, and non-fans in the investment world still debate the findings.

So, here is what Dr. Bessembinder concluded after looking at almost 26,000 stocks over a span of 90 years (1926–2016) in the US. The following chart is from a report by Baillie Gifford in Scotland.

• Barely 4% (1,092 companies) of the stocks accounted for all the net wealth (~$35 trillion) created in the US stock market;
• 90 companies (barely 0.3% of the stocks) accounted for half of all that net wealth; and
• about 1,000 companies accounted for the other half of all that net wealth.

The net collective contribution of the balance—24,240 companies (93%)—was the same as a one-month Treasury bill! Now, how about that for provocation?

Apart from the main finding that very few companies account for net wealth creation over time, here are a few more takeaways.

• Big winners compound their gains over long periods.
• The gains of big winners will offset the losers by an order of magnitude.
• The short-term deviations of these big winners will be big but will not matter in the long term.

The provocateur didn’t stop with just the US market. He did a similar study on a global scale and concluded that barely 3% of the stocks outperformed one-month Treasury bills on a global scale.

The essence of his findings is that the business world is divided into a tiny number of wonderful businesses—well worth investing in at a price—and a huge number of bad or mediocre businesses that are not attractive as long-term investments.

You can read the original research here: Do Stocks Outperform Treasury Bills?

The second reason for owning only nine names in the portfolio is a direct result of the four-part investment criteria, or the financial sieve, I have at SVN Capital. To jog your memory on this point, I look for an affirmative answer to the following four questions.

• Is it a business that I can understand?
• Is it a high-quality business that generates a healthy return on incremental capital and does it have good reinvestment opportunities?
• Is it run by honest, competent management teams with skin in the game?
• Is it available at a reasonable valuation?

With such a fine financial sieve, not many companies pass through the screen. Finding an attractive investment is like waiting underwater for certain species of fish to swim by. In the meantime, I just go back to wielding the power of patience on the existing businesses in the portfolio. As such, I have added just three names in the last two years: Old Dominion Freight Lines (ODFL) in 2022, and Hermès International (RMS) and Kinsale Capital Group (KNSL) in 2023.

The third reason comes from strengthening my visual vocabulary by observing some of the giants in the business who made strong impressions on me with their concentrated approaches, such as Phil Fisher, John Maynard Keynes (King’s College), Lou Simpson (GEICO), Joe Rosenfield (Grinnell College), of course, Warren Buffett and the recently deceased Charlie Munger, and a few lesser-known mortals.

They all have written or talked about their concentrated approach to investing publicly. But here is a not-so-public expression by one of those giants, as retold by someone who worked with him closely. In 2022, Todd Combs, one of the two managers that Warren Buffett and Charlie Munger hired to invest alongside Mr. Buffett, sat down for an interview with Michael Mauboussin, a professor at Columbia University. Here is a snippet of that conversation:

Combs recalled the first question Charlie Munger ever asked him was what percentage of S&P 500 businesses would be a “better business” in five years. Combs believed that it was less than 5% of S&P businesses, whereas Munger stated that it was less than 2%. You can have a great business, but it doesn’t mean it will be better in five years. The rate of change in the world is significant, which makes this exercise difficult, but this is something that Charlie, Warren, and Todd think about.

Let me pause here…Charlie Munger thought that less than 10 businesses, out of the 500 largest publicly traded businesses in the US, would be better in five years! Since, better businesses lead to high-performing stocks is axiomatic, Charlie Munger, the practitioner, was essentially confirming what Dr. Bessembinder, the academician, found through an extensive analysis. After that astonishing observation, managing a portfolio that is not concentrated, I am afraid, will make me the target of Mungerian admonition.

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Portfolio and performance highlights:

We are fully invested as cash is approximately 1.0%. All nine stocks made a positive contribution to the total return in 2023. Our portfolio is concentrated but geographically diversified; approximately 60% of the businesses are listed in the US, and the balance is spread across Poland, Sweden, and France. A snapshot of the portfolio as of 12/31/23 is in Appendix I.

I didn’t make any new purchases or sell any of the existing names from the portfolio in the second half of 2023. “Patience, measured not just in years but in decades, is an investor’s single most powerful weapon,” said Joe Rosenfield, the legendary former head of endowment at Grinnell College in Iowa. He said that one of his three core investment philosophies was to sit still. Sitting still, physically, is my favorite sport. Sitting still, mentally, is something I train hard for every day. Patience has always been a weapon in my arsenal, and I wield it with gusto.

It can be hard to sit still with so much noise. And as Keynes knew in the early 20th century, “…the distance from manic to panic on the stock market could be vanishingly short.” Looking at 2023, I’d say the distance is just the same in reverse—panic to manic. War, interest rate increases, and inflation fears roiled the market in 2022. While the number of wars (at least the international variety) has increased in 2023, the other two appear to have stabilized. More importantly, our portfolio companies’ sustainable competitive advantages evident in their high gross margin, and the dearth of debt on their balance sheets, allowed most of our companies to not slow down their progress.

Our portfolio is a collection of high-quality businesses. These businesses are highly profitable and generate healthy free cash flows. If cash is the lifeblood of a business, then earnings are its oxygen. Our companies produce gobs of both. The following table lists some of the important metrics of our portfolio and the S&P 500 index, which is a good proxy for the overall market. Our portfolio metrics reflect the high quality of our businesses and are materially better than the market.

Return on Invested Capital (ROIC) is the primary test of performance in managing a company. Not only do our businesses generate high returns on capital, but they also have terrific opportunities to reinvest in their businesses—two of our nine holdings reinvest 100% of their FCFs back into their businesses. The combined effects of high returns and high reinvestment rates over a long period leads to significant growth in intrinsic value.

Free cash flow growth will drive market value growth over time. Healthy free cash flow growth is also a great gauge of corporate health. The FCF growth of our portfolio is almost 8x that of the S&P 500 index.

Finally, our collection of high-quality businesses carries low financial leverage. The debt/equity of our portfolio is only 26.8%, while that of S&P 500 companies is almost 4x higher. Related to the level of debt is interest coverage, which shows the relationship between profits before interest and the interest charge. A high ratio suggests financial stability and flexibility at the same time. Interest coverage for our portfolio is almost 8x that of S&P 500 companies.

So, the final question is about valuation. The free cash flow yield (next year’s free cash flow/enterprise value), one of the valuation metrics I use, of our portfolio is approximately 3.1%. Incidentally, the S&P 500, which is a good reflection of the overall market, is also trading at a similar valuation. As I have shown above, our portfolio of businesses is fundamentally far better than the average; it generates more cash, is capital efficient, and carries little in terms of debt, yet it trades at a similar valuation as the market. I strongly believe that our portfolio is attractively priced.

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Insights from management meetings:

“Sometimes I sits and thinks, and sometimes I just sits,” said Satchel Paige, the oldest rookie (he debuted for the Cleveland Indians at the age of 42) in Major League Baseball history. Satchel Paige was a legendary pitcher and became the first player from the Negro Leagues to be inducted into the Baseball Hall of Fame. Throughout his career, he dispensed his philosophy in pithy one-liners. I like this one above because it captures my typical day at the office.

One of the key responsibilities I have as the investment manager is to continue to learn…about myself, the markets, and particularly the companies in which we are invested. This part of my life falls into two buckets. The first kind is the closest to Satchel Paige’s philosophy; it’s about sitting down, reading company reports, books, newspapers, and magazines, learning and just trying to understand what is going on in our companies and around the world. The second kind is about learning from other people: investors, analysts, and, more importantly, from the management teams of these companies. This concoction, I believe, is the best corrective to the mental arthritis that afflicts many in more stereotyped jobs.

While the first kind dominates my typical day, in Q4 2023, I had more opportunities to learn through the second kind. I met the management of three of our companies: Kevin Freeman (CEO of Old Dominion Freight Line, Inc. (ODFL)), Martin Carlesund (CEO of Evolution AB (EVO)), and the entire management team of Kinsale Capital Group, Inc. (KNSL). For me, meeting the management teams in different settings is akin to collecting pebbles to form a mental picture over time. The process helps build—and sometimes breaks—trust and confidence.

Let me go in reverse chronological order.

KNSL:

In mid-December, I attended Kinsale Capital Group Inc (NYSE:KNSL)’s investor day presentation in Richmond, VA, where the company is headquartered. KNSL is one of two new additions to the portfolio this year.

The insurance industry is cursed with a set of dismal economic characteristics that make for a poor long-term outlook: hundreds of competitors, ease of entry, and a product that cannot be differentiated in any meaningful way. In such a commodity-like business, only a very low-cost operator or someone operating in a protected and unusual small niche can sustain high profitability levels. [emphasis is mine]

Warren Buffett wrote this in his 1987 annual letter. Almost 23 years later, Michael Kehoe founded KNSL, an insurance company with those features—low cost and small niche. Before I tell you more about that, let me point out a recent podcast I did. In October 2023, my friend Graham Rhodes, who founded and runs Longriver Investment Partners, a global fund based in Hong Kong, invited me to join his podcast in which I discussed the industry (Excess & Surplus insurance or E&S), KNSL’s opportunity, management, and valuation. You can listen to the podcast here.

First, the unusual, small niche. Property & Casualty (P/C) insurance is a large and mature industry; ~$1.0 trillion of premiums will have changed hands in 2023. This market is dominated by the large insurers (e.g., State Farm, Allstate, and Travelers). These standard insurers underwrite low-risk businesses. Their ability to raise premiums is controlled by the state insurance regulators. As such, they shun “high-risk” businesses, which then drop into the non-standard or E&S market. So, about 11% (~$115 billion) of the P/C business falls into this specialty market. These specialty insurers operate with one significant difference and advantage over their standard brethren—their ability to increase premiums is NOT controlled by the state regulators. While some of the standard insurers write in both the standard and non-standard markets, KNSL operates exclusively in the E&S market. The E&S market is not only large, but it is also growing fast; it has grown ~16x over the last 34 years, while the total Property & Casualty (P/C) industry has grown at a much slower pace, ~4.0x.

There are some enduring factors that drive the growth of the E&S market. For example, some of the underwriters I talked to during the investor day highlighted natural catastrophes, fondly referred to as Cats (a big hurricane like Hurricane Ian) or Super Cats (a massive earthquake like the one in Northridge, CA, in the early 90s). When these Cats and Super Cats meow and purr, they not only leave death and destruction in their wakes, but also lead to increased loss experience and reserve development in P/C insurers. This domino effect pushes more property insurance to the E&S market. Since mother nature does not appear to be in any mood to tone down her ferocity, pricing in the Property line of business is expected to remain high. Similarly, the more litigious states of CA and NY are driving more casualty business into the E&S market.

The second qualifier that Warren Buffett highlighted in his 1987 letter was low expense base. KNSL is a hands-down winner in this area; see the table below and train your eyes on the column “Expense Ratio.” The expense ratio for KNSL has consistently been in the low-20% while it is 15–20 points higher for most other insurers. This low expense base is a primary driver for that high return on equity (ROE) column.

At the investor day, the COO, chief actuary, chief claims officer, chief technology officer, and various underwriters highlighted the ingredients of the secret sauce of low expense ratio. Below are some.

• KNSL is the only publicly traded insurer that writes exclusively E&S policies.
• The average premium/policy is only ~$15,000, the low premium/policy is a market with less competition, while most of its competitors are focused on much bigger policies, which invariably attract more competition.
• All policies are underwritten in-house. Most insurers outsource, particularly the low-premium policies, to Managed General Agents (MGAs), who get paid based on the size of the premium and not the quality of the underwriting, which then leads to higher losses.
• All underwriting is done in one office location in Richmond, VA, with a keen eye on keeping the costs low. Another key feature of its business model is that it pays lower commissions to outside brokers that bring business, and yet they keep feeding new business to KNSL because it is one of the few underwriters to take on hard-to-place risks. Another reason is the speed at which KNSL quotes, mostly within 24 hours, which means the brokers get paid faster; most underwriters take a week, if not weeks, to quote on submissions. Almost all the presenters highlighted this unique feature all through the day.
• KNSL uses its inhouse IT infrastructure to quote on more submissions and respond more rapidly, mostly within 24 hours.

While all of the above features are replicable, nobody has tried to…at least not in the low premium/policy market. This is the backdrop to a company that has grown its book value/share by 4x and earnings/share by 8x since going public in 2016. Consequently, the stock is up 20x since IPO. Who knew such a sere industry could produce such a standout performer? I walked away convinced that this glorious past can be repeated in the future.

Apart from the low-cost base and small niche operation, the culture within the organization gives me that confidence. The company’s philosophy is to hire young talent and promote from within. I met the heads of the energy and life sciences groups—more evidence of young talents climbing the corporate ladder. This philosophy of growing from within helps build and strengthen a unique strand of culture.

The source of such a cultural strand has to come from the top. Michael Kehoe, the founder who owns ~$300 million of stock, was conspicuous by his absence from the podium. He presented ZERO pages from the 62-page presentation deck on the investor day. Instead, he showcased the rest of his colleagues, prowling the floor like a proctor in an examination hall, answering questions, and providing supporting arguments. The paterfamilias has been in the business for several decades and has been able to attract several senior executives from companies that he has run in the past. If Michael is the Jordan of KNSL, his Scottie Pippen is Brian Haney, the COO, who has worked with him for a couple of decades.

One important functional area of an insurance company that did not present that day was the investments group. That is because KNSL outsources this critical functional area. While the company is unique in all the other functional areas, it loses its uniqueness in the important investment arena. While it is a gaping hole in its strategy, it is not debilitating. Besides, Michael and the team have already started a small investment group in-house and plan to grow it.

So, we own a specialty insurer that is growing at a healthy 20% rate, generating ~20% return on equity, trading at a reasonable valuation, and is run by an owner-operator. I’ve already deployed the important weapon from my arsenal—patience. I will give you more updates in the future.

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EVO:

In late November 2023, I had a pleasant surprise in the wait. I was invited to meet with Martin Carlesund, the CEO of Evolution AB (STO:EVO) based in Stockholm, Sweden. Martin’s peripatetic life leading this largest supplier of live casino games brought him to New York, where he met with a small group of current and prospective investors. While I have met with Martin, Chief Product Officer Todd Haushalter, and Head of Investor Relations Carl Linton in the past, I couldn’t wait to add more pebbles to my mental picture.

EVO is the largest (~60% market share) live casino supplier in the world. It is not a casino or a gambling operator, but a supplier of infrastructure for the online variety (iGaming) to operators like DraftKings, FanDuel, and William Hill, to name a few. The global gambling market is large (€437 billion), but it is growing only at the GDP rate, while the iGaming market (€174 billion), the smaller segment of the global gaming market, is growing at the fastest (~12%) rate. EVO, as you can tell from the table, is growing at an even faster clip. Yet, the stock has languished around the current price level for the last couple of years.

Here is what I wrote about EVO in my year-end 2022 letter:

As Peter Lynch said in his book Beating the Street, “Perhaps there is some poetic justice in the fact that the stocks that take you the farthest, in the long run, give you the most bumps and bruises along the way.”

Evolution AB (EVO) and KKR & Co Inc. (KKR), two of our long-held and high-conviction names, were both a bump and a bruise in 2022. They each accounted for more than 4% of the decline. Ouch!

While the bumps and bruises have healed completely in KKR (the total return was ~80% in 2023), it is beginning to heal in EVO (the total return was ~16% in 2023). However, the stock has been flat since 2022, despite strong operating performance; see the far-right column titled Cash Return on Invested Capital in the table below.

I walked away from the meeting with Martin having added to my pebble collection, convinced that the original investment thesis was intact. Martin’s explanations and subsequent actions by the company on the following three hot-button issues give me confidence that the thesis is not only intact but continues to strengthen.

Acquisitions: EVO’s acquisition of NetEnt AB, the biggest in the company’s history, has been its bugaboo since the deal closed in 2020. EVO issued ~30 million shares (~$2.4 billion) for this acquisition. NetEnt’s strength was in random number generator (RNG) games, a.k.a. slot games. It was expected to grow at a double-digit rate but has consistently fallen short, hence the perception that this acquisition has been a failure.

Martin pointed out that NetEnt, before it was acquired, was generating an EBITDA margin—a frequently used industry metric—of barely 40%. EVO, which now includes NetEnt, on the other hand, has not only generated 68%–72%, but also expects to generate such high margins in the future. This indicates how much NetEnt has improved under the umbrella of EVO. Also, the technical expertise of NetEnt has been instrumental in EVO releasing games that combine both live and RNG. Martin said, “While the goal is to still generate double-digit growth in the RNG segment, NetEnt has already been an enormous contributor to the combined entity.”

I still would have liked EVO to not issue stock for this acquisition, but that is water under the bridge now. The board and the management team, however, appear to have a newfound appreciation for their own stock—see capital management below.

US Expansion: Live casino has been approved in only five states in the US (NJ, PA, MI, WV, and CT). After a flurry of activity when these states opened up, the live casino market has been in a state of pregnant silence. While various state legislators have drawn up the documents to allow live casinos in states such as IA, IL, and IN, no new states have been approved in the last two years. In the meantime, the US online gaming market is expected to grow from $5.1 billion in 2024, to $11.0 billion by 2029—a CAGR of ~16.5%.

While Martin does not know when some of the states that are on the brink will regulate live casino games, EVO is not waiting. It has been releasing new games at a fever pitch. In 2023, EVO released about 100 new games. One of the most expensive live games that was ever developed in the iGaming industry, by any company, is EVO’s Crazy Time, a game built around a wheel of fortune. It has been a global hit since launching in 2020, serving millions of players.

However, this game has not been available to players in the US…that is, until recently. The various US state gaming regulators require the games to be manned, operated, and played, for that matter, within the state borders. This condition of requiring games to be operated within the state borders, instead of being broadcast from a different location, makes a game like Crazy Time incredibly expensive to operate. So, EVO did not offer it. However, on December 12, 2023, the company announced that Crazy Time would be launched in New Jersey. I expect the new games, and particularly Crazy Time, to provide a significant tailwind to EVO’s US operations.

Capital management: From a valuation standpoint, EVO is the cheapest stock in the portfolio today. The business has grown at ~50% per year over the last five years, the balance sheet has been devoid of debt under Martin’s watch, and it generates well north of 20% return on capital.

Not only does the past look bright through the rear-view mirror, but the landscape looks glorious through the windshield, as well. Yet the stock has been languishing around the current price and low multiples for the last two years. This is a setup that Henry Singleton, the legendary CEO of Teledyne, a conglomerate from the yesteryears, would have devoured. After watching the stock of Teledyne trade below intrinsic value, he repurchased approximately 90% of the company’s stock over two decades. Forbes magazine said:

Dilution? Singleton virtually dehydrated Teledyne’s capital structure. Growing the business while shrinking its capital. Quite a trick.

But the management and the board of EVO appeared to cup their ears against the shareholders’ (mostly American) exhortations on share buybacks …that is until recently.

First, it was Martin Carlesund who stepped up to buy SEK 50 million (1 USD ~= 10 SEK) of shares…again in 2023. He did the same in 2022, as well. Then, in November 2023, the board announced that it was authorizing the repurchase of €400 million of shares. While this repurchase authorization will not dehydrate EVO’s capital structure, it is a good start. Whether it is a result of outside pressure or inborn brilliance, I believe it is the right mode of returning capital at the current valuation.

While there is a lot more I could share on EVO, I’d like to stop here and tell you a bit about the meeting in Music City.

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ODFL:

In mid-November, I met Kevin Freeman, the newish CEO of Old Dominion Freight Line Inc (NASDAQ:ODFL) (he took over in July 2023), who presented at a conference in Nashville, TN. Kevin joined the company in 1992 and is the second non-founding-family member to run it. The previous CEO, Greg Gantt, had also been with the company for about 30 years when he handed the reins over to Kevin. When the god of continuity hovers over the employees, particularly the senior management team, the blessings highlight a distinct strand of culture within the organization. Most senior executives have been with the company for 20–30 years.
While I prefer owner-operated companies, the founding family, Congdon, continues to be involved in the business: David Congdon, a grandson of the founders Earl and Lillian Congdon, is the chairman of the board. Also, the Congdon family continues to own ~18% of the company.

Before I proceed further, a reminder on what ODFL does. The company has the 2nd largest market share in the less-than-truckload (LTL) trucking industry. LTL is distinctly different from the much larger truckload (TL) shipping industry. TLs move freight that takes up an entire truck on a very predictable schedule that is repeated often. LTLs, on the other hand, move freight that is irregular in both its dimensions and shipping frequency. ODFL is the best in the industry when measured in terms of operating ratio (OR)—a commonly used industry operating metric—on-time delivery, and damage claims. In fact, in October 2023, the company received the prestigious Mastio Quality Award for the 14th consecutive year.

“Freight recession” is a frequent but fleeting febricity that afflicts the industry. Kevin reminded us of the current one we have been enduring since late 2022. Inflationary pressures, combined with recessionary fears, led to a decline in shipping volume. An added feature this time was the steep rise in interest rates, which then forced both its customers and competitors to parsimony. The Federal Reserve was blamed for the 2nd, 3rd, and 4th largest bankruptcies in US banking history, all of which happened in 2023, after having fiddled with the interest rate curve in a frenzy. The same fiddling led to the bankruptcy of the 3rd largest LTL trucking company, Yellow Corp., a troubled competitor wounded by the weight of debt on the balance sheet and the demands of its unionized employee base. For comparison, ODFL has a balance sheet with net cash, and its employees are not unionized, a distinctive difference relative to many of its competitors.

The customers of Yellow did not wait for the inevitable final breath to move their business to operators in finer fettle. The pace of its fleeing customer base just picked up steam as time ticked on Yellow’s clock. Interestingly, given Yellow’s union-centric business model, much of its business was picked up by other union-centric operators. The rest of the non-union business went to other operators. ODFL didn’t directly benefit from this turmoil. Some of these finer fettle operators did not have the excess capacity to handle this benevolence from Yellow. This led to a deterioration in the operating metrics of these operators and a loss of customers. These are the customers that ODFL picked up, making it an indirect beneficiary of Yellow’s demise. ODFL has always focused on maintaining excess capacity of 25%–35%, for such exigencies.

Buying land to build its service centers has been the primary reinvestment funnel for the company. Over the last 10 years, ODFL has allocated more than 40% of its total capex to buying land to build its service centers. Here is what CFO Adam Satterfield said in the Q3 2023 call:

We are the only carrier that is really investing significantly in service center capacity. We’ve invested $2.0 billion over the last 10 years. And as a result, we’ve been able to increase our door capacity by 50%. And when you look at the public LTL companies, which make up 65%–70% of the market, overall capacity is down close to 10%.

Kevin told us that they currently have almost 120 ongoing real estate projects, at different stages, within the company. While Kevin and the CEOs of other trucking companies that presented at the conference believe that the current malaise in freight volume is likely to extend into at least the first half of 2024, they all believe that LTL will continue to benefit from e-commerce trends in the long term.

So, how has all this impacted the operating performance? Well, as the freight malaise worsened, ODFL saw its operating performance soften—see the first two quarters of 2023. But, after Yellow shuttered its doors permanently, ODFL, as the indirect beneficiary, saw its operating performance improve—see Q3 2023. However, over the medium-to-long term, I expect ODFL to continue to improve its OR to less than 70% and improve its already dominant market position.

I walked away from my first meeting with Kevin Freeman, the newish CEO, with the confidence that the 30-year veteran is not one to rock the well-established operating principles of the company. After all, that’s what has helped the stock price compound at ~26% over the last 20 years.

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My hunt for new ideas keeps me busy staring at India, where I am told that SVN Capital Fund is close to being approved for trading in Indian stocks. I have been working with a large local bank to get approved. I’ll keep my fingers crossed and give you an update in the mid-year 2024 letter.

“An optimist sees the doughnut, while the pessimist sees the hole in the middle,” said Navjot Singh Siddhu, a former Indian cricketer. I continue to see the doughnut, and I hope it came through clearly in this letter. The fund is open for new and additional investments. If you are interested in learning more, please contact me or Jessica Greer (jessica@svncapital.com)/443-775-1227).

It’s a privilege to serve you. Thank you.

Sincerely,

Shreekkanth (“Shree”) Viswanathan