Nothing worth doing is ever easy
“If you’re not keeping score, it’s just practice.” —Vince Lombardi
Some people enjoy games without keeping score, but I’ve never been one of them. At the age of eight, I began carrying a scorebook to the College World Series, diligently logging pitch counts, unforced errors and sacrifice flies. I refused several lemonades, lest a trip to the men’s room result in a missed out. Most fans were content knowing who won or lost, but I preferred the more authoritative scorecard. It made games feel historically significant.
This love of stats may have gone a bit far when I began reading The Baseball Encyclopedia (for fun). Clocking in at 2,800 pages and weighing 10 pounds, it’s the complete and definitive record of Major League baseball. If you’ve seen the movie Field of Dreams, you may remember the character Archibald “Moonlight” Graham who played in exactly one game with zero at-bats. I was surprised to discover he was a real player. Never having met anyone named Moonlight, I’d assumed he was created by a Hollywood scriptwriter for dramatic effect.
I mention this because we security analysts are a competitive breed and think of returns as our personal box score. We’ll never mention it in a salary review, but we’re often as motivated by performance as compensation (if not more so). People that enjoy betting on their own ability usually have some and nothing reveals an investor’s skill, or lack thereof, like a track record.
Investing without keeping score isn’t dissimilar to Moonlight Graham who never got his trip to the plate. Sure, he was one of only 21,000 that ever played in the Majors, but history is left to wonder if he was any good or not. Without a statistical record, it’s impossible to say.
I bring this up because Epigram Capital Partners Fund I commenced operations on January 1st, 2025. Few time periods matter more in an investor’s career than the launch of their first fund. Begin at the precipice of a sell-off, and you could look foolish. Start at a bear market bottom, and people will assume you’re smarter than you actually are. In other words, your timing matters.
Because large asset managers recognize this risk, they often incubate several strategies simultaneously, then cull the losers and market the winners. As a sole-practitioner, I lack this luxury.
So, while I’m excited about my first trip to the plate, I’m also circumspect about the opportunity set. The S&P 500 hit 57 all-time highs in 2024 and returned more than 20% in back-to-back years, something it has only done four times in the past century. The size of the US stock market is more than double our national product, making it more expensive than it’s ever been. The percentage of Conference Board participants expecting stocks to rise in the next twelve months is at an all-time high. In other words, caution seems to be in short supply.
Signs of froth abound, from miniscule credit spreads to surging crypto currencies. The frenzy around all things AI (no matter how tangential) may ultimately prove justified, but it leaves the more price sensitive among us scratching our heads. What’s more, the market is exceptionally narrow, with the top 10 stocks having delivered 59% of returns since October 2022.
In other words, I’ve got my work cut out for me. Nothing worth doing is ever easy and I’d rather my first pitch be a 96-mph fastball than an underhanded lob. But there is also good news. Small cap stocks seem to have missed the boat. As crowd-followers cluster in megacap tech, smaller companies with good fundamentals, strong balance sheets and reasonable valuations abound. History is full of examples when periods of extreme concentration unwound, an era when small caps typically shine.
My only regret is that security analysts don’t use pine tar or have spikes to tap before approaching the plate.
Sincerely,
Dan Walker
General Manager
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DISCLOSURE
This material is confidential and may not be distributed or reproduced in whole or in part without the express written consent of Epigram Capital, LLC (the “Investment Manager”). This material is not intended to provide, and should not be relied on for, investment, tax, legal, or accounting advice. You should consult your own investment, tax, legal, and accounting advisers before engaging in any investment transaction. The information and opinions contained in this document are for background purposes only and do not purport to be full or complete. No representation, warranty, or undertaking, express or implied, is given as to the accuracy or completeness of the information or opinions contained in this document, and no liability is accepted as to the accuracy or completeness of any such information or opinions.
PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
This material may contain certain forward-looking statements and projections regarding market trends, investment strategy, and the future asset allocation of the Fund, including indicative guidelines regarding position limits, exposures, position sizing, diversification, and other indications regarding the Fund’s strategy. These projections and guidelines are included for illustrative purposes only, are inherently predictive, speculative, and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. The guidelines included herein do not reflect strict rules or limitations on the Fund’s investment program and the Fund may deviate from the guidelines described herein. There are a number of factors that could cause actual events and developments to differ materially from those expressed or implied by these forward-looking statements, projections, and guidelines, and no assurances can be given that the forward-looking statements in this document will be realized or followed, as described. These forward-looking statements will not necessarily be updated in the future.