The 2017 New Capital Annual Conference
Our 2017 Annual Conference was held October 26 and was well attended by approximately 50 clients. Thank you to all of those who attended, and we look forward to seeing as many of you as possible at next year’s conference. Our focus this year was on the value that our advisory work brings to our clients, so-called “advisor alpha”, a concept pioneered by Vanguard, with whom we have been working to adopt and even expand these concepts. The basic idea is to quantify, in percentage terms, the value that New Capital brings to you on an annual basis.
The 2017 Annual Conference
Speaking of value, the Houston Astros were purchased at a “value stock” price of $680 million on November 17, 2011, and as is now well known, the new ownership and management set about to re-make the team with a radical housecleaning and rebuilding period. On April 11, 2017 Forbes pegged the value of the Astros at $1.45 billion, implying a return to investors of 213% overall, and 13.45% annualized.
2017 World Series Champions
I imagine that right now, the Astros may be valued well above Forbes’ April valuation. And that, of course, is because, six years after being sold, the Houston Astros defeated, in order, the Boston Red Sox, New York Yankees, and Los Angeles Dodgers to become baseball world champions. As I write this, approximately half a million (estimated) people are gathering in downtown Houston to celebrate this astonishing victory, earned in one of the most exciting and dramatic World Series ever played. I grew up watching the Astros, and never thought they would ever win the World Series, even though they have had very good teams over the years, and made one trip there (they were swept in four games by the Chicago White Sox in 2005).
The Astros were indeed a value investment for their owners, selling at a depressed price and low market value to book value. But while New Capital can’t really obtain ownership for you in a major league baseball team (the Cleveland Indians were actually publicly traded until 1999), you should not feel too bad at missing buying into the Astros. Over the same period from the sale of the Astros to the Forbes valuation, US small-cap value stocks (which the Astros would have qualified as when they were sold) returned 209%, or 13.1% annualized, very close to the return on Astros ownership. New Capital includes a substantial overweighting in its equity portfolios to small-cap value US companies, and so your portfolio will have experienced gains similar to the increase in the value of the Astros from this segment of your investments. They don’t, however, come with front row seats or a World Series championship, sorry.
The good news, however, is that the Astros victory, especially in the wake of Harvey’s terrible destruction, can be claimed by all of Houston. As the crowds gather in downtown Houston for a parade about to kick off, you might feel satisfied at both your baseball team, and your small-cap value stocks.
Leonard Golub, CFA
Fiduciary Financial Advisor