Letter to Our Partners - Q1 2025

Don't be scared or euphoric - focus on your companies' longevity

Hi fellow Tortoise!

There was quite a bit of volatility in markets this past quarter, but overall, we feel like little’s changed for our portfolio companies, although we did make some very significant changes to the allocations. Our fully invested portfolio with the selected companies and corresponding allocation mix (which has changed over the course of the quarter, more on that later) yielded +4.21% (in EUR) on a time-weighted return basis. FX was a notable drag on our performance (+/- 280 bps). FX exchange rates are inherently unpredictable, and from and now then, they’ll move more significantly (especially today). C’est la vie.

For the full year (2024), our companies delivered 15.0% growth in EBITA per share. It goes without saying that 2024 was a solid year for our basket of high-quality compounders, and 2025 should be solid too (at least based on today’s information). There is the US tariff overhang, with the potential for inflation to reaccelerate. Ironically, it would benefit many of our companies’ profit margins over time (not immediately, as it’s impossible to predict the shape and speed of reflation).

Overall, with this back-and-forth in tariff announcements, subsequent delays, rate changes, we’re not scared or euphoric about our portfolio’s return prospects. It feels pretty much like it’s business as usual as we’ve been through volatile periods before. Supply chain crisis, interest rate hikes, bank turmoil early 2023 (who still remembers that period?). There is a lot of noise, and companies that show they’re still thriving will keep surprising us positively.

The next few months, we’ll be spending even more time listening to conference calls, sending questions to IR, reading through earnings reports, and other focused research on our portfolio companies, rather than crazily buying into new names. Just because of this enormous amount of volatility, we shouldn’t overreact to things, nor should we let daily stock moves dictate impulsive buying and selling behavior. We think this attitude of hyper-focusing on what we already own will serve us well.

This year, we’re planning to publish more in-depth reports into businesses we consider great case studies for quality growth investors. Additionally, we’ll also elaborate on examples of companies whose value creation turned south or didn’t materialize as expected, and why that was the case. There’s a lot to learn from failures during uncertain times, thereby improving our pattern recognition as to how we find stellar compounders. In the end, the question we should ask ourselves: what could break the thesis?

As always, we’ll keep you updated on our portfolio and the investable universe, continue to publish our deep dives, and look forward to highly insightful discussions on all kinds of investing topics. Our private Discord has never been more interactive, and should help our Partners stay the course for the long run.

Thank you for your continued support!

Yours sincerely,

The Compounding Tortoise, aka the CT

Download the letter through the below attachment.