Super cheap Boom

The above quote is an excellent encapsulation of why long-term investing works so well. In our, and Ed’s, opinion the market has a serious tendency to extrapolate the recent past into the future. This extrapolation creates some fantastic value opportunities when the market sees bad news as the new status quo. This can lead to companies becoming cheaper than even the most pessimistic value investor believes possible. The corollary of this is that value investors often buy too early - something our Ranger Fund suffered from in 2015.

However, as time progresses there is an interesting inflection point with value stocks where the market starts to question whether the bad news might be abating. This stage of the value opportunity can see a significant re-rating of the stock price from this shift in sentiment, but even with this re-rating the stock price can still be at very depressed levels as investors then wait for proof via positive trading statements and earnings results.

Recently, the Ranger Fund has benefited from some of our value positions appearing to reach this inflection point. This year two of our Mining Services companies, Macmahon Holdings and Boom Logistics, have appreciated significantly, up 145% and 81% respectively. At a fund level, they explain 11% of the 21% return that the Ranger Fund has delivered year to date. But, just as importantly, they are also a big part of why we remain confident in the ability of the fund to continue to deliver positive returns in the medium- and long-term. We still see significant upside in their share price. They have merely gone from extraordinarily cheap to super cheap.