Southern Holdings Trust (the “Fund”) seeks to invest in two types of businesses: (a) Compounders, and (b) Special Situations.
A Compounder is a high-quality business which has attractive unit economics, insulated by a durable economic moat, and a long pipeline of reinvestment opportunities. The Fund seeks to partner with shareholder-oriented management which have a track-record of making sensible capital allocation decisions. The Fund is unwavering in its quest for value and will only invest in such opportunities when offered a wide margin of safety. Southern Asset Management (the “Manager”) views these positions as core holdings of the Fund, earning returns through the participation of long-term ownership.
Special Situations are investments in businesses experiencing temporary hardship or undergoing a major corporate event. Due to a variety of potential reasons, these stocks are often discarded at depressed valuations and their appeal is characterised by a bargain price which offers asymmetric risk-reward. The Manager views these situations as opportunistic investments whereby the Fund acts as a provider of liquidity to motivated sellers.
The Fund’s investment style is inspired by Mohnish Pabrai’s concept of “Heads I win; Tails I don’t lose much.” The Fund will only deploy capital in an idea when the Manager feels that downside risk is low and it is probable that the Fund’s original investment will be returned within three years.
The Manager views the stock market as a medium which provides the opportunity to become part-owners in world-class organisations and to exploit irrational valuations placed on under researched and out of favour companies. The Fund will place large infrequent bets when the odds are favourable and intends to hold between eight and twelve stocks diversified among various industries.
The Manager has a strong distaste for losing money and refuses to lower the bar if the Fund is unable to find compelling opportunities. This will often cause the Fund to hold large amounts of cash during the later stages of market cycles. The objective of the Fund is to preserve unitholder wealth by minimising the risk of permanent capital loss and to maximise long term profits through intelligent capital allocation.