💼 04/25: Navigating Volatility for Long-Term Gains
A great example of how volatility can work in favor of public company investors
Welcome back dear fellow 🧙♂️ Hermits 👋
Want more context? Track the journey so far:
💼 The Hermit Portfolio: March Update
💼 The Hermit Portfolio: April (previous) Interim Update
Index
Briefing
This eleventh installment is packed, covering a wild April, a fresh round of buys (some better timed than others), the official launch of our fund, and a few sharp insights into starter positions and how we think about acting quickly and with humility.
First, as we do in each update, we’ll take a step back to assess the overall state of the portfolio. This month, we’ll also reflect on how we weathered one of the steepest drawdowns we've seen since going independent, along with the sharp rebound that followed.
Second, we’ll walk through the launch of the fund itself: how it came together, what we’re prioritizing right now (hint: fundraising and manager interviews), and how it’s changed the way we think about portfolio liquidity.
Third, we’ll talk about some of the key names we’ve added or topped up. That includes our first stake in Nebius, a potential AI infrastructure gem that’s been flying under the radar since its Nasdaq relisting. It also includes Golar, Arcure, and District Metals, all of which offer meaningful upside and near-term catalysts.
As usual, we’ll break down the thinking and where we’re still holding back commentary as we build positions in illiquid names.
Lastly, we’ll share a few of the more tactical decisions we made like trimming Raketech and Gismondi to rebalance and fund new purchases. And yes, we’ll walk through the quick round-trip we made with a leveraged S&P ETF, one we wouldn’t recommend you do… but that we pulled off in a timely manner.
Please note that this portfolio faithfully reflects the author’s personal seven-figure investment portfolio which will be phased out as positions get established through the regulated Equity Focus FIL.
This publication is confidential and intended solely for the use of the person or entity to whom it is given or sent. It may not be reproduced, distributed, or transmitted without the author's prior written consent. By accepting to receive the full post as a 🧙♂️ Hermit Premium member, the recipient agrees to be bound by the foregoing limitations.
None of the following should be construed as investment advice. Please consult a financial advisor before making any investment decision. You will find a full disclaimer at the end of this post.
🎯 On Buying a Company: Fast, Humble, and (Hopefully) Right
One thing we didn’t touch on in our last installment — but which our quick moves in and out of GRBK and ORGN illustrate well — is our willingness to act fast and admit when we’re wrong.
While research shouldn’t be rushed, certain insights only surface once you have skin in the game. We've said before that once you understand about 50% of a situation, you’ve often done enough to initiate a position.
That said, a few important questions remain:
What exactly qualifies as a starter position?
How much information is enough to justify taking it?
When does additional research stop adding real value?
What else should you be looking for?
Let’s break each of these down.
What exactly qualifies as a starter position?
First, a starter position for us typically falls between 0.1% and 2% of the portfolio. The wide range reflects not only our conviction level but also the complexity of the situation and — crucially — how much work still lies ahead.
A smaller position often signals that we’re still in the early stages of our research, with more questions than answers. A larger starter position suggests we have a foundational understanding and enough confidence to take on some exposure, but we’re still monitoring for key catalysts, confirming assumptions, or waiting for better pricing.
For example, suppose we come across a small-cap software company with a solid product, a clean balance sheet, and recurring revenue, but limited disclosure and a murky capital allocation history. We might begin with a 0.25% position — enough to track it closely and justify spending time on deeper diligence.
As we dig into management, speak to a few more customers, and build complexity into our model, we may either scale the position up — or exit entirely if red flags emerge.
On the other hand, if we find an industrial company trading at a clear discount to intrinsic value, led by an aligned management team with a strong capital allocation track record — and we’ve already followed the business for years — we might start closer to 1.5–2%. This wouldn’t qualify as a full position for us, but it does allow us to start getting involved with the company.
It’s worth noting that, in some cases, building a full position simply takes time—especially in less liquid names. For example, with GIS, ALQ, and, more recently, BLM, it took us several weeks and a few dozen carefully timed buys to accumulate a meaningful stake.
The key idea is that a starter position is not a “bet” so much as an invitation to do more work — with skin in the game to keep us honest.
How much information is enough to justify taking it?
Second — and I hope it’s clear that “50%” is just a mental benchmark, not a literal figure — we mean that we’ve reached a point where we fully understand how the business makes money and have assessed the upside and downside in detail (especially the risks).
Additionally, we’ve formed a view on management, including their intentions and ability to execute on what we think are the next four or five key milestones.
If those pieces are in place, we’ve done our “50%” of the work.
We use this analogy because no matter how deep you dig — even after months of focused research — there are always things you know you don’t know, and worse, things you don’t even know you don’t know.
The former might be small details, like a CEO’s family situation or health issues with their parents. The latter can be much more dangerous — like a factory manager stealing gold while invoicing through shell companies owned entirely by his wife. (Both of these examples, by the way, actually happened.)
When does additional research stop adding real value?
Third, knowing when to stop digging is more art than science. Because research is an ongoing process — companies are dynamic creatures, after all — we sometimes need to step back and reassess.
In our experience, this decision is driven more by instinct than by any repeatable formula.
If a company is taking up too much mental space, if you’re losing sleep, or if you're more irritable or stressed than usual, it’s often a sign that either the position is too large… or that there’s something about the company you’ve missed.
What else should you be looking for?
Fourth, always remain vigilant for disconfirming evidence.
Even if you've done your due diligence and concluded that the company is in good health — and even if your thesis seems solid — you should never stop looking for information that could prove you wrong.
Watch out for signs of managerial excess or poor capital allocation. If management starts purchasing private jets, throwing lavish parties, or engaging in vanity projects, it could signal a shift in priorities from shareholder value to self-enrichment.
Similarly, nepotism is a major red flag — if unqualified family members are being hired, promoted, or given board seats, it suggests governance risk and a weakening of operational discipline.
Stay alert to strategic drift as well. If a capital-light business suddenly starts buying hard assets, or if a focused pure-play begins diversifying into unrelated sectors, you should ask why.
Are they chasing growth for growth’s sake? Are they trying to mask core business stagnation? Random M&A is usually the first step signaling decay.
If a company known for prudent capital discipline suddenly announces a dilutive acquisition or a major debt-fueled expansion, that could be a signal that the original thesis no longer holds.
Even subtle shifts can matter: a drop in insider ownership, a change in tone or frequency of earnings calls, an unusual accounting adjustment, or a change in auditor. Each of these may indicate deeper issues beneath the surface.
Always stay skeptical.
The best investors keep a mental file labeled "what would make me change my mind?" and they update it constantly.
Ending note
To sum it all up, this is a game of incomplete information. You never know everything, and you rarely have the luxury of certainty. But that doesn’t mean you can’t act decisively.
We start small, stay curious, and keep our eyes open. A starter position is just that — a start.
If the story improves, you build. If it breaks, you exit.
The whole point of taking on small, early positions is to force deeper thinking without committing so much that you can’t walk away.
That’s why our willingness to act fast — both in and out — isn’t recklessness but rather discipline.
Because sometimes you’re right, and sometimes you’re wrong. But in both cases, acting quickly usually leads to the best outcomes.
If you act fast and you’re right, you’ll be positioned to pick up incredible bargains while others are still hesitating. And if you act fast and you’re wrong, you’ll avoid large losses before the real damage sets in.
Speed paired with humility is a powerful edge.
