This investment letter details the challenges and strategic decisions made during a difficult market quarter, particularly focusing on two significant holdings: Duolingo and Ondo Plc. It underscores the importance of balancing short-term market fluctuations with long-term investment conviction, acknowledging that while the path to long-term gains can be volatile, a strong understanding of one's holdings allows for viewing downturns as opportunities. The letter emphasizes the critical role of reassessing investment theses with new information and maintaining intellectual honesty regarding performance metrics.
The analysis of Duolingo centers on the market's perception versus the company's actual potential, especially with the integration of AI. Despite short-term risks like decelerating subscription bookings and perceived over-monetization, the firm believes AI will enhance learning outcomes and drive future user growth, positioning Duolingo for substantial long-term expansion. For Ondo Plc, the focus is on its innovative LeakBot product, which offers significant ROI for home insurance companies by detecting water leaks. The company’s strategy involves expanding its plumber network and customer base, with profitability hinging on reaching 300,000 registered customers to achieve a sustainable business model.
Both Duolingo and Ondo Plc are identified as having the potential for over tenfold returns, despite their current underperformance. The letter concludes by reiterating the firm's commitment to partners and its investment strategy, which involves identifying and supporting innovative companies with strong growth potential. It highlights the dedication to focusing on actionable inputs and upholding high standards, trusting that these efforts will lead to favorable long-term outcomes.
Investing requires both unwavering conviction and a healthy dose of humility. By diligently analyzing our holdings, adapting to new information, and maintaining clear, measurable targets, we can navigate market complexities. Our continued focus on innovative enterprises, coupled with a disciplined approach to risk and position sizing, aims to unlock substantial value over time, ensuring that patience and strategic foresight ultimately triumph over short-term uncertainties.