Dear Partners,
Rowan Street had a strong third quarter, posting a +12.8% net return. Year-to-date, our fund is up +42.3% (net), outperforming the S&P 500’s +22% return. Over the trailing 12 months, Rowan Street posted a gain of +72% (net), compared to the S&P 500’s +36.3%. This performance reflects the strength and resilience of our portfolio companies, with most delivering one of their best quarters since the inception of our fund. In our last letter, we provided an in-depth review of our top five holdings, so we won’t be going into much detail on them in this update.
We are also very happy to see the fund back in double-digit territory on an annualized basis since inception (gross), and we are working hard to get it back into double digits on a net basis, which has been our long-term goal since day one.
The 20 Punchcard Philosophy
In this video, Warren Buffett describes a very fundamental concept from the book “The Science of Hitting“ by Ted Williams. Williams, regarded as one of the greatest hitters in baseball history, emphasized that success lies in waiting for the perfect pitch — one that sits squarely in your sweet spot.
According to Buffett: “Investing is an enormously advantageous game because unlike the baseball analogy, there are no called strikes. We can have thousands of ideas thrown at us and we don't have to swing at them and no one will call a strike. Only when we see something that we understand and it's within our sweet spot and we like the price at which it's selling, only then we swing. It's a terrible mistake to think you have to have an opinion on everything. You only have to have an opinion on a few things.” Buffett told students that if when they got out of business school they got a punchcard with only 20 punches on it and that's all the investment decisions they get to make in their entire life, they would get very rich because they would think very hard about each one. “And you don't need 20 right decisions to get very rich. 4 or 5 would probably do it over time.”
The 20-punchcard approach is very widely known, and we’ve been familiar with it for a long time. I first encountered it in my early 20s while extensively studying Buffett, and it immediately resonated with me due to its simplicity. However, implementing it in practice is far more challenging than it seems. Today, it’s even harder to follow, as many investors now operate with much shorter time horizons. With information and ideas constantly flooding in from every direction, attention spans have shrunk, and true patience and focus are increasingly rare. It’s one thing to understand the concept intellectually, but another to fully internalize it and live by it. After many years of managing money and over nine years running Rowan Street, I can honestly say that I’ve only truly embraced and internalized this wisdom in the past few years.
To put it in perspective, in our first two years of operation (2015-2016), we made 22 buy decisions and 8 sells. We were still finding our footing, working with limited capital and trying to discover our sweet spot in the market. If we had been using a 20-punchcard back then, we would have punched through it in the first two years! But experience is the best teacher. Over the last two years (2023-2024), we’ve made only 2 buy decisions. Some might look at this reduced activity and wonder if it reflects a lack of progress. We believe it's actually quite the opposite. This shift signals that we are beginning to truly live and breathe the 20-punchcard philosophy.
The truth is, it takes years—sometimes decades—of investing to discover your ‘sweet spot’. Developing the judgment to recognize the right pitches takes just as long. Often, it’s through years of ownership that you gain a deep understanding of a business, as the most valuable insights don’t always reveal themselves right away. This is how instincts are honed—slowly, through experience, with unwavering focus and patience.
One of our guiding principles aligns perfectly with this philosophy:
Comfortable Doing Nothing: The hardest part in our business is holding on to your positions and doing nothing. We believe that activity is the enemy of returns, and we are quite comfortable doing nothing until there is something truly worthwhile to do. We spend our time doing a lot of reading and thinking and NOT a lot of acting. In that we are sort of the polar opposites to a lot of investors. Many investors do a lot of acting, and not a lot of thinking. “All of humanity’s problems stem from man’s inability to sit quietly in a room alone” – Blaise Pascal.
At present, our portfolio consists of 8 core positions, along with a few smaller, ‘emerging’ ones we’re studying closely. If we stick to the 20-punchcard philosophy from here on out, we’ve only got 12 more decisions to make. That means, if we plan to run this fund for another 20 to 25 years, we only get to make one decision every two years, on average. This kind of selectiveness forces us to think very deeply before letting any new position into our portfolio. It sounds simple, but in practice, it demands an extraordinary level of discipline.
In our experience, this approach—fewer, but higher quality decisions that fit right in our sweet spot, held over long periods—is the most effective way to build lasting wealth and fully harness the power of compounding. Success in investing isn’t about how many swings you take; it’s about making sure the swings you do take truly count over time.
As always, it’s a privilege to manage your capital, and we sincerely appreciate the trust and confidence you‘ve placed in us. We look forward to updating you again at the end of the year, and we are always around if you would like to chat.
Best regards,
Alex and Joe
DISCLOSURES
The information contained in this letter is provided for informational purposes only, is not complete, and does not contain certain material information about our fund, including important disclosures relating to the risks, fees, expenses, liquidity restrictions and other terms of investing, and is subject to change without notice. The information contained herein does not take into account the particular investment objective or financial or other circumstances of any individual investor. An investment in our fund is suitable only for qualified investors that fully understand the risks of such an investment. An investor should review thoroughly with his or her adviser the funds definitive private placement memorandum before making an investment determination. Rowan Street is not acting as an investment adviser or otherwise making any recommendation as to an investor’s decision to invest in our funds. This document does not constitute an offer of investment advisory services by Rowan Street, nor an offering of limited partnership interests our fund; any such offering will be made solely pursuant to the fund’s private placement memorandum. An investment in our fund will be subject to a variety of risks (which are described in the fund’s definitive private placement memorandum), and there can be no assurance that the fund’s investment objective will be met or that the fund will achieve results comparable to those described in this letter, or that the fund will make any profit or will be able to avoid incurring losses. As with any investment vehicle, past performance cannot ensure any level of future results. IF applicable, fund performance information gives effect to any investments made by the fund in certain public offerings, participation in which may be restricted with respect to certain investors. As a result, performance for the specified periods with respect to any such restricted investors may differ materially from the performance of the fund. All performance information for the fund is stated net of all fees and expenses, reinvestment of interest and dividends and include allocation for incentive interest and have not been audited (except for certain year end numbers). The methodology used to determine the Top 5 holdings is the largest portfolio positions by weight. The top 5 do not reflect all fund positions. The Top 5 can and will vary at any given point and there is no guarantee the fund will meet any specific level of performance. Net returns presented are net of fund expenses and pro-forma performance fees. Rowan Street Capital does not charge fixed management fees.
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