(MENAFN- ValueWalk) As the 2018 volatility crash was approaching, Arlington Value Capital's was deriding the 'docile markets' and in fact was hoping Mr. Market would get 'moody.' After delivering investors a gross of 21.7% in 2017, slightly under the S & P 500s 21.8%, Mecham got what he wanted. As he was distributing the letter to investors, the stock market gave Mecham his wish, getting moody by losing nearly 10% over a short period of time. With a large cash balance, Mecham had the dry powder, but it is unclear if he bought the dip.
Arlington Value Capital Allan Mecham
'The only haven for action junkies was ,' Mecham wrote in a January 29 letter to investors reviewed by ValueWalk. His value investing method is meaningfully based on finding value, and when a host of measures are lifting all stocks at the same time – quantitative easing, passive investing, low-interest rates and a market conditioned to buy the dip were among the factors he listed – the Mecham approach just doesn't find the market environment opportunity to succeed.
But nonetheless, while nearly matched the S & P 500 return average, Mecham did it with one hand tied behind his back. The fund maintained a 'hefty cash position through the year,' with close to 20% on the sidelines throughout the year.
"Why did they hold so much cash?" Gary Teran, President and CEO of First Western Advisors questioned after reviewing the performance. "How did they account for the cash and their fees? I can't make their performance numbers work given their positions."
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While the market environment might have been challenging, Mecham looks at the price action of Bitcoin — 'a cryptocurrency that displayed classic madness-of-crowds behavior, with easy profits to boot' — with a wisp of envy, but also words of caution. There is demand for the , but the issue is how well constituted, or temperamental, that demand becomes.
'Fast and easy profits often breed a dangerous fear: Fear Of Missing Out (FOMO),' he wrote in a . Bitcoin infamously reached $17,549 on December 17, 2017, after starting the year at $968. It then proceeded to sell-off to near $6,000 before rebounding. 'Needless to say, we're happy to sit out while others make the fast money in cryptocurrencies.'
After what Mecham characterized as a challenging 12-month period he that he should change the name of the hedge fund to 'Arlington Blockchain' in hopes to 'see if the magic extended to hedge funds.'
Mecham might have been thinking of the. After the beverage company announced that it would change its name from to Long Blockchain Corp, the stock price jumped from $2.06 per share to $6.91. The stock price has sense leveled off to close at $2.99 on Friday.
Another major value find has been in tech stocks. Amazon, for instance, is up nearly 90% year over year, trading at $845 on February 24, 2017, the stock price closed at $1,500. FAANG stocks – Facebook, Apple, Amazon, Netflix and Google — might look like a bubble defined by valuation metrics and eyeballs. But what Mecham likes is the prospect of exceptional profitability and the potential to dominate markets in a 'monopoly-esque' like position is what gives these market stalwarts legs to run further. 'Overvalued, perhaps; a bubble, unlikely,' he writes.
When looking back on the year, says his two biggest mistakes occurred in one stock. Bank of America was a widely attractive investment. 'I understood the business well, liked the management, and the stock was both safe and cheap with upside potential levered to regulatory reform, interest rates and a pickup in the economy,' he said of the fund's 4.5% exposure. But he ended up being a seller. After starting the year near $22, BAC closed near $30 per share. 'Selling stock simply because it's gone up is senseless. If there is an ancient master of financial folly somewhere, I'm sure he bowed in respect.'
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