Fundamental Value had one of its best quarters to date, returning 34.7% net of fees vs 7.6% for the S&P 500. The strategy has now compounded at 27.4% annualized, besting the market by nearly 16% a year. While it will be almost impossible to maintain this level of absolute or relative performance, we are still very optimistic about the composition of the portfolio relative to the index today.¹

Market commentary

When the year 2022 began, we had just finished our “Everything Bubble” series, and the path ahead seemed remarkably clear to us.

The path forward today is less clear.

In Q3, Fundamental Value outperformed the market significantly, up 2.5% net of fees versus -4.9% for the S&P 500. On a YTD basis, this puts the strategy up 1.0% net versus the market at -23.9%. Since inception, FV has returned 22.7% net annually, outperforming the S&P by 12.0% a year.¹

Market commentary

Forty years of the infamous “Fed put” has left a legacy of moral hazard. Investors assume their risk is limited because they believe the Fed has provided them free insurance: the Fed will always step in to bail out investors should the market decline steeply, cutting rates to juice the economy, corporate earnings and stock prices.

But the Fed put is now a Fed call: rather than a limit to how much investors can lose, there is a limit to how much they can make.

Fundamental Value dramatically outperformed the market in Q2, returning -1.4% net of fees versus -16.1% for the S&P 500. This outperformance was due primarily to the gains provided on our short positions, which declined on average -38.4% during the quarter and made a +16.9% contribution to the portfolio.¹

Market commentary

We expect bringing underlying inflation down to the Fed's 2% target will be much harder than currently anticipated – occurring more slowly, requiring much tighter financial conditions, and causing more damage to the economy. Thus, the famous “Fed put” is no more. Since the late 1980s, the Fed has loosened policy in response to every bear market, providing a jolt of energy when most needed. No more. Instead of alleviating investors’ pain, the Fed will be exacerbating it. Despite a terrible first half to the year, we believe further pain is likely for investors in stocks, bonds, cryptocurrencies, and more.

We were pleased to be featured extensively in a Forbes article earlier this week regarding our short position in MicroStrategy (MSTR). Despite having plummeted along with the rest of the cryptocurrency ecosystem we believe it still has much further to fall.

In February 2021, we published an investor letter entitled Part II: Anatomy of a Bubble, bemoaning the frothy speculation rampant at the time. We described how investors, in search of fortune, had reached higher and higher up the levels of the speculative pyramid, each level more rickety than the last. Near the top of the pyramid, we identified the “pretenders,” companies “devoid of solid business models [which] absorb the zeitgeist and learn the relevant buzzwords – electric vehicles, blockchain, disruption – and spend more energy marketing their stock than building a business.”

MicroStrategy was one of the pretenders we identified. They claimed to have a grand cryptocurrency strategy, but their “strategy” merely consisted of turning their mildly successful $700m enterprise value SaaS business into a gigantic levered bet on bitcoin.

For a while, this paid off.

Bireme Capital LLC is a Registered Investment Advisor. Registration does not constitute an endorsement of the firm nor does it indicate that the advisor has attained a particular level of skill or ability. This piece is for informational purposes only. If not specified, quarter end values are used to calculate returns. While Bireme believes the sources of its information to be reliable, it makes no assurances to that effect. Bireme is also under no obligation to update this post should circumstances change. Nothing in this post should be construed as investment advice, and it is not an offer to sell or buy any security. Bireme clients may (and usually do) have positions in the securities mentioned. Advisory fees and other important disclosures are described in Part 2 of Bireme’s Form ADV. Different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio. For current performance information, please contact us at (813) 603-2615.

Fundamental Value had a solid quarter, essentially flat against a loss of -4.6% for the S&P 500. Our short positions made the difference. Our average short name was down -17% and the short book contributed 5.5% to the quarter’s return. FV has compounded at 24.7% net of fees since inception in 2016, outperforming the S&P 500 by 8.6% annually.¹

Market commentary

As we did in January in our 4Q21 letter, let’s check on our predictions from Part III: Apex of a Bubble. In Part III, published last September, we said that the US capital markets were mired in an “everything bubble,” presaging real returns that investors would find severely disappointing – and likely negative – for many years to come. And we predicted an imminent top and a proximate cause:

Fundamental Value had its best year ever in 2021, returning 48.5% net of fees vs 28.7% for the S&P 500. The strategy has now compounded at 25.9% net of fees since inception in June of 2016, beating the market by 800 bps annually over more than half a decade. While this level of absolute returns is unlikely to be sustainable, we are as confident as ever in our ability to significantly outperform a still richly-valued equity market.¹

Market commentary

It was only four months ago when we published Part III: Apex of a Bubble. We said that the US capital markets were mired in an “everything bubble,” presaging real returns that investors would find severely disappointing – and likely negative – for many years to come. And we predicted an imminent top and a proximate cause:

Fundamental Value was up 9.1% net of fees in the third quarter, handily eclipsing the S&P 500’s return of 0.6%. FV has had a spectacular first three quarters of the year, returning 38.6% net vs 15.9% for the S&P. FV has now generated a net return of 25.6% annualized since inception in 2016, outperforming the S&P by 9.2% annually.¹

Market commentary

In our last letter, Part III: Apex of a Bubble, we warned that an “everything bubble” had emerged in financial assets in response to decades of increasingly reckless fiscal and monetary policy. Valuations are at historical extremes in every corner of the US equity and fixed income markets. These extreme valuations presage real returns that investors will find severely disappointing -- and likely negative -- for many asset classes over years to come. Our warning remains as urgent as ever.

Despite the dismal return prospects for the bond and equity markets as a whole, we believe Bireme clients are well positioned to outperform.

Fundamental Value returned 27.0% net of fees for the first half of 2021, handily besting the S&P 500’s 15.2% gain. The strategy has now returned 24.9% annualized since inception, outperforming the S&P 500’s 17.2% return by 7.7% annually.¹


The first part of this series, Part I: Birth of a Bubble, marked the bottom in value stocks. The second part of this series, Part II: Anatomy of a Bubble, marked the top in the most speculative growth stocks. We believe this third part will mark the top in the market as a whole.

Since our last letter, a bubble restricted to the most speculative securities has morphed into a bubble in all financial assets. Today, valuations are at historical extremes in every corner of the US markets: value stocks, growth stocks, Treasuries, corporate bonds, real estate. These extreme valuations presage real returns that investors will find severely disappointing -- and likely negative -- for many asset classes over years to come.

After struggling during much of 2020, Fundamental Value enjoyed a phenomenal fourth quarter, soaring 47.1% net of fees compared to a gain of 18.3% for the S&P 500. FV finished the year with a gain of 29.8%, outpacing the S&P by 11.5%. Since inception, FV has returned 23.5% annualized vs 15.6% for the S&P 500.¹

In the first half of the year, Fundamental Value struggled, giving up years worth of outperformance in two quarters. In the third quarter, FV outperformed slightly, but not nearly enough to claw back its losses. FV is down -11.8% net of fees in 2020, compared to a gain of 5.5% for the S&P 500. Since inception, FV has returned 12.3% annualized vs 13.5% for the S&P 500.¹

Our performance this year has been very distressing. However, it has not been demoralizing, for there is a silver lining: we believe that the prospects have never been better for value investors than they are today. Read much more below.

In Q1, FV had its worst result ever, down -26.4% net of fees. It is of little solace that the broader market was down as well, with the S&P 500 falling -19.4%.

Since inception, FV has returned 8.7% annualized vs 7.5% for the S&P 500.¹



The catalyst for the drop in markets was of course COVID-19, which continues to wreak havoc on the world’s health and economy. Perhaps the most dramatic illustration of the pandemic’s impact in the US is the near 19 million Americans who filed a new unemployment claim in April -- an unprecedented figure five times higher than the worst month of the Great Recession. Some businesses have been hit harder than others, with restaurants, hotels, events, travel, and financial stocks among the most impacted.

Value investing came under particular assault, with the S&P 500 Value Index falling -25.4% and the Russell 2000 Value Index falling -35.8%. In recent quarters, we have written ad nauseum about the historic relative attractiveness of value names. Yet...