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RICHTWERT Co-Investor Letter 2022/2023

“What gives you opportunities is other people doing dumb things!” - Warren E. Buffett


Dear Partners & Co-Investors,

2022 was a challenging and therefore also an opportunity-filled year, which I delve into in this annual report. Thanks to you, it was also another year in which more long-term oriented investors and entrepreneurs discovered RICHTWERT for themselves. I appreciate that you perceive RICHTWERT as different and recommend it to other like-minded investors! It is an incredibly fulfilling feeling to work on something that is valued by you.

The expanded customer base as well as the somewhat increased share prices of some of our portfolio companies provide us with the foundation to soon consolidate our investments in the form of a fund, which will offer significant advantages: Our planned fund will alleviate administrative tasks that, while necessary, do not generate value. I will invest the time gained in the analysis of companies, as that is where our greatest leverage lies. Additionally, we will benefit from better legal protection and medium- to long-term cost and tax savings.

Most of the work for setting up our planned fund (fund type, domicile, legal form, fund company, terms, etc.) is completed. What is outstanding is the approval and initiation of the fund, as well as the transfer of our capital from our individual accounts to the fund. Since most banks only accept funds on their platform from which they receive commissions, and since I want to keep the costs for us as low as possible, some RICHTWERT partners, myself included, will have to switch to a new bank. I have already identified banks where we will be well taken care of.

The Year 2022 and Q1 2023 From an Investor's Perspective

The massive support measures from governments and central banks, which have been ongoing since the global financial crisis in 2008 and which were further intensified during the pandemic, stimulated demand significantly, while pandemic-related supply constraints limited the availability of goods. The war in Ukraine, rising energy prices, regulatory measures, and renewed COVID outbreaks in China added to the challenges. As a result, we experienced high inflation rates, rising interest rates, and a cooling global economy.

Meanwhile, governments in the United States and Europe have decided to reshore critical sectors and value chains related to energy, technology, and pharmaceuticals to regain their independence in the medium and long term. The United States also decided to limit the export of key technologies to hinder China's development. In my view, this decision is wrong for three reasons. Firstly, the two world powers should work together, not separately, to advance the progress of the world. Secondly, this decision does not benefit the United States because China will now invest even more in its own capabilities and catch up with the United States in this area. Thirdly, this decision, on its own, increases pressure on inflation and interest rates in the coming couple of years.

Significantly higher interest rates coupled with a subdued economy resulted in a sharp decline in asset prices. This trend was most evident in liquid assets such as bonds and stocks, while illiquid assets such as private equity and real estate are experiencing a similar development with a time lag. The Bloomberg Global Aggregate Bond Index and the S&P 500 Index ended the year down 16.2% and 18.5%, respectively, despite the energy sector of the S&P 500 Index recording a nearly 60% increase.

Our RICHTWERT portfolio had practically no investments in the energy sector, and some of our heavyweight investments such as Grenke, HelloFresh, Meta, and Warner Bros. Discovery were extremely unpopular among investors in 2022. As described in the section "How Did RICHTWERT Act?", this suited us well.

In May 2022, when I wrote last year's report, our portfolio (measured in US dollars (1)) was down 35%. By October, it had declined to -47%, and by year-end, it recovered to -35%. From a business perspective, that is, measured by the development of the balance sheet, income statement and cash flows, our portfolio companies lost only about 2% in value overall in the difficult year 2022, after having increased their value by 17% and 14% in 2021 and 2022, respectively.

The main drivers of the 2% decline in value were our investments in internet and media companies in the United States and China:

  • Our US-based internet and media companies experienced very rapid and profitable growth in 2021. Expecting the growth to continue, they invested excessively. However, they are currently correcting this mistake, and I anticipate that they will significantly improve costs in the coming years.

  • In China, extensive regulatory measures have been successfully established, as with almost everything concerning China, and the COVID restrictions have been lifted. As a result, the domestic economy appears to experience a revival, from which our portfolio companies based there are likely to benefit disproportionately.

The massive difference between business performance of -2% and stock performance of -35% to -47% can be explained with just one word: "expectations". Howard Marks summed it up best years ago: "In the real world, things fluctuate between "pretty good" and "not so hot", but in the market, psychology goes from "flawless" to "hopeless"."


When people interested in RICHTWERT ask me about our performance, my answer is always that historical performance can be misleading at times. Instead, I recommend that they first check whether the investment approach described in our Partner Manual makes sense to them. If so, I ask them to check my annual reports to see if I am also doing what I preach or merely marketing/propagandizing. I am convinced that this enables them to make a better informed decision.

Last year provided again fertile ground for such an examination. Let me share three examples:

  • Grenke struggled for a year and a half with the impact of a short-seller attack, wrongfully accusing the company of large-scale fraud, and suffered almost continuous stock price declines for two years.

  • At Meta, the prevailing opinion was that Mark Zuckerberg had lost his business mind and would waste double-digit billions for years on a supposedly misguided vision. Considering that Mark Zuckerberg has likely generated $600 billion more in value than the critics combined, I found the criticism amusing, to put it mildly.

  • China was considered "uninvestable" because leading investment firms feared that after nearly half a century of success and prosperity, the government would suddenly abolish capitalism and return to socialism. They also believed that China would maintain COVID restrictions for a long time.

I promised you that I would always think and act like a long-term oriented businessman and business owner at RICHTWERT. That is why I select our companies as if we own them 100% and ask myself whether I would be happy with our investments even if I could not sell them for years.

Since I can neither control nor greatly influence our portfolio companies, they must meet four criteria before they can be considered for us:

  1. Can I understand and assess the company and its competitors well?

  2. Does it possess or develop sustainable competitive advantages?

  3. Has management demonstrated competence, ambition, and integrity?

  4. Does the company's market valuation provide us with a margin of safety that can protect us in the medium and long term from unforeseen risks and from my own potential mistakes?

Since I choose our companies this way, I think very highly of them and their management. In addition, I consider the Chinese government to be by and large more competent and far-sighted than current Western governments. They are smart and know how they have generated wealth. But it is important to them to act responsibly and for the long term, so that they can also control the risks.

Against this backdrop, I found the aforementioned accusations against our portfolio companies to be nonsensical. And as far as China is concerned, I think: investors who believe China wants to abolish capitalism do well to withdraw from China and leave the field to us.

Investors' irrational and exaggerated reaction thus gave me the opportunity to increase our stake in companies I value greatly at very favorable prices. Hence, I wrote to you on October 14th, 2022:

"For the fourth time since the turn of the millennium, we are experiencing a fascinating time from an investor's perspective:

  • 2000-2003: Bursting of the internet bubble

  • 2007-2009: Global financial crisis due to overvalued real estate and excessive debt

  • March 2020: COVID-19 pandemic

  • 2021-?: Inflation and rising interest rates, as well as the conflict between Russia and Ukraine

I consider it an exceptionally attractive opportunity to invest in our RICHTWERT portfolio. Therefore, I will give you an overview of our portfolio companies and my view of things below. For those who can increase their investments, I say, "If not now, when?" ..."

I have to admit, though, that for me it is never as easy as it sounds. Heavy price declines act like deafening warning sirens, signaling unambiguously that you should stay away. And even if one overcomes one´s emotions and decides to act rationally, in such phases one usually has to decide what to sell in order to stock up on the most undervalued companies. What helps me enormously in these situations are the promises I made to you in calmer times and the communications I send to you in turbulent times.

Six months have passed since then (10/14/2022 - 4/14/2023) and our portfolio has returned 49% (again measured in US dollars). Because we were invested in a focused manner and because I continued to add to the companies I regarded most undervalued during the year, four of our portfolio companies contributed more than 80% of this performance.

We have not yet reached our peak from 2021, but as you can see, our concentrated and undervalued portfolio can recover rapidly, independent of the overall market.

A Few Words On the Current Banking Crisis and Our Positioning

Recently, I sold two of our long-standing portfolio companies in the banking sector, which together represented less than 5% of our portfolio. I had chosen them for us because they were conservatively financed and attractively valued, and because a few years ago, hardly anyone believed interest rates could rise. Well-managed banks benefit from rising interest rates.

We have earned very well with one of the banks over the years, while our investment in the other was rather mediocre.

I credit our banks for being financially stronger than most banks and for having extended fewer long-term loans at low and fixed interest rates than others. They plan to hold these long-term loans and fixed-rate securities until maturity to eliminate the risk of rising interest rates. Furthermore, they possess immense and broadly diversified customer deposits. Silicon Valley Bank, which recently filed for bankruptcy, had nearly none of these advantages.

However, due to significantly higher interest rates, I cannot rule out that bank customers might shift their funds to fixed deposits and securities or switch to other providers more heavily than anticipated. For example, shortly after selling our bank shares, I learned that Apple, in collaboration with Goldman Sachs, now also offers savings accounts. In such an unlikely but not impossible extreme case, even our banks would be forced to sell long-term government bonds, which they intended to hold until maturity and thus free from interest rate risks, at a loss.

They would probably be the last to face such a situation. So far, they have benefited from the banking crisis, and it is quite possible that they will continue to benefit. However, even if they do not encounter such distress, it will be challenging for them to grant new loans to a significant extent at now much higher interest rates. This fact, in turn, may lead to borrowers being unable to renew their loans in a few years, causing losses for their previous lenders, such as our banks.

I am aware that I sold our bank shares at a low and maybe undervalued price. However, since we are invested in other financial service providers that possess a superior business model, that benefit even more from the weakness in banking, and that are themselves attractively valued, the reallocation still makes sense. I wish I had come to this realization a few months earlier, but better late than never.

And What About the Future?

Many claim that the world has become more uncertain than in recent decades. Yet uncertainty is always lurking around the next corner. We only really notice it after the fact when unexpected and negative events knock on our door.

Nobody knows for sure how geopolitics, wars, or macroeconomic factors like economic growth, inflation, and interest rates will unfold.

  • On one hand, central banks wage war against inflation with high interest rates. On the other hand, high interest rates can drive excessive levels of government debt into dangerous territory. Who's going to foot that bill, I wonder?

    • Do governments genuinely desire low inflation, or do they need inflation to service their debts?

    • How high are central banks allowed to raise interest rates, and how long can they keep them elevated when nations are drowning in debt?

    • And if central banks lower interest rates, what is to stop inflation from spiraling out of control as governments continue to pile on more debt?

    • Will then interest rates not skyrocket even without central bank intervention, as investors demand compensation for inflation?

    • Or will governments raise taxes and privatize their assets to reduce their towering debt burdens?

  • Will the US dollar lose its dominance as the world's reserve currency as more countries engage in bilateral trade using their own currencies? And if so, when will this happen? What does it mean for investments?

  • Technological advancements are moving at an unprecedented pace, reshaping the world in unimaginable ways.

    • On one hand, technology has a strong deflationary impact by increasing productivity.

    • But on the other hand, our society's tendency to continuously spend more than we earn acts as an even greater force.

  • Will China attempt to seize Taiwan by force, or will the West provoke China to the point of invasion? Or perhaps both sides will realize that a conflict between the US and China, who collectively make up 44% (2) of the global economy, would not only massively strain the world economy but also jeopardize the very existence of humanity itself?

Peter Lynch wisely said, "If you spend 14 minutes on economics, you've wasted 12 minutes." Not because it's unimportant, but because it's unknowable.

Fortunately, this video is only three minutes long. In the first two minutes, Milton Friedman eloquently explains where inflation truly comes from, and in the final minute, he emphasizes how we can contain it if we genuinely desire to do so. Let us hope we remember that during future elections.

Investing Under Uncertainty

Despite the never-ending uncertainty or rather because of it, those who seek to protect and grow their purchasing power must intelligently invest wealth and savings that are not needed for consumption.

Many believe that the ever-increasing pace of technological change means they have to invest in new trends like innovative energy generation, cryptocurrencies, Web3, artificial intelligence, or biotechnology. Of course, there will be big winners in these fields, but for every winner, there are likely twenty companies that appear promising but will ultimately turn out to be worthless. Even the experts in these areas can barely distinguish between winners and losers in advance.

Warren Buffett recently said, "What gives you opportunities is other people doing dumb things!" If artificial intelligence is built on human input, there may be an increase in dumb things. The widespread adoption of passive investments and the short-term orientation of investors will only exacerbate these tendencies. What we need more than ever is rationality and patience!

Buffett further added,

"The world is overwhelmingly short-term oriented. If you go to an investor relations call, everybody's trying to figure out how to fill out the sheets to show the earnings of the year. … That’s a world made to order for anybody that’s trying to think about what you do that should work over 5 or 10 or 20 years.”

To me, the most startling aspect of his statement is that he will be 93 years young on August 30th 😃.

Unlike the vast majority in the investment world, we at RICHTWERT are motivated and oriented towards the long term. We even act like it!

The best investments are those that generate substantial value and therefore strong returns for as long as possible, while also being reasonably priced. We are invested in business

  • that are either leading worldwide or in their not-so-small niches.

  • They are financially strong and generate attractive returns on invested capital.

  • They are led by highly motivated and capable management teams who do not rest on their competitive advantages but also strive to be at the forefront of innovation.

  • Often, they benefit from technological advancements by applying them to better serve customers or by enabling the technological changes themselves. Metaphorically speaking, like during the Gold Rush of the 19th century, they are not searching for gold but rather selling shovels and wheelbarrows or using it to serve customers better.

  • When others are more innovative, their established competitive advantages serve as a layer of protection until they can catch up with the competition.

  • They attract talent and position themselves for the long term.

  • Moreover, they are attractively valued—both those that have shown some recovery and those that are currently even more undervalued than they were at the time of my last annual report 12 months ago.

I have pages and pages of summaries on their competitive advantages. And as much as I would like to report on them, I have no interest in promoting our portfolio. Since we all have a medium- to long-term time horizon, I would much rather see the share prices of our companies fall rather than rise in the short term, as was the case, for example, last year.

Charlie Munger, Warren Buffett's friend and right-hand man at Berkshire Hathaway said in an interview in April:

“Can you imagine an ordinary investment management firm saying:

"We don't mind going down 30%"?

They'd be in terror or they would all be fired. They would say, "I can't do it."

And that means that 95% of the big-time national investing, they're closet indexers.

That ... is driven by incentives that none of us can do anything about.”

I guarantee you one thing that I am not at RICHTWERT. I am not a closet indexer because RICHTWERT's incentives are different and because I believe in the power of our businesses. Not only do I not mind if our portfolio drops as much as it did last year, I even welcome it!

Warren Buffett once again puts it best:

Although I do not go into detail about our companies in this letter, you as RICHTWERT partners and co-investors received a brief summary of my investment thesis on October 14th of last year, and I am always available to answer any questions you may have about our portfolio businesses.

Please do not forget that you yourself are highly successful experts in your respective fields. Kindly point me to any company you know and admire in your fields so that I can analyze them as potential candidates for us.

Thank you for your trust. I consider myself fortunate to have you as long standing partners at RICHTWERT.

Respectfully with my best wishes,

Bahram Assadollahzadeh, CFA

May 2023


(1) Our portfolios are invested practically equally. However, since they are denominated in the reference currencies Swiss Franc, Euro and US Dollar and since I rarely hedge currencies, the respective portfolio performance also depends on the development of the reference currency. For the sake of simplicity, I analyze our performance in US dollars.

This document has been prepared solely for providing information about Richtwert Capital GmbH (“Richtwert”) and the services and products it offers. It is not and should not be construed as investment, legal or tax advice or as a recommendation, promotion, solicitation or an offer to buy, sell or hold any security, to adopt any investment strategy, to engage in any transaction or to undertake any legal act. The information provided in this material is rendered as of publication date, it may change without notice and is not intended as a complete analysis of every material fact regarding any investment. Richtwert offers no guarantee of completeness, correctness or security of this material. All investments involve risks, including possible loss of principal. The value of investments can go down as well as up, and investors may not get back the full amount invested. Investments involving derivative instruments can create losses thatexceed the amount invested. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Higher concentration and lower diversification can cause additional risks since each individual investment carries a higher portfolio weight while a concentrated portfolio has a lower number of investments that could provide risk diversification. Richtwert accepts no liability claims whatsoever that might arise from the use or non-use of the content of this material or from damage or loss that may occur due to unintentional transmission of viruses or malware.


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