Silver Ring Value Partners, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. At the end of the fourth quarter of 2021, the portfolio was very attractively priced, with the Price to Base Case value ratio at 54%. The portfolio had 15 investments plus hedges, cash at 1%, and option-adjusted net exposure at 71% at the end of the quarter. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Silver Ring Value Partners, in its Q4 2021 investor letter, mentioned Charles & Colvard, Ltd. (NASDAQ: CTHR) and discussed its stance on the firm. Charles & Colvard, Ltd. is a Morrisville, North Carolina-based jewelry company with a $58.2 million market capitalization. CTHR delivered a -34.26% return since the beginning of the year, while its 12-month returns are down by -17.03%. The stock closed at $1.90 per share on February 19, 2022.
Here is what Silver Ring Value Partners has to say about Charles & Colvard, Ltd. in its Q4 2021 investor letter:
“Charles & Colvard (CTHR) was an investment that was initiated in late 2016. The company is a maker of moissanite-based jewelry. Moissanite is a much cheaper, lab-created alternative to diamonds with almost the same hardness and similar sparkle. At the time of the purchase, the company had no debt, substantial cash, and inventory that exceeded the market capitalization of the stock. However, the company had had years of small losses as prior managements tried to turn it around. A new CEO was brought in with an online-marketing background and the company was now pursuing a new digital marketing strategy. At the time of purchase, the downside to my liquidation-analysis based Worst Case was less than 25%, the upside to my Best Case was > 10x and the expected return to my Base Case was 165%+.
The investment was exited during Q4 2021 and has produced an IRR of ~ 51% and has been one of the big contributors to long-term results
I substantially increased the position in 2020 with the stock at/below my Worst Case value, which had a large impact on the ultimate IRR. This is an example of temperament in action given the turbulent stock market and the rapidly falling stock price of the company The IRR of the initial December 2016 investment was “only” ~ 27%.
I exited our CTHR position for three reasons. First, the price was within 10%-15% of my Base Case value estimate. Second, our other investments were much more undervalued, presenting attractive alternative uses of capital. Third, the nature of the thesis has changed from what it was originally.
What started as a stock trading near liquidation value, became a company highly reliant on longterm growth and execution for the stock to be a good investment. I think the management has been doing a good job, and I have no reason to doubt that they are likely to continue to execute well. However, betting on “this time is different” and that a company that has been a perennial turnaround will become a long-term growth company is outside of my circle of competence. If the management executes and macro trends cooperate, selling now will cause us to miss out on meaningful upside. However, I believe it is the right decision based on my investment process, what I know today, the opportunity cost and my circle of competence.”
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Our calculations show that Charles & Colvard, Ltd. (NASDAQ: CTHR) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. CTHR was in 4 hedge fund portfolios at the end of the third quarter of 2021, compared to 4 funds in the previous quarter. Charles & Colvard, Ltd. (NASDAQ: CTHR) delivered a -41.54% return in the past 3 months.
In May 2021, we also shared Silver Ring Value Partners’ first quarter views on CTHR in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
