Saga Partners' 2025 Annual Letter

Performance Summary - The Saga Portfolio achieved a net increase of 44.2% in 2025, significantly outperforming the S&P 500 Index, which increased by 17.9% [2] - Since its inception on January 1, 2017, the Saga Portfolio has delivered a cumulative return of 417.9% net of fees, compared to the S&P 500's 259.2% [2] - The annualized return for the Saga Portfolio since inception is 20.1% net of fees, while the S&P 500's annualized return is 15.3% [2] Yearly Performance Breakdown - In 2025, the Saga Portfolio had a gross return of 46.4% and a net return of 44.2% [4] - The cumulative performance from 2017 to 2025 shows the Saga Portfolio with a gross return of 492.9% and a net return of 417.9%, while the S&P 500 had a gross return of 259.2% [4] - The annualized returns for the Saga Portfolio from 2019 to 2025 is 24.0%, ranking it 4th among approximately 1,500 U.S.-focused mutual funds [44] Investment Philosophy - The Saga Portfolio emphasizes long-term investment strategies, focusing on understanding how businesses create value over time rather than short-term stock price predictions [8][10] - The portfolio is structured to endure market volatility without being forced into poor decisions, avoiding margin, options strategies, and short selling [19] - The investment approach prioritizes explanations of business value creation over easy-to-vary narratives that may not hold under scrutiny [14][15] Case Studies - Carvana is highlighted as a case where the market's expectations were initially low compared to the underlying business mechanism, which showed potential for improvement over time [31] - GoodRx serves as a counterexample where the investment thesis was broken due to changes in industry structure, leading to a timely exit from the position [36][37] Market Context - The report discusses the challenges of active investing, noting that 95.5% of actively managed U.S. equity mutual funds underperformed their benchmarks over the past ten years [20] - It emphasizes that long-term stock returns are skewed, with a small number of stocks driving most wealth creation, while many stocks deliver ordinary results [22] - The portfolio management approach is designed to navigate the complexities of market sentiment and investor behavior, focusing on long-term value rather than short-term fluctuations [56][58]