Rob Vinall is the founder and managing director of RV Capital, which he started in 2006. For his Business Owner Fund, Vinall looks to invest in companies that are building a long-term competitive advantage, have honest and competent managers and trade at an attractive price. Since 2008, the fund has capitalized at a 14% annual rate, although it was penalized this year with a drop of 40.2%. Vinall lives in Kilchberg, Switzerland.
He runs a very concentrated fund where the five biggest positions account for 73% of its assets.
In his most recent letter to co-investors, he discussed the issue of investing in companies that provide cash flow today or those that will provide cash flows tomorrow:
"The next most frequent question I get is whether we are overexposed to companies who are losing money today and whose cash flow lies in the distant future. In other words, is there too much 'jam tomorrow' and not enough 'jam today.' With interest rates rising, the question is particularly pertinent today as the market is attaching lower value to further away cash flows."
He does not agree with this as he sees his portfolio, namely the five biggest holdings, as solidly profitable today. In the case of Credit Acceptance (CACC, Financial) and Meta Platforms (META, Financial), Vinall views them as low multiple companies with near-term earnings. Nevertheless, he does accept that most of his recent investments, like Carvana (CVNA, Financial) or Salesforce (CRM), are part of the “jam tomorrow” group.
Vinall recognizes the importance of “jam today” in a portfolio, citing Jacob McDonough’s book, “Capital Allocation: The Financials of a New England Textile Mill 1955 – 1985,” which discusses some of Warren Buffett (Trades, Portfolio)'s earliest investments at Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial). He said:
"What struck me was how laser-focused the early Buffett was on purchasing cash - either directly by buying companies with excess cash or easily sellable assets on its balance sheet (e.g., Berkshire Hathaway or Blue Chip Stamps) or indirectly through buying companies which were highly cash-generative (e.g., Pinkerton’s). A recurring pattern was that if a company’s share price fell, he would keep buying until he controlled its cash and could then buy other undervalued stocks with it. If the share price rose or the company was taken over, he would recycle the cash into other undervalued securities. Whether the share price rose or fell, he came ahead – “Heads I win, tails you lose.” With this approach, it is easy to imagine Buffett enjoying declining share prices."
Vinall also agrees that cash-producing assets are attractive in the current environment, where interest rates are rising and market performance is allowing for a sounder reallocation of assets. He wrote:
"It is much easier to pass Buffett’s test of 'enjoying the downturn' with companies such as Credit Acceptance or Prosus (XAMS:PRX, Financial) that are buying back huge quantities of their own stock. On the other hand, companies with assets that can be readily liquidated, or high upfront cash flows tend not to have a whole lot of reinvestment opportunities. I know from experience that the truly great investments are in companies that can grow by reinvesting their cash flow as companies like Ryman Healthcare (RYHTY, Financial), AddLife (ADDLF, Financial) or Wix (WIX, Financial) are doing, for example."
I also must agree that Buffett’s strategy has somewhat evolved over the years with the contributions of his partner, Charlie Munger (Trades, Portfolio), to also consider investing in quality growth businesses and in companies that would only generate cash flows tomorrow.
Conclusion
Vinall concludes by saying he thinks a portfolio needs to strike the right balance between the two. He acknowledges that he has been likely over-indexed toward “jam tomorrow” in recent years when the market viewed this type of opportunity favorably. He does not want to repeat the error now by over-indexing toward “jam today” opportunities now that they are in favor.
