market folly

Christopher Begg is out with East Coast Asset Management's Q1 letter entitled "The Economy of Evolution."  This time he touches on how businesses are constantly thwarted by change and can be forced to adapt.  Three specific forces they're focused on are: the Amazon effect hurting brick and mortar retail, climate change, and a shift to natural gas.

Since most businesses fail to adapt over time, East Coast looks at whether or not the business' terminal value will be better five or ten years from now.

In particular, the letter goes into depth on the 'gas evolution' and how one can play an impending shift in energy demand.  Instead of looking at the producers or consumers, they prefer to look in the middle, or the 'toll bridges' as the global gas supply chain gets built out.

East Coast then dives into a representative idea, a global terminal storage operator.  They started building a stake in Q4 2013 and have continued to add.  They see it as a transformation play as the company had average operating economics but an inflection point should change that with secular tailwinds.

While the letter does not specifically identify the company, the descriptions sound like it could be Koninklijke Vopak (AMS:VPK).

Embedded below is East Coast's Q1 letter:




We'll end with one last quote from the letter: "Proper temperament is one of the most important attributes of the investor - breathing in reason before instinct."

For more from this firm, head to East Coast's previous letter on understanding mispricings.