2017

Dear Shareholders,

Our largest equity positions at the start of 2018 were Berkshire Hathaway, Total Produce, WH Smith, BMW, and Credit Acceptance. Our portfolio is concentrated into investments we consider to provide the best combination of returns and risk. Sufficiently attractive investment opportunities are rather rare, and therefore we endeavour to exploit these to their best advantage. Our 10 largest positions make up approximately 68% of our portfolio.

The Fund’s portfolio is currently valued by the market at twelve times the profits from the past twelve months. That means that in the past year the net profits of our companies represented more than 8% of their market capitalisation (the Earnings Yield, which is the reciprocal of P/E). We believe this is a very attractive return considering the quality and prospects of these companies. This number stands out especially in comparison to the low interest rates.

Our estimate as to the current fundamental value of the Vltava Fund portfolio at the end of 2017 is 17% greater than the Fund’s current NAV, and for the next three years we expect it to grow at a rate of approximately 10% a year. This would mean that the fundamental value of the portfolio at the end of 2020 would be more than 50% greater than its current NAV. Development of the portfolio’s fundamental value is influenced by essentially three things. First is our estimate of the fundamental values of the individual companies. Second is the passage of time itself, because a company’s fundamental value develops over time and has a strong tendency to grow as more and more earned capital is reinvested. Third relates to our transactions, whereby we exchange lower-potential companies for higher-potential companies. We cannot influence the prices of the individual shares, but we can influence their selection, and that is what we fully focus upon. Long-term growth in the fundamental values of well-chosen shares will pull their prices upward. That is one of the few things a person can rely upon.

Over the past nine years, which means since the Great Financial Crisis and at the same time since the change in our investment strategy, Vltava Fund’s NAV has grown to nearly five times what it had been. More precisely, it has risen by 397%. During the same period, world equity markets grew by 134%. While it is true that the past nine years were very good for equity investments generally, our result is very good even by a global measure.

To achieve such returns, it is necessary also to have a little luck, and it is obvious that they are not sustainable over the long term. Be that as it may, we believe that we will remain among the best funds for a long time to come and that our returns will be good. Your expectations, though, should be realistic and should not be based upon returns from the past nine years.

In the next part of this Annual Report, as in the past, you will find quarterly letters to stockholders from the past year (taken together, these present a picture of our investments and opinions from 2017) as well as more detailed data, including comprehensive historical results and audited financial statements.

We thank you for your support and goodwill through the years gone by, and we look forward to our co-operation in the years to come.

Daniel Gladiš, February 2018

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