2018

Dear Shareholders,

The largest equity positions in the Vltava Fund portfolio at the start of 2019 were Berkshire Hathaway, Credit Acceptance, BMW, Magna, and Sberbank. Our portfolio is concentrated into investments we regard as providing the best combination of risk and returns. Sufficiently attractive investment opportunities are rather rare, and therefore we endeavour to exploit these to their best advantage. During last year, we narrowed down the portfolio by 4 positions, and we currently are holding 18. Our 10 largest positions make up approximately 74% of our portfolio.

The Fund’s portfolio is currently valued by the market at 8 times the profits from the past 12 months. That means that in the past year the net earnings of our companies represented more than 12% of their market capitalisation (the Earnings Yield, which is the reciprocal of P/E). In our opinion, that is simply an inadequately low valuation in view of 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 as of the end of 2018 is 64% greater than the Fund’s present NAV. The difference between our estimated portfolio value and its current market valuation is the greatest it has been in the entire time we have kept these statistics. Development of the portfolio’s fundamental value is influenced by essentially three things. First is our estimate as to 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 10 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 by 273%. During the same period, world equity markets rose by 112%.

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 2018), as well as more detailed data that include 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 2019

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