Q1 2025 Letter - Turbulent Times

U.S. stock markets experienced a challenging first quarter in 2025, with major indices like the S&P 500 and Nasdaq posting negative returns due to increased volatility and concerns over trade tensions and a potential economic slowdown.

Quarterly Performance

Seaside Private Capital (SPC) underperformed for the 1st quarter of 2025, finishing -13.65% vs. the S&P 500 at -4.59%.

Heightened Volatility

SPC had a relatively quiet first quarter as stock prices trended slightly positive through January and February. Then towards the end of the quarter concerns around tariffs and trade policy took center stage and volatility began to take off. Some of our holdings got wacked hard right at the end of the quarter from both economic news and company specific issues. Google (NASDAQ: GOOG) has been targeted by the DOJ, which had led to short-term selling pressure, and UnitedHealth Group (NYSE: UNH) sold off dramatically as the company guided to higher medical expenses for the year. In both cases, we believe these are short-term phenomenons that have no impact on the long-term value of the businesses. In the case of GOOG, a potential anti-trust splitup of the company would actually lead to an increased valuation. GOOG is currently trading at a multiple below the average S&P 500 company, although it's growing revenue double digits. We think GOOG is far superior than your average company and we think GOOG should be trading at significant premium. For UNH, comments from the earnings call revealed that the higher expense guidance was from elective procedures that were delayed from COVID, which is effectively a one-time item and should return to a normal range in 2026. We think the company is trading at a ridiculously cheap multiple. Nonetheless, the quarter was brutal for us, but we remain resilient and are not shaken by the hits we took. We're in it for the long game.

A much anticipated event after quarter-end was "Liberation Day". This was the day the Trump administration revealed its actual tariff strategy, which was generating constant attention in the financial media leading up to the event. Market panic set in immediately. The size of the tarriffs being implemented were shocking. No country was spared, and the implementation was haphazard at best. As always, we remain generally agnostic to politics and try to evaluate the market and economic conditions without any sort of bias. Our view of the current Trump administration is that the administration clearly understands the issues at hand and is actively going out and attacking those issues. That's something none of his predecesors were willing to do or could do. That's a positive and deserves some credit. However, the strategy, execution, and communication around resolving these issues have been puzzling, for lack of a better word. For example, the Department of Government Efficiency (DOGE) was tasked with cutting a bloated and growing government bugdet that was not sustainable. That's a great thing, at least in theory. But when the job cuts started happening it was extremely unorganized and chaotic. It seemed like there was no framework or a well thought out analysis that was performed beforehand. These "fly by the seat of your pants" policy initiatives are probably causing more harm than good, in our opinion.

Ultimately, the policy situation is changing on a daily basis and it's highly unpredictable. We believe our time is better utilized focusing on analyzing individual companies that sell-off indescriminately on these news headlines. We do think there is already short-term and medium-term damage that is being done to the economy and risks are building for a recession. Private equity giant, Apollo, seems to support this view (analysis below).

Source: Apollo Global

It's hard to predict what the economy will do, but I think the main point is that we won't experience the consequences of tariffs right away. It takes time for tariffs to work their way through the economy and start showing up in the data. By Apollo's estimates, they think a recession will start happening sometime this Summer. There are still a bunch of unknowns. The U.K. was the first country to strike a trade deal, but even then broad based U.S. tariffs of 10% still apply and the details of the "deal" are vague and questionable at best.

Concluding Remarks

I'm keeping this quarterly update on the shorter side partly due to the lack of action in the portfolio and also as I'm writing this its already mid-May.

Underperforming for the quarter is not a fun pill to swallow, even more so at the rate our portfolio declined vs. the market. However, as I write this letter, our portfolio has started to bounce back. In any case, we don't chase short-term performance and are ok with short-term market volatility. We're also sitting comfortable with 32% of our portfolio in cash/money market accounts which allows us to take advantage of market gyrations.

Sincerely,

Daniel Fas

Founder & CIO at Seaside Private Capital