One of My Most Underrated Tools for Investment Idea Generation: Fund Letters

When it comes to generating investment ideas, one of my absolute favorite and often overlooked resources is reading letters from investment funds. Known by various names—like “letters to LPs (limited partners),” “fund letters,” “shareholder letters,” “hedge fund letters,” or simply “letters to investors”—these documents offer unique insights straight from the minds of seasoned fund managers.

Fund letters provide a window into the strategies and thought processes of successful investors—as well as unsuccessful investors; more on this further down below.

While the content of such letters can vary widely, a common theme is the sharing of high-conviction investment ideas and updates on existing holdings.

Many of these letters are freely accessible to the public, and occasionally, confidential letters make their way into the open too, adding a layer of intrigue and exclusive insight.

Why Fund Letters Are a Gold Mine for Investors

What makes fund letters so valuable is that they often include a distilled investment pitch focused on just a few key metrics that drive a thesis.

Unlike a lengthy 10,000-word analysis, a well-written fund letter provides a powerful yet concise summary of what matters most for an investment idea. In just a few paragraphs, you can grasp the essential components: the company’s competitive advantages, growth prospects, and potential risks.

This brevity is not just convenient; it’s strategic. A focused writeup can make it easier for readers to pinpoint the core reasons behind a fund manager’s investment choice.

Additionally, fund letters from smaller, less mainstream funds often cover ideas not widely discussed in popular financial media.

Many of these managers are exploring niche areas—small-cap companies, emerging markets, or lesser-known European or Asian markets—that fly under the radar for most large institutions.

(an excerpt from Smoak Capital Management’s 2024 mid-year letter)

For investors seeking diversification beyond heavily analyzed U.S. large caps, these letters can reveal unique opportunities.

Choosing the Right Fund Managers to Follow!

Of course, to make the most of these letters, it’s essential to follow fund managers whose investment philosophy resonates with your own and who actually generate alpha.

Finding talented, like-minded investors can help you discover ideas that align with your approach, increasing the relevance and usefulness of the insights shared.

My Favorite Resources for Fund Letters

To make your search easier, here are two incredibly useful resources:

1. Fund Letters and Reviews: Fund Letters Archive - This site curates a wide range of fund letters, organized by date and the stocks mentioned. It’s a literal goldmine of insights and a

   go-to resource for staying updated on the latest letters.

   

2. MastersInvest: MastersInvest Site - This website offers an overview of some of the most renowned investment letters, organized by fund. Here, you can explore letters from prominent funds like Terry Smith’s Fundsmith, Howard Marks’ Oaktree, and Chuck Akre’s fund.

By leveraging these resources, you can gain access to some of the best ideas from successful investors and potentially uncover unique opportunities for your portfolio.

Happy reading!