The Ensemble Fund was launched in 2015. Ensemble Capital’s investment strategy has been offered since 2004 via separately managed accounts. In this quarter’s letter to separately managed account clients, we offered commentary on our past periods of underperformance that occurred prior to the launch of the Ensemble Fund. You can find a copy of that letter here.


Below is the Q1 2022 quarterly letter for the ENSEMBLE FUND (ENSBX). You can find historical Investor Communications HERE and information on how to invest HEREEnjoy!


1Q22 1 Year 3 Year 5 Year Since
Ensemble Fund -15.63% 1.36% 17.86% 16.51% 14.82%
S&P 500 -4.60% 15.65% 18.92% 15.99% 14.87%

*Inception Date: November 2, 2015

Performance data represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be higher or lower than the performance data quoted. Performance data current to the most recent month end are available on our website at

Fund Fees: No loads; 1% gross expense ratio.

Over the first seven quarters after COVID began, from March 31, 2020, to the end of 2021, the S&P 500 returned 89% with positive returns reported in every quarter. Over this same time period, the Ensemble Fund returned 101%, also generating positive returns in each quarter. But the first quarter of 2022 saw an abrupt shift in fortunes with the S&P 500 declining 4.60% while the Ensemble Fund declined 15.63%.

In this letter, we will lay out the drivers of the market pullback, the reasons we believe our strategy has underperformed so sharply, the attributes of our portfolio holdings that we think mean they are well positioned to navigate the uncertain economy ahead, and provide a profile of Google  (6.6% weight in the Fund) and Chipotle  (6.0% weight in the Fund), two companies that characterize well the robust way that so many of our holdings have navigated the COVID era.

But first we want to put our sizeable underperformance this past quarter in context. Like every investment manager with a strong, long term track record, we have endured numerous periods of underperformance along the way. Our focused portfolio is designed to attempt to outperform the market and doing so requires that our investment performance be different than the market.

From November 30, 2015 to February 10, 2016, the Fund was down 16.75% while the S&P 500 was down 10.61%, for 6.13% underperformance. From June 8, 2018 to December 13, 2018, the Fund was down 11.83% vs the S&P 500 down 3.53%, for 8.29% underperformance.

While this recent quarter represents our largest degree of underperformance, so too did our 2020 results represent our largest degree of outperformance. In 2020 the Fund was up 30.89% vs the S&P 500 up 18.39% for 12.51% outperformance. It is clear to us that the pandemic has caused much larger and more rapid relative swings in asset pricing as investors struggle to grapple with the implications of an economic event of an unprecedented nature.

In this context, you can see that our first quarter underperformance of 11.03% is clearly a bad outcome, and yet is not inconsistent with other periods of weak performance that have occurred in the context of our long term track record of outperformance.

Each of these prior periods was unique in its own way. But each time, we stayed focused on our long term strategic priorities, maintained conviction in our core process, made adjustments to our portfolio as needed, and were rewarded for staying the course.

We have every intention of reacting to our most current bout of underperformance in the same way that has served us so well during past periods of disappointing results.

There are many times when market volatility is caused by somewhat esoteric financial market issues that may not be the subject of mainstream news coverage. But the market volatility seen in the first quarter, during which the S&P 500 fell as much as 13% from its highs, marking the first correction since the March 2020 COVID bottom, was driven by the news events that are on the front page of every newspaper. Inflation worries and the Russian invasion of Ukraine combined to trigger a panic over the potential for stagflation, the term for an economy that exhibits slow or negative real growth, in the face of high inflation. These worries sent stock prices lower, even as the prospect of inflation driven Federal Reserve interest rate increases drove down the price of bonds, with the Bloomberg US Aggregate Bond Index, a broad measure of intermediate term corporate and government bonds, falling 5.93%.

Worries about inflation are not new. We wrote in depth about heightened inflation pressures in our essay describing how to invest in a high pressure economy, published in June of 2021. Year over year CPI, which measures consumer price inflation, jumped above the Federal Reserve’s 2% target as far back as March 2021. By May it was over 5%. And during the fourth quarter of 2021, as the S&P 500 rallied by 11%, inflation was running at well over 6%. But during this time period, financial markets assumed that the high levels of inflation were a function of the slow restart of the supply side of the economy, as seen in snarled supply chains and a shortage of workers relative to the number of people who were working prior to COVID.

In the middle of January of this year, the CPI measure of inflation was reported at 7% for the first time and during that same week, Russia and US diplomatic talks regarding Ukraine were ended with no resolution. It was at this point that the selloff began in earnest as investors began recalibrating their expectations for inflation, interest rates, and economic growth.




Investors should consider the investment objectives, risks, and charges and expenses of the Fund carefully before investing. The prospectus contains this and other information about the Fund. You may obtain a prospectus at or by calling the transfer agent at 1-800-785-8165. The prospectus should be read carefully before investing.


Important Risk Information

An investment in the Fund is subject to investment risks, including the possible loss of the principal amount invested. There can be no assurance that the Fund will be successful in meeting its objectives. The Fund invests in common stocks which subjects investors to market risk. The Fund invests in small and mid-cap companies, which involve additional risks such as limited liquidity and greater volatility. The Fund invests in undervalued securities. Undervalued securities are, by definition, out of favor with investors, and there is no way to predict when, if ever,[…]

Last week, Ensemble Capital’s CIO Sean Stannard-Stockton joined two portfolio managers from Parnassus Investments on The Motley Fool Roundtable to discuss recent market volatility and our investment outlooks.

The discussion covered:

  • The sorts of businesses that are best positioned to navigate high rates of inflation.
  • A shift from the weak demand decade of the period before COVID to a persistently high demand period ahead that is leading to a high pressure economy.
  • Why competitively advantaged companies have been disadvantaged by low interest rates and low inflation and why these same companies will be advantaged by higher interest rates and higher inflation.
  • Why it is so dangerous for investors to “climb Mount Stupid” and trick themselves into thinking they are experts in certain types of subject areas, like the Russian invasion of Ukraine.
  • Why Ensemble, whose strategy is not marketed as an ESG strategy, looks for many of the same characteristics in the businesses we invest in as Parnassus, a pioneer in ESG investing since 1984.

Click on the image below to be taken to the interview.

A few years ago, my wife and I visited the beautiful Muir Woods just outside of San Francisco. Walking into a grove of redwoods standing over 200 feet tall is a stunning sight.

Aside from a hospitable maritime climate, one of the ways the coastal redwoods are able to grow to the sky is that they have a fire-resistant chemical in their bark. While this superpower doesn’t eliminate the risk of destruction, the fire resistance allows a high percentage of redwoods to endure natural fires that destroy overgrowth on the forest floor. In turn, they benefit from more sunlight and more space to grow.

Author’s photo

Whether in nature or in business, growth breeds complexity and complexity dampens growth. At some point, the complexity becomes tinder for an external shock – or crisis – that fuels destruction which in turn is the genesis of the ecosystem’s next phase of growth.

A crisis is indiscriminate in wielding damage. All parts of the ecosystem are impacted. Those parts that survive the crisis, however, are in a better place to capitalize on the next phase of growth.

We set out to only invest in truly outstanding businesses because we believe that, like the coastal redwoods, they possess certain resilience attributes that help them endure and get stronger through crises.

What are some of these attributes?

  • Moat. What a durable competitive advantage ultimately provides a company is time. Time to develop new products, time to correct mistakes. Companies who are instead out in the “open field” can only act and don’t have the luxury of being able to react. During a crisis, having the time to react thoughtfully and strategically becomes a more valuable asset than in the growth phase where action is more highly prized.
  • Relevance. If you’re delivering a product or service that solves a customer’s need the day before a crisis, it’s highly unlikely that the customer’s needs will change the day after a crisis. It’s true that the customer may need less of a product during a crisis, but relevant products remain top of mind and are not easily eliminated.
  • Stakeholder value. Suppliers, customers, employees, and other stakeholders are more willing to make sacrifices to support companies in crisis when they’ve long felt respected and supported by the company.

We demand these attributes and more from our companies because, as long-term investors aiming to hold great businesses for long periods of time, we are aware that crisis is at some point inevitable during our holding periods. The last thing we want to do amid a crisis is wonder if we should change horses in midstream.

During March 2020 when it became apparent that crisis was at hand due to COVID, our team stress-tested every one of our companies to see how they might fare in scenarios that seemed unfathomable a week earlier. We concluded that we were confident in all our companies’ ability to fight through lockdowns of various lengths and severity.

To be sure, all our companies were negatively affected by COVID lockdowns to some degree – Booking had negative revenue in April 2020 due to travel cancellations – but we believe they all came out stronger while some of their weaker competitors floundered.

The crisis we’re facing today – namely stagflation panic amid rising oil prices, inflation, and geopolitical conflict – is different from March 2020, but we think it will similarly test every global company’s resilience. Here again, our confidence is bolstered by the high-quality companies we own.

During Home Depot’s fourth quarter earnings call, COO Edward Decker provided commentary on why he thinks the company will endure in this environment, which incidentally, almost lines up exactly with the resilience attributes I mentioned above:

“We have a powerful foundation and distinct competitive advantages. First, as I mentioned earlier, our unique culture and values as well as our knowledgeable associates will remain a competitive differentiator. Second, our stores are the hub of our business and will always be important in the future of home improvement retail. We have a premier real estate footprint that provides convenience for the customer.

Third, we believe we have the most relevant brands and products and are continuously driving innovation in the marketplace. Fourth, we have a best-in-class supply chain and have demonstrated our ability to operate with agility and navigate any environment. And finally, we have consistently improved the interconnected shopping experience as our customers increasingly blend physical and digital worlds for their projects.”

Moat, relevance, stakeholder value.

We believe that the market has indiscriminately punished stocks with high multiples, calling the group’s valuations into question due to stagflation worries. And broadly speaking, the market is right to call many companies’ valuations into question. We’ll probably find out that a lot of companies that were propped up by an era of low inflation and plentiful and cheap capital were undeserving of their multiples.

But premium companies like the ones we own deservedly tend to trade at a premium to the average company. Nevertheless, some of them have been thrown out with the bathwater in recent months.

As we discussed in our post on the quality margin of safety, we aim to own exceptional businesses where, looking back, we could have paid a lot more than the market price – even when the stock looked expensive on a multiples basis – and still come out with good returns.

To generate such returns, our companies must be able to survive various crises and get stronger on the other side. We believe each of them possess the necessary resilience factors to do just that.

Ensemble senior investment analyst Arif Karim was recently interviewed by Clay Fink on the Millennial Investing. Their discussion focused on the topic of pricing power and companies that exhibit this characteristic, which is a key benefit of competitive differentiation. They also discussed specific examples of portfolio companies such as Ferrari and Costco in relation to this characteristic.

The Interview can be found here on the show’s website along with a transcript as well as on YouTube.

Our thesis on Ferrari can be found here and how its unique relationship with its customers shapes its pricing strategy here.

David Lee is a Ferrari collector and his testimonials on YouTube offer a great example of collectors’ passion and journey with the brand. A couple of highlights can be found here and here.

More about our thesis on Costco can be found here.

We’ve also described more about the topic of pricing power, with Old Dominion Freight Lines and Netflix as examples here and here.


“At heart, uncertainty and investing are synonyms.” –The Intelligent Investor, Benjamin Graham (1949)

In writing this post, we thought about how privileged we are to worry about the war in Ukraine primarily through the lens of investing, rather than being in a position where we ourselves are fleeing an invading army. Our blog has a global audience, and we know that we have readers in Ukraine, other Eastern European countries, and Russia. Today, there are wars going on in countries other than Ukraine as well. The human suffering of these wars is of equal moral importance. War in any country is a tragedy for all of humanity.

But this is an investing blog, and so in this post we will focus on the issues where we think we can offer useful insights and perspectives, even while we keep in mind the much larger human tragedy that is playing out in Ukraine.

In our post yesterday, we described the potential economic impact of the war in Ukraine and we argued that it was the economic impact of war that drives the stock market, more so than the violence itself. In this piece, we share the data showing that war that does not occur on US soil has rarely impacted the stock market by all that much. The main exception was WWII and even then, it took full blown global warfare and the near complete destruction of much of Europe, for the US stock market to decline significantly.

The chart below illustrates how geopolitical events have impacted the market in the past. The Cuban Missile Crisis may be one of the most relevant examples on this list, since it was a confrontation with Russia and at the time there was significant and well-informed worries of an attack, possibly a nuclear attack, on US soil.

(Source: Vanguard)

With 9/11, we can see a more recent example and one that involved an attack on US soil and triggered widespread fears of more such attacks on US soil, even including things like a “dirty bomb” or other weapons of mass destruction. After falling by 12%, the stock market rallied back to new highs.

(Source: Bloomberg)

Incredibly, even the bombing of Pearl Harbor during WWII, which has been the only act of war on US soil since the Civil War (actually not technically, since Hawaii wasn’t a state at the time), only caused a 10% drop in the market before it fully rebounded.

(Source: Bloomberg)

But to be clear, we are not at all being dismissive of the threat of war. Our decisions in our investment strategy are not predicated on the idea that wars don’t impact the market. Rather, we think investors need to realize that war itself is not the major driver of market risk. It is the economic implications of war that matters, and this is what we wrote about yesterday.

Of course, expansive war on EU or US soil does matter to the US stock market. If there is widespread destruction of economic assets and the killing of workers, this would clearly have a huge negative impact on the stock market.

While it wasn’t on US soil, WWII of course involved exactly this type of widespread destruction across much of Europe. The US stock market fell by 32% from the start of WWII to the low point in 1942 and then rallied to new highs as the Allies won the war. Surprisingly to many investors, the market actually rallied initially, and if measured from the high to the low, the decline in the US stock market during that time was a bit more than 50%.

(Source: Bloomberg)

But the Allies won the war. Germany lost WWII and here’s what happened to their stock market.

(Source: Wealth, War and Wisdom, Barton Biggs)

If European or US economic assets are destroyed as part of a large-scale military conflict, there is no doubt that would be a terrible outcome for humanity and for the stock market. This outcome is already real in Ukraine, and the human and economic tragedy there is enormous.

But as much as this risk playing out in the US or EU cannot be dismissed, it is important to note that even then stock markets have recovered to new highs over time. The exception, as seen in the chart of the German stock market during WWII, is when the country in question loses the war and sees its country effectively come to an end.

So, it is important to recognize that our thinking on managing stocks during the current crisis does assume that the US, and to a lesser degree the EU, will not experience widespread destruction of their economic assets and eventually lose the war, bringing about the end of US history. But this is a “bet” we are willing to make. There are some risks in investing that simply cannot be hedged.

As we continue to process incoming news flow, we will focus on the economic impact of the war. This includes the impact of any potential direct military engagement between Russia and NATO. We are in no way dismissive of the potential economic risks. In our recent post on the economic impact, we made clear that there is risk of both a recession and high inflation occurring at the same time. While we believe that the market is overreacting to this risk currently, and we believe our portfolio holdings are positioned to better navigate this sort of stagflationary economy than the average company, we will constantly recalibrate our point of view as more data and evidence becomes available.

If we come to the conclusion at any time that we should trim or sell stocks in our portfolio because of the way the economic impact of the war has evolved, we will take such action immediately.

Over our 18-year track record, we’ve owned stocks during an unprecedented global housing crash, periods of very rapid energy price increases, all sorts of global debt defaults, an ultra-contentious US political environment, a trade war with China, a global pandemic, etc. We can’t say that we foresaw all of these events in advance and during those events we never made huge changes to our portfolio. But over that time period we successfully navigated the challenges at hand.

The way we have navigated all the uncertainty and unexpected events over the last two decades was not by trying to predict the future and make big changes to our portfolio based on[…]