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The following segment was excerpted from this fund letter.
I have been following Qurate (QRTEA) since we exited our investment. Let me get the obvious out of the way: the business is clearly challenged and
Qurate Retail: Business Is Clearly Challenged, So Why Invest
Summary
- Qurate's business is challenged with a significant risk of equity being worth $0, but there's potential stabilization and upside if a turnaround succeeds.
- Despite cyclical and secular challenges, the equity trades like a call option with a potential 15x upside, implying market's 90%+ failure probability is too high.
- Position in Qurate is very small, low single-digit percent of the portfolio, to manage risk while maintaining potential high positive expected value.
- Overall portfolio strategy includes low downside investments and equity hedges, making a small, high-risk position in Qurate sensible within this context.
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