info@crystalcovecapital.

com | (949) 355-3034

April 17, 2015

Crystal Cove Capital (net of fees)

S&P 500 Index
Relative

Inception (October 14, 2014) March 31, 2015

17.6%
11.4
+6.2%

Dear Investor,
From inception to March 31, 2015 investors of Crystal Cove Capital experienced a 17.6%
return compared to an 11.4% return from the S&P 500. Below, I share thoughts on why we
present cumulative returns as well as thoughts on the predictability of short term vs. long
term returns.
Exponential Returns
In my experience, I have found that people tend to significantly underestimate the power of
exponential returns over long periods of time. Over the last 50 years the S&P 500 has
compounded at a rate of 9.9%. This would imply that $100,000 would turn into $11.3
million 50 years later. Over that same 50 year period, Berkshire Hathaway compounded at a
rate of 21.6%. I would encourage you to take a guess as to what a $100,000 investment
would turn into if it compounds at 21.6% over 50 years. I have asked a number of people
this question and Ive found that everyone Ive asked tends to dramatically underestimate the
result. The answer is that you would have $1.8 billion; essentially, 11.7% points of extra
compounding annually over 50 years results in you having an additional $1.8bn in your
pocket. I find it amazing how exponential returns can drive wealth over long periods of time.
This leads me back to why I think cumulative results should be the central focus in my
quarterly letters. At the end of the day, the reason that you invest your money with me is so
that you can have more purchasing power in the future. I think that showing cumulative
results is more indicative of the additional purchasing power you are gaining through your
investments as opposed to showing a quarterly return or even an annual compounded return.
The Predictability of Short Term Returns vs. Long Term Returns
In the last quarterly letter I spoke about the difficulty of predicting short term results. I
quoted Benjamin Graham when he said that: In the short run the stock market is a voting
machine, but in the long run it is a weighing machine. I just wanted to expand on that
thought. Short term returns are difficult to predict since they are primarily driven by investor
sentiment. There are numerous unpredictable variables that drive investor sentiment leading


to potentially high levels of volatility in publicly traded assets over short periods of time.
Investor sentiment can swing from exceedingly exuberant to very depressive. We can see
symptoms of overly exuberant behavior during the technology bubble in 2000 in which
technology companies attained massive valuations. In contrast, during the stock market crash
in 2008 investors were overly depressive creating an environment of very low asset
valuations.
In contrast to unpredictable short term returns, long term returns tend to be driven by more
fundamental variables. For example, if we think about our investment in Liberty Global, our
5 year returns will be driven by the continued superiority of the cable bundle of services
relative to competitors, increased penetration and pricing of services leading to growth, scale
operations which will drive cost efficiency, as well as the prudent deployment of capital in a
manner that is accretive to shareholder value. Our level of certainty is quite high over these
factors and the resulting cash generative ability of the firm over the long term. In contrast,
we dont have a clue as to how investor sentiment and the stock price will fluctuate to the
numerous news headlines that will be produced in the short term. Given the inherent
unpredictability in short term returns over a quarter or even a period of a couple of years, we
focus on maximizing long term returns. Given that this focus on long term results is
relatively unique in the investment industry, it is one of our primary sources of competitive
advantage and one that we seek to exploit to meaningfully increase the purchasing power of
your money over the long term.
I want to thank you for your business and entrusting me with your capital. I welcome
referrals to any potential investors you think may be interested in our product.
Sincerely,
Faisal Ahmad
Portfolio Manager
Crystal Cove Capital Management, LLC
949.355.3034
faisal@crystalcovecapital.com
http://www.crystalcovecapital.com


Opinions are current as of the date of this commentary but are subject to change. All information provided is for information purposes only and should not be
considered as investment advice or a recommendation to purchase or sell any specific security. While the information presented herein is believed to be reliable,
no representations or warranty is made concerning the accuracy of any data presented.
Figures shown are past results and are not predictive of results in future periods. Current and future results may be lower or higher than those shown. Share
prices and returns will vary, so investors may lose money. Investors should carefully consider investment objectives, risks, charges and expenses. This and other
important information is contained in the Form ADV, which can be obtained from Crystal Cove Capital Management, LLC (faisal@ccovecap.com) and
should be read carefully before investing. Investments are not FDIC insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may
lose value. Crystal Cove Capital Management, LLC performance is computed on a before-tax time weighted return basis for managed accounts and is net of all
paid management fees and brokerage costs and is inclusive of reinvestment of dividends and earnings. Performance reflects investment performance of accounts
managed by Crystal Cove Capital from the time at which cash and securities from clients were fully invested in cash and securities chosen by Crystal Cove
Capital Management, LLC. Performance figures are unaudited. Performance of individual accounts may vary depending on the timing of their investment,
allocation to different securities, the effect of additions, and the impact of withdrawals from the account. Market indexes are unmanaged and, therefore, have
no expenses. Investors cannot invest directly in an index. The S&P 500 index reflects reinvestment of dividends. Investing outside the United States involves
risks, such as currency fluctuations, periods of illiquidity and price volatility, as more fully described in the Form ADV. Small-company stocks entail additional
risks, and they can fluctuate in price more than larger company stocks. Performance data is not annualized.