Patient Capital Management is a Baltimore asset manager founded in 2020 by Samantha McLemore, CFA — Bill Miller's long-time co-manager (working together since 2002, running the flagship Opportunity Equity strategy since 2014). Continuing the Miller-school contrarian tradition, it practices "time arbitrage": exploiting behavioral mispricing to concentrate in controversial growth names (tech, healthcare, Bitcoin-related) at deep discounts to intrinsic value. Its site preserves Bill Miller's complete 1995-2022 market letters, alongside ongoing quarterly letters and webinars.
This report shows that the best time to buy stocks is when everyone else is scared. After the 2022 bear market, stocks bounced back. The author highlights overlooked sectors like travel and banks, which are cheap and could rise. Using data and examples like Meta and Carnival, it argues that patience and ignoring short-term noise pay off. For regular investors, it means don't panic-sell during downturns; instead, look for undervalued companies and hold on.
Patient Capital’s Opportunity Equity strategy delivered strong performance in the second quarter of 2023, with a net return of 13.31%, outperforming the S&P 500’s 8.74%. Over the past year, the strategy generated a net return of 20.91%, exceeding the market index’s 19.59%. The report opens with Edga
This chapter opens with Edgar A. Guest’s poem The Struggle, exploring the relationship between growth and pain, change and persistence in investing. The report reviews the market’s dramatic shift from the bear market in Q2 2022 (S&P 500 down over 20% from its peak, with a peak loss of -27.5%) to the new bull market in Q2 2023 (up 20% from the low). Inflation has fallen sharply from its 9.1% peak, and the Fed held rates steady at its most recent meeting. Despite the economy’s surprising resilience, concerns over inflation, rate hikes, and recession persist. Core PCE remains in the 4-5% range, while the 5-year breakeven inflation rate is around 2.2%.
The author’s core investment argument is: Buying stocks when market fear and pessimism are at extremes often yields substantial returns. This is a contrarian judgment—when people are most worried about the worst-case scenario, the outlook is actually best. The author emphasizes that investors should prioritize rationality over emotion, patience over instant gratification, and be willing to endure short-term pain for long-term gains. The report also notes that in relatively efficient large-cap stocks, while it is difficult to gain an information or analytical edge, a behavioral edge still exists. For example, Meta Platforms (market cap $800 billion) nearly doubled in one year.
1. Historical Performance Data: The S&P 500 has historically averaged a 16% gain in the year following a 20% decline. Remarkably, after the 2022 bear market, the market rose exactly 16% (a near-unprecedented event). The author’s updated analysis suggests historical evidence points to continued gains in the second year.
2. Lagging Performance of Travel-Related Stocks: The report notes that travel demand has boomed over the past year, yet valuations for related stocks remained depressed until a recent catch-up rally. Carnival Corp (not held) was the top performer in the S&P 500 in Q2 (+86%), followed by Norwegian Cruise Line (+62%), with Delta Airlines also in the top ten (+36%). The author believes these stocks are still mispriced and may be overbought in the short term, but consumer spending has not yet returned to pre-pandemic levels. Rubinson Research estimates this category will grow at twice the rate of overall consumer spending next year.
3. Improving Market Breadth: The report mentions that market breadth expanded in late May, boosting strategy performance. Cyclical stocks have recently broken out relative to defensive stocks, suggesting the market does not share recession fears.
4. Divergence in Inflation Indicators: Although core PCE remains at 4-5%, market-priced inflation expectations are lower: the 5-year breakeven inflation rate is around 2.2%, the St. Louis Fed’s 3-month annualized sticky price CPI (excluding shelter, food, and energy) fell to 1.4% in June, and Truflation’s real-time measure is also in the low 2% range.
5. Behavioral Finance Perspective: The author cites Bill Miller’s view that information spreads and is reflected in stock prices faster than ever, but human nature has not changed in 50 years of investing. People still swing to extremes in fear and greed, and the pain of a loss is twice as intense as the pleasure of an equivalent gain. The market is hyper-efficient on real-time data but less efficient over longer time horizons.
| Company/Asset | Role | Key Data | View |
|---|---|---|---|
| Carnival Corp | Not held, used as market case | Top S&P 500 performer in Q2 (+86%) | Market finally acknowledged travel demand sustainability |
| Norwegian Cruise Line | Not explicitly held | Second-best S&P 500 performer in Q2 (+62%) | Same as above |
| Delta Airlines | Not explicitly held | Top ten S&P 500 performer in Q2 (+36%) | Same as above |
| Meta Platforms | Held | Top ten S&P 500 performer in Q2, market cap $800B, nearly doubled in a year | Classic example of behavioral edge, widely shorted previously |
| Opportunity Equity Strategy | Report subject | Q2 net fee return 13.31% (vs S&P 500 8.74%); 1-year net fee return 20.91% (vs 19.59%) | Strong performance, outperformed the market |
1. Contrarian Positioning During Market Fear: Buying stocks when market sentiment is extremely pessimistic (e.g., the 2022 bear market) has a high historical success rate. Investors should ignore short-term noise and focus on long-term fundamentals.
2. Focus on Continued Opportunities in Travel & Consumer Sectors: Although some stocks are overbought in the short term, consumer spending has not yet normalized to pre-pandemic levels, and this category is expected to grow at twice the rate of overall consumption next year. Valuations remain depressed, offering room for further re-rating.
3. Exploit Behavioral Biases for Excess Returns: In large-cap stocks, an information edge is hard to come by, but a behavioral edge (e.g., patiently holding stocks mispriced by the market) remains effective. The Meta Platforms case shows that even large-cap companies can be significantly mispriced during extreme market sentiment.
4. Maintain a Long-Term Perspective: The market is efficient on real-time data but less efficient over longer time frames. Investors should avoid being swayed by short-term fluctuations and focus on the gap between fundamentals and market expectations.
| Metric | Gratitude Group | Control Group | Difference |
|---|---|---|---|
| Average Holding Period (months) | 14.2 | 9.8 | +45% |
| Annualized Return | 8.7% | 5.3% | +3.4% |
| Maximum Drawdown Tolerance | -22% | -15% | +7% |
The core logic of the current portfolio is exploiting the market’s excessive enthusiasm for growth stocks by buying undervalued value stocks. By applying gratitude psychology to improve investment discipline, using low turnover to capture volatility opportunities, and leveraging catalysts in discounted assets (e.g., IAC, Citi), the portfolio offers significant upside potential with manageable risk. Investors should monitor interest rate changes (a 10-year yield rise to 5% could pressure growth stock valuations) and bank deposit stability, but over the long term, mean reversion in value stocks and dividend income provide a safety cushion.
This chapter uses Christina Siegel's market review as a framework to summarize key market data from the second quarter of 2023 through July 13, including inflation indicators (CPI, PCE), interest rate expectations (5-year breakeven inflation rate approximately 2.2%), and the performance of the S&P 500 index. By presenting these macro data, the author provides context for subsequent portfolio analysis and emphasizes the market's transition from the 2022 bear market (peak loss of -27.5%) to a new bull market (up 20% from the low).
The author's core investment argument is that although inflation has significantly declined from its June 2022 peak of 9.1%, core PCE remains in the 4-5% range, and market concerns about inflation, interest rate hikes, and recession have not dissipated. The counterintuitive judgment is that economic resilience has exceeded expectations, but market pricing may underestimate the impact of persistent inflation pressures on valuations.
| Indicator | June 2022 Peak | Q2 2023 / July |
|---|---|---|
| CPI (YoY) | 9.1% | Declined (specific value not given) |
| Core PCE (YoY) | Not given | 4-5% |
| 5-Year Breakeven Inflation Rate | Not given | Approximately 2.2% |
| S&P 500 Decline from Peak | -27.5% | Up 20% from low |
This chapter does not mention specific companies or assets, focusing solely on macro market indicators (CPI, PCE, S&P 500 index) and portfolio valuation methods (Upside to CTV). The author emphasizes that the portfolio's Upside to CTV is a proprietary calculation based on probability-weighted intrinsic value but does not disclose specific holdings or directions.
For investors, this means that current market pricing may not fully reflect core inflation stickiness (4-5% vs. 2.2% expected), warranting caution about the suppression of growth stock valuations by persistently high interest rates. The author implicitly suggests focusing on individual stocks' Upside to CTV (expected returns) within the portfolio rather than relying solely on macro trends, as macro and micro valuations may be disconnected.