BlackOpal Research: Review and Investment Philosophy
Disclaimer
Black Opal Research is a financial newsletter that provides analysis and opinions on publicly traded businesses. Our content is intended solely for informational and educational purposes. We share our perspectives to invite discussion, test our investment theses, and hold ourselves accountable for our own investment decisions.
Nothing in our articles should be interpreted as financial, investment, legal, or tax advice. We do not provide personalized investment recommendations, nor do we manage money for others. Investing involves risks, and past performance is not indicative of future results. Readers should conduct their own research, verify facts independently, and consult a qualified financial professional before making any investment decisions.
BlackOpal Research: Review and Investment Philosophy
In the world of investing, volatility is often viewed with trepidation. At Blackopal Research, we see it differently. Market turbulence doesn't signal retreat—it signals opportunity. When others run for cover, we methodically evaluate businesses with competitive moats trading below intrinsic value. As rational, contrarian, event-driven investors, we've consistently applied our owner-oriented approach to identify companies with durable competitive advantages at attractive valuations. Today, we're revisiting our past analyses to evaluate performance and reinforce the principles that guide our investment strategy.
Portfolio Performance Review
Let's examine the companies we've analyzed:
Stella Jones (June 2022)
Ten Cap Valuation: $40.50
DCF Valuation: $26.02
Entry Price: $35.64
Current Price: $67.84
Total Return: +90.3%
Annualized Return: +26.4%
Meta Platforms (July 2022)
Ten Cap Valuation: $199.10
DCF Entry Point: $160.00
Entry Price: $164.70
Current Price: $604.90
Total Return: +267.3%
Annualized Return: +62.9%
Alphabet (August 2022)
Ten Cap Valuation: $61.00
DCF Range: $50-80
Entry Price: $111.33
Current Price: $166.57
Total Return: +49.6%
Annualized Return: +17.1%
Lithia & Driveway (LAD) (February 2023)
Ten Cap Valuation: $270.05
DCF Valuation: $205.00
Entry Price: $268.98
Current Price: $302.82
Total Return: +12.6%
Annualized Return: +5.8%
MBC (July 2023)
Ten Cap Valuation: $19.29
DCF Valuation: $8.00
Entry Price: $11.09
Current Price: $13.39
Total Return: +20.7%
Annualized Return: +11.8%
Important Note on Returns: The returns presented above are hypothetical and based on specific assumptions. They represent the performance of equally-weighted $10,000 investments in each position from the date of our analysis to the current date and that we did not trim, exit or add to them. These calculations assume entry at the prices stated in our original articles and do not reflect our actual investment returns.
Furthermore, these figures do not account for the additional returns generated through our entry and exit strategies, such as selling puts to acquire shares at lower cost bases or implementing option strategies to enhance overall returns. Our actual portfolio construction may differ in position sizing, entry timing, and exit execution. The valuations of these businesses are no longer accurate and have not be updated for the purpose of this article.
With these assumptions in mind, this hypothetical portfolio's total value would be approximately $94,050 today—representing a total return of +88.1% and an annualized return of +23.3%. For comparison, during the same period from our first Stella Jones analysis (June 16, 2022) through today (March 17, 2025), the S&P 500 returned approximately 54.8% (17.2% annualized), which would have resulted in a final value of $77,385 on the same initial investment. Our approach has outpaced major indices by $16,665 in dollar terms during this period, validating our disciplined approach to valuation, our patience during periods of market dislocation, and our focus on businesses with sustainable competitive advantages in their respective industries.
Our Investment Philosophy: Embracing Volatility
At Blackopal Research, we don't merely tolerate market volatility—we welcome it. Here's why:
The Business Owner's Mindset
At Black Opal, we value businesses as if we were going to buy the entire thing. This perspective fundamentally changes how we view market fluctuations. While short-term traders see price volatility as risk, we see temporary disconnections between the price businesses sell for on the open market and the value they have as cash generating machines as potential opportunities.
When evaluating businesses, we focus on owner earnings—the adjusted operating cash flow that would accrue to us if we owned the entire enterprise. Our Ten Cap analysis is straightforward and ensures that if we purchased the whole business, we would get a return of our entire initial investment over a ten-year period, without including any growth metrics.
This approach is similar to Warren Buffett's farm purchase analysis, which he described in his annual letter to shareholders. In that example, Buffett calculated the ongoing earnings from the farm and determined what price would provide a satisfactory return, without requiring any increase in the farm's productivity.
Concentrated Positions Built on Conviction
Diversification has become a universal recommendation in modern portfolio theory. At Blackopal Research, we take a different approach. We allocate up to 10% of our portfolio to individual positions, focusing on businesses with:
Exceptional management teams
Durable competitive advantages
Valuations below our calculated intrinsic value
This concentration allows meaningful outperformance when our theses are correct. While it may increase volatility in our portfolio, we believe this approach offers superior protection against permanent capital loss compared to broad diversification across mediocre businesses.
The Power of Market Irrationality
Markets, composed of human participants, are inherently prone to irrationality. As Benjamin Graham famously noted, in the short run, the market is a voting machine, but in the long run, it is a weighing machine. This irrationality creates profound opportunities for the disciplined investor.
The market's tendency to overreact to short-term events or narrative shifts provides us with openings to acquire excellent businesses at discounted prices. We capitalize on these moments of disconnect between price and value—when fear dominates reason and short-term thinking eclipses long-term fundamentals.
Our investment in Meta Platforms illustrates this principle perfectly. When we initiated our position in July 2022, the company faced significant headwinds: regulatory scrutiny, iOS privacy changes impacting ad revenue, and skepticism about its metaverse investments. The stock had already declined substantially from its highs.
What's critical to note is that the core cash flow of the business remained largely unchanged throughout this period. The market was pricing Meta as if its growth story was over, ignoring the underlying strength of its advertising ecosystem and massive user base. While the company's "metaverse" investments haven't yet delivered substantial returns and the company has since pivoted toward other R&D initiatives, the fundamental cash-generating capability of the business was never in question.
By focusing on these underlying business fundamentals rather than short-term market sentiment, we were able to establish a position that has since returned over 267%, or an annualized return of nearly 63%.
Why Falling Markets Create Opportunity
For the typical investor, a falling market represents lost wealth. For the prepared, contrarian investor, it represents opportunity. Here's our perspective:
Price/Value Disconnections: Market downturns often indiscriminately punish both weak and strong companies, creating situations where exceptional businesses trade at unreasonable valuations.
Reduced Competition: When fear dominates markets, fewer investors are willing to take positions in out-of-favor companies, reducing competition for attractive opportunities.
Management Quality Test: Difficult market conditions reveal the true quality of management teams. Companies with leadership capable of navigating challenging environments often emerge stronger.
Long-Term Focus: Market volatility has historically been a short to medium-term phenomenon, while business value tends to compound over the long term. By maintaining our focus on the latter, we position ourselves to benefit when markets eventually recognize this value.
Looking Forward
While our past performance has been satisfying, we remain vigilant in our analysis and disciplined in our approach. Market conditions continually evolve, but our fundamental philosophy remains constant: identify businesses with sustainable competitive advantages, led by capable management teams, at prices below our calculated intrinsic value.
As we move forward, we'll continue to view market volatility not as something to fear but as a potential source of opportunity. When others are selling indiscriminately, we'll be methodically evaluating businesses and preparing to act when compelling situations arise.
For Blackopal Research, our message remains consistent: short-term market movements may create discomfort, but they often create the conditions for superior long-term returns. By focusing on business fundamentals rather than price fluctuations, we position ourselves to benefit from the remarkable power of compounding high-quality businesses acquired at reasonable prices.
In our future letters, we will continue to provide high level analysis of businesses that meet our stringent criteria – companies with exceptional management teams, strong competitive moats, and trading at prices below our calculated intrinsic value. We will also continue to utilize options strategies when appropriate to enhance returns or adjust our cost basis downward.
This is the essence of our approach—rational, contrarian, and focused on the long term. We look forward to what the future brings.
BlackOpal Research