As of October 2018, Cable Car Capital LLC no longer accepts new separately managed account clients. Cable Car manages a private investment partnership, The Funicular Fund, LP, which is available only to accredited investors. The FAQ below presently describe the old separate accounts structure. New FAQ are forthcoming.
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Cable Car makes an institutional-quality investment product available to individual investors, even if you are not accredited. The firm provides access to the same strategies used by hedge funds through a brokerage account held in your name, with full transparency, no hidden fees, and the ability to make deposits and withdrawals at any time. Cable Car’s strategy provides single-stock exposure and potential downside protection during declining markets that may be difficult to obtain from funds.
While we welcome new clients, Cable Car’s investment strategy is not suitable for everyone. Cable Car has a limited operating history. As a small business, Cable Car does not have the same resources to devote to research as many of the larger firms with whom it competes.
Investing involves risk of loss, and Cable Car cannot guarantee the performance of its investment program. It is not recommended for individuals with low risk tolerance. Because the investments are long-term in nature, it is not suitable for funds needed for expenditures planned in the next 2-3 years. Cable Car should only be considered within the context of an overall asset allocation. Similar services may be available at lower cost from other firms.
No. Unlike hedge funds, which typically require investors to be accredited, Cable Car does not offer partnership interests or other securities to the public.
No. Cable Car does not provide advice on clients’ overall asset allocation except to determine whether investing with Cable Car is appropriate. Cable Car may work with outside wealth managers who delegate management of a portion of their clients’ assets to Cable Car. Cable Car is not qualified to provide financial planning or tax advice; clients should consult a qualified tax professional with tax questions.
In general, Cable Car’s investments will result in reportable capital gains and dividend income. Tax statements are available each calendar year from the custodian. Clients should be aware that certain investment-related expenses, including Cable Car’s management fee, may not be tax deductible. To the extent practicable, Cable Car attempts to minimize the realization of net short-term capital gains in taxable accounts. Upon client request and on a best efforts basis only, Cable Car can make trades in client accounts designed to harvest tax losses or gains.
Cable Car is not qualified to provide tax advice; clients should consult a qualified tax professional with tax questions.
Yes. Cable Car’s custodian supports individual retirement accounts. Short selling and leverage are not allowed in IRAs. Accordingly, Cable Car manages IRAs using a modified version of its primary strategy. Short exposure is implemented through options where possible, and IRAs will tend to hold a higher proportion of assets in cash. Cable Car believes the next best alternative to a hedged portfolio is a long-only portfolio with a dedicated cash allocation.
At present, Cable Car can trade most exchange-listed equities and equity-like products (including common stock, preferred stock, limited partnership interests, closed-end funds, notes, and exchange traded funds), many corporate and government bonds, equity options, mutual funds, and currency conversion in over a dozen currencies. For qualified eligible persons, Cable Car can also trade a variety of futures and futures options. In the future, Cable Car may also be able to trade additional products. For clients who are accredited investors, Cable Car may also make selective investments in private companies.
Although short-selling is logistically difficult and increasingly competitive, it is an essential tool to reduce the impact of market downturns on a portfolio. During falling markets, many stocks will decline in price, even those of companies with strong business models. During these times, having capital available to reinvest in high-quality companies can provide an important source of return over the long term. Short positions that increase in value when other positions are declining provide incremental capital when it is needed most.
In normal times, short sales can also generate incremental return by capitalizing on mispricing that results from misunderstandings in the marketplace. Security selection involves recognizing asset prices that can decrease as well as those that can increase. Cable Car does not view short selling as a moral judgement. Although Cable Car sometimes shorts companies it suspects of fraud or malfeasance, short positions often reflect Cable Car’s view that the market’s expectations for an otherwise good business have gotten too high. The activity of short sellers is an important part of fully functioning capital markets.
Value investing is the philosophy of buying assets below their intrinsic value and selling them above intrinsic value. Traditionally, value investors buy companies at valuations that are either below the net asset value of the company or at a low multiple of the cash flows or earnings the business generates. Recognizing that low-quality or declining businesses may have justifiably low valuations, many value investors are willing to own faster-growing and higher-quality businesses at higher multiples that are nevertheless below intrinsic value.
Cable Car practices value investing, broadly defined. Some of its holdings are “deep value” securities trading below the value of their net assets. Other investments involve stocks whose multiples are low on an absolute basis or relative to the business’ quality and growth prospects. Cable Car also looks for mispricings that arise due to corporate actions such as tender offers, mergers and acquisitions, and other special situations. The main thing its largest investments have in common is some form of downside protection relative to the potential return, whether through valuation, asset value, or cash flows. Like many value investors, Cable Car has a contrarian bias, often preferring investments in lesser-known companies or those that are out of favor in the marketplace.
More information about Cable Car’s investment strategy is available on the investment approach page.
Many commentators and academics recommend that individual investors buy index funds in order to avoid the expenses of actively managed funds. There is a wealth of academic research demonstrating that actively managed funds, on average, do not outperform the broader stock market after fees. Of course, the performance of the index is determined in large part by the collective decisions of all managers; on average, a large enough group of managers should have performance before fees close to that of the index. It is unsurprising that active management taken as a whole does not appear to add much value relative to an index. The problem for investors lies in identifying consistently skillful managers, whose fees are justified by their performance.
Cable Car believes asset prices are not just random variables and that over the long run, asset prices reflect the value of their underlying cash flows. The stock market is not efficient, and securities are frequently mispriced due to misperceptions, investor psychology, and technical factors. When an index fund indiscriminately purchases all securities in an index, for example, that action can contribute to pricing anomalies. Cable Car’s research is a full-time effort to understand businesses and identify potentially mispriced securities. It is competitive, uncertain, and challenging, but far from impossible. Individuals who believe the task of security analysis is futile are well advised to consider index funds.
For investors who desire exposure to individual securities, researching each investment and managing a portfolio demands the services of a competent investment manager. Indexing is an understandable alternative to attempting to manage a portfolio without devoting energy full-time to investment research. However, indexing limits the potential return to that of the market or a sector, while exposing the investor to potentially undesirable holdings on which no due diligence has been conducted and to unpredictable changes in the direction of the stock market as a whole.
Cable Car cannot guarantee the performance of its security selections; however, the risks and potential rewards of each of its investments are carefully considered and researched. Cable Car does not seek to outperform a particular benchmark, but instead strives to compound capital at an attractive rate of return over time.
Cable Car recognizes the limits of a single portfolio manager’s time and attention, and it believes that over-diversification limits the benefits of active management. Cable Car’s fiftieth best idea is unlikely to have as attractive a risk/return profile as its best idea. Cable Car’s portfolio is typically composed of 5-10 long positions and 10-15 short positions.
Concentration means that each individual position has a significant impact on the value of the overall portfolio, whether positive or negative. In recognition of the fact that any investment may not perform as expected, Cable Car has nevertheless established 30% of net liquidation value for a long and 15% of net liquidation value for a short as the maximum size for any one position.
The most appropriate asset allocation for your particular circumstances depends on your risk tolerance and investment objectives and should be determined in consultation with a qualified wealth manager or financial planner. Because Cable Car makes long-term investments, you should not allocate assets to Cable Car that you plan to spend within the next 2-3 years. For most individual investors, Cable Car should represent less than half of an overall asset allocation due to the portfolio’s concentration.
Investing involves many risks, which prospective clients should understand before investing. In addition to the general risk of loss of principal associated with any investment, Cable Car’s investment strategy introduces risks associated with short sales, leverage, use of derivatives, underlying performance of invested businesses, failures of analysis, investing in international markets, and systemic financial risks, among others.
Prospective clients should read the risk disclosures in Item 8 of the firm’s brochure on Form ADV for the most complete discussion of the risks involved in Cable Car’s investment program.
For individual investors, the minimum is $50,000. For institutional allocators and qualified clients, the minimum opening balance is $110,000, which is Interactive Brokers’ minimum for Portfolio Margin accounts. Larger minimums apply for custom custody or tax requirements.
Yes. If assets need to be sold to satisfy the withdrawal request, the withdrawal may require 2-3 business days to process.