Q1 2025 Letter

Dear partners,

Thank you for your continued trust and support; you are the best partners I could ask for. 

This quarter, I want to talk a little bit about selling. The biggest mistakes for most investors tend to be mistakes of omission, meaning big winners they missed out on (or sold too soon). Truly great businesses continually execute. That’s why Peter Lynch said to not cut the flowers and water the weeds. Globally, there really aren’t that many businesses that deserve to be held for very long periods. But when you do find one and it performs well, then it becomes difficult to not get attached. On the other hand, if something is egregiously overvalued, it makes sense to trim and be opportunistic.

It became much easier, psychologically, for me to sell losers once I framed it as securing tax losses. That is quite obvious but it helps me get out of the mindset where you hope the stock reaches your cost basis. The stock has no idea what price you bought it. You have no right to think it should get back to your purchase price. All that matters is the highest return, lowest risk bet for each dollar in your portfolio and how those bets work together. If you buy a stock and it’s down 5% the next day and you realize you made a mistake in your analysis, the question you have to ask is, if I had this amount in cash, where would I optimally allocate these dollars? The past is the past, even if you made the trade yesterday. If a company isn’t executing based on your thesis, then it’s an easy sell. This can take many forms. For instance, if the founder CEO leaves unexpectedly and they were a large part of your thesis, then maybe it’s a sell. The analysis can also change based on taxes. If the CEO resigns 11 months after your purchase, maybe it makes sense to hold for one more month to get long-term capital gains treatment? If you made a $100,000 investment and it was up 20%, then you’d have $20,000 in gains. The difference between 30% and 15% tax rates is $3,000. Essentially, if the stock goes down more than 2.5% (3/120), then your decision to hold off is a bad one. If you do this same calculation with a 100% gain, the number is 7.5%. Even at a 200% gain, the math says it’s better to sell if you expect the stock to go down by more than 10% in the next month. If you use 37% and 20% rates for high income earners, the calculation is just over 9% and 11% for the 100% and 200% gains respectively. Stocks can move wildly in one month, especially if they’ve just had a big move. So if the only reason you’re holding is to avoid taxes, you have to ask yourself if there’s a real chance the stock can go down by more than your breakeven point.

On the other hand, if you continually buy and sell, your pre-tax returns need to be high to compensate for the excess taxes. For example, if you were to take short-term gains (30%) on a stock every year, you’d need a 21.43% pre-tax CAGR to reach parity with someone who never sold a stock that was doing a 15% CAGR. At 37% tax rates, that number goes up to 23.81%. That is a giant difference. At 15% tax rates, the pre-tax return needs to be 17.65% if you were to sell every year and buy something new. These small differences add up immensely over decades. For instance, if you run this scenario over 30 years, let’s say your pre-tax return is 15% and you buy and sell a new stock every year, right after reaching long-term tax treatment, compared to someone who held a stock that compounded for 15% annually but then they sold after 30 years. Want to guess what the difference in returns are? 12.75% vs. 14.39%. Less than 2%. Doesn’t seem like that big of a deal, right? Wrong! It’s almost a $2 million difference. Starting with $100,000, after 30% years at 12.75%, you’re left with $3.66 million. But at 14.39%, you’d have $5.64 million. That’s over 50% more money! If you do the same calculations but use 30% short-term rates, the difference is over $3.6 million. So clearly it pays to not pay taxes every year and just let the companies compound. At the same time, if you think you can target significantly higher pre-tax returns, you just have to be aware that you need at least 643 bps of outperformance if we use a 15% CAGR as our reference point if you rack up short term gains every year.

So this is the tax paradox – and thereby the selling paradox if you’re serious about long-term after-tax returns – in isolation, holding for one more month in our example is likely a poor decision considering stock volatility but if you compound that decision over a long enough time horizon, it really adds up. What does this mean? Don’t be a slave to the idea of paying taxes but rather be keenly aware of their effects over the decades. I’m preaching to myself here because I struggle with this tension.

If you don’t think a stock is a good value going forward, there is a cushion you can give, meaning you can actually tolerate slightly lower forward returns because you have an implied tax advantage from holding. The math is slightly complicated but it basically indicates that, even with a huge winner, you shouldn’t compensate more than 3-5%. For example, if you have a 5-year time horizon, long-term capital gains rates, and a 300% gain, if your forward expected return is less than 3% annually compared to another opportunity, the math says sell. However, your estimate won’t be perfect so it’s likely a mistake to be overly precise in these decisions. The best investing decisions tend to be obvious. If you need to model everything out to a few decimal points, the opportunity is likely not good enough.

So the two primary times you should sell are when the company is executing poorly and you can quickly take a loss or when another opportunity is a no-brainer in comparison. This is overly simplistic but I think it gives a good foundation for being aware of taxes but not letting them rule you. The math is fairly straight-forward which is helpful in demystifying the stigma of paying taxes but it’s still very important to keep them in mind before hitting the sell button.

With that as the backdrop, we did make a sale early this quarter as Axon’s valuation had gotten ahead of itself. The stock’s IRR for our day one investors was over 80% annually. A good chunk of that was due to multiple expansion so the valuation piece of the Infuse formula has been severely handicapped. The forward expected returns simply aren’t good enough compared to some other opportunities so we trimmed significantly. That will show up on your tax bill next year but that’s also one reason why I extensively discussed this topic. Even still, we are beating the benchmark after fees and taxes which is incredibly important to me. You can easily buy the S&P 500 for a couple basis points in fees these days and get exposure to the strongest innovation machine in the world. If we’re not providing more value above and beyond that, we aren’t worth your time and your hard-earned money.

All that said, let’s talk stocks and give an overview of an undisclosed position (one of two) in the portfolio. I’m still not going to give the name since it’s so illiquid but it will be easy to know which company I’m discussing if you dig a little. I will, however, send a slide deck with more information on the company for those of you who reach out (only for partners).

The company is the leading EDI (electronic data interchange) provider for Australian pharmacies. Nearly every pharmacy in Australia and New Zealand uses this software to order items from suppliers. EDI companies convert data from different business systems so customers and suppliers can interact seamlessly. For instance, the invoicing format from your point-of-sale system might differ from the supply chain management software on the other end of the transaction. When you add in accounting and ERP systems, the whole thing gets messy. EDI software is like a translator of the different formats that enables everything to work together. This company’s business model is to charge the suppliers of the pharmacies about $200/year (after rebates for the point-of-sale vendors) for each different pharmacy they are connected to. For the EDI business, if we assume 70 suppliers could match with 5,000 pharmacies, the total addressable market would be $70 million. The company won’t penetrate its supplier base fully but at 50% free cash flow margins (yes, this is very profitable business) and even 50% penetration, that’s about 70% of the current enterprise value. But we aren’t even to the good part yet. In Australia, the government regulates prescription drug prices so pharmacies have had to attract foot traffic to offset this margin pressure. Our portfolio company has started a marketplace which allows suppliers to directly target pharmacies they want to sell into. Think of it like an Amazon-esque web portal for pharmacists. There is a take-rate here that varies depending on the product while the company also sells analytics that can be bundled into the pricing. Right now, about $13 billion flows through the company’s EDI software and I think there is a real chance that $1 billion could be transacted on the marketplace at some point. At a 4% take-rate, after including analytics, that would be a $40 million opportunity. At those same high margins, that would be 80% of the enterprise value. Putting these estimates together, that’s $37 million in potential annual cash flow. Even valued at 10x, we’d have more than a 10-bagger and the current market cap paid many times over in dividends. We’ve outlined a very bullish scenario but it is actually achievable. I look forward to sharing more information on this company as the progress of the marketplace starts showing up in the financial statements. This is another company that perfectly fits the Infuse formula.

Closing

I’m honored to have you as a partner. Thank you for your trust and support. It enables me to think long-term and will be our own competitive advantage. 

The stock market, like life, will have its ups and downs. All we can do is focus on what we can control and work hard to continually raise our standards. Our strategy is simple – hitch a ride to the world’s best entrepreneurs that are running the fastest-growing, highest-quality companies at the most attractive valuations we can find. Here’s to many more years of focusing on the inputs and letting the outputs take care of themselves. 

I’ll add one tiny paragraph to end as the events of the last few weeks have been interesting to say the least – I don’t know what the tariffs will bring but I do know that our companies are reporting strong numbers, they have good valuations, and improving moats. Note that the beginning of April has been even more volatile for the market than Q1 but I’m grateful that Intellego announced extremely robust preliminary results. Further, we had been trimming some overvalued positions so we are deploying some cash. We are currently open to new investors so if you know anyone who is looking to grow their capital, send them our way. Thanks again for the trust with your hard-earned savings. I’m eager to continue compounding your investment.

Sincerely, 

Ryan Reeves

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Disclosures

Infuse Asset Management LP (“Infuse”) is an investment management company to a fund that is in the business of buying and selling securities and other financial instruments. This information is provided for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents. 

Infuse may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason. Infuse may buy, sell, or otherwise change the form or substance of any of its investments. Infuse disclaims any obligation to notify the market of any such changes. 

The S&P 500 is a U.S. equity index. It is included for informational purposes only and may not be representative of the type of investments made by the fund. References made to this index are for comparative purposes only. Reference to an index does not imply that the funds will achieve returns, volatility, or other results similar to the index. The fund’s portfolios are less diversified than this index. Returns for the index are total returns which includes dividends and do not reflect the deduction of any fees or expenses which would reduce returns. 

An investment in the fund is speculative and involves a high degree of risk. The portfolio is under the sole trading authority of the general partner. An investor should not make an investment unless the investor is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in connection with this investment may be higher than the fees and expenses of other investment alternatives and may offset profits. 

The information in this material is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Infuse which are subject to change and which Infuse does not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment. 

The fund is not registered under the investment company act of 1940, as amended, in reliance on an exemption thereunder. Interests in the fund have not been registered under the securities act of 1933, as amended, or the securities laws of any state and are being offered and sold in reliance on exemptions from the registration requirements of said act and laws.

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Performance Appendix

A. Quarterly

Net Returns	Infuse Partners LP	S&P 500
Q3 ‘22	-10.85%	-13.39%
Q4 ‘22	-22.21%	7.09%
Q1 ‘23	10.06%	7.04%
Q2 ‘23	0.40%	8.29%
Q3 ‘23	-8.52%	-3.65%
Q4 ‘23	16.35%	11.23%
Q1 ‘24	31.15%	10.39%
Q2 ‘24	21.86%	4.34%
Q3 ‘24	6.23%	5.20%
Q4 '24	11.69%	2.07%
Q1 ‘25	-4.87%	-5.57%
Since inception	47.13%	34.35%

B. Annual

Net Returns	Infuse Partners LP	S&P 500
2022	-30.65%	-7.25%
2023	17.62%	24.22%
2024	89.63%	23.80%
2025*	0.31%*	-13.53%*
Since inception	55.14%	23.03%
CAGR	18.56%	8.36%

*2025 annual returns not yet audited as Q2 is in progress