For the fourth quarter ended December 31st, 2023, KVF gained $7.06 per share,
increasing the value of each share to $62.85. This represents a 15% pre-tax
return, which places in the middle of the range of the S&P 500’s 14% return, the
Russell 2000’s 22% return, and S&P/TSX’s 11% return. Currency losses hurt
returns by $0.24 per share in the quarter.

This was a fantastic year for KVF, having generated a 43% pre-tax return. Future
returns are unlikely to be even close to this, as evidenced by the past record
(posted below) which shows this was KVF’s 2nd best return in its brief, less-than-fifteen year history.

Helping returns this quarter were continued strong returns from KVF’s largest
portfolio position, ADF Group, along with a buyout of Terra Firma Capital and a
large dividend announcement from MBIA.

Losses from previous years and quarters were realized this quarter as follows:

– AVJennings is a beaten down home builder that traded for far less than its assets less liabilities. Common sense would dictate the company shrink and distribute capital back to its shareholders, but this situation serves as a reminder that common sense is not so common. Management instead thirsts for capital and issued shares far below the market price, causing the shares to tank even more. Adding insult to injury, this sweet market-beating price was only available to domesticly-situated capital (i.e. not us). While the company continues to look undervalued, such behaviour provides insight into the disdain management must have for its shareholders, particularly foreign ones, and necessitated a sale at a loss for KVF to preclude an even bigger one in the future.

– DCI Advisors is a company that constantly under-delivered on its promises, but managed to make its managers rich in the process. This was a thankfully small position that KVF sold at a loss.

– Verbrec (formerly Logicamms) is an engineering company that took a massive hit (understandably) when commodity prices got rocked several years ago. Unfortunately, it has only continued to perform poorly since (less understandably), despite many changes in leadership. KVF exited this position at a substantial loss.

Optimism has returned to the market, and that has made it more difficult to find undervalued securities. KVF has been selling more than it has been buying, building cash in the expectation that some day in the future, there will be more bargains.

KVF’s income statement, balance sheet and pre-tax/post-fee returns since inception are included below (click to enlarge). Note that securities are marked to market value, and amounts are in thousands of $CAD: