WHAT DOES THE
SECOND CURVE MEAN?

The “Second Curve”

Our name, Second Curve Capital, refers to the competitive position of the companies we invest in to generate the highest returns for the investors in our funds. For reference,“First Curve” companies rely on traditional, generally accepted strategies and technologies. They can be successful--within limits. But Second Curve companies are the revolutionaries. They invent new technologies and insights to develop entirely new business approaches. Successful Second Curve companies typically upend their industries, and send their First Curve competitors running for cover. They often bring quantum advances in profitability and shareholder value. The core of our investment approach centers on our proven success in uncovering future Second Curve stars.

Our Mission

To assist all of our partners in the pursuit of their dreams by providing superior investment returns on the capital entrusted to us.

SECOND CURVE’S 10 INVESTMENT PRINCIPLES

1. Our goal is to aggressively grow the capital of our partners
   - Hedge Fund is our structure because it enables leverage and allows us to be short
2. We own equity in businesses not chips in a trading game
   - When we buy a piece of a business we assume we will own it a long time
3. The value of a business is the net present value of its cash flows
   - We simplify by using our “Neff model” which utilizes normalized forward earnings and a relative multiple
4. We invest only within our circle of competence
   - Tom Watson Sr. “I am no genius. I’m smart in spots - but I stay around those spots
5. When buying we look for a margin of safety to limit permanent loss
   - Neff model value provides an estimate of the margin of safety
6. We are value investors
   - Value comes in two forms: mis-valued compounders and established companies trading at a discount to intrinsic value
7. We focus on our best ideas
   - Warren Buffett: It’s crazy to put money in your twentieth choice rather than more into your first choice
8. Price volatility can create opportunity
   - The average stock price fluctuates over 50% every year from its high to its low; the value of the underlying business does not fluctuate that much
9. We typically sell for one or two reasons: we were wrong or to fund a better investment
   - Our holding periods are unusually long which results in almost all gains for our partners being taxed at long term capital gains rates
10. Assets invested in equities are increasingly moving to passive management from active which is good for our strategy
    - It will result in more volatility and fewer active managers to take advantage of it