2026 Q3 Fund Report

Looking at the overall portfolio style, we have basically shifted from cigar-butt stocks to value investing.

The position we closed with the largest gain was sold because the new policy in April 2026 triggered a review of operating cash flow. In the review, we found that government subsidies accounted for one-third of operating cash inflows. We therefore believe that, regardless of whether the new policy reduces subsidies, such large government subsidies already limit our ability to judge the company's profitability. This is a non-market force and not sustainable. For this reason, the long-term value we had built on our earlier misjudgment of the company's cash flow was damaged, so we decided to sell.

The other reductions and closures were more due to later review finding that we still did not understand the company's business model and corporate culture, so our actions are consistent with our investment logic.

The increased position, in our view, is a rare value-investment candidate and can serve as a cornerstone holding. We have reviewed its business model and corporate culture to the best of our ability, and it meets the criteria for value investing. Fortunately, it has just experienced a price decline, giving us more confidence to buy.

We expect that in Q4 2026 we will again reduce or close 2-3 positions we do not fully understand, while 1-2 positions in the watchlist may hopefully be built into positions within 2027.

CashFlowClub · October 12, 2026