February 3, 2026
To My Partners:
Our performance in 2025 was the strongest since inception, both in absolute
terms and relative to the market. Let’s take a look at how we measured up:
BlackBird
62.2%
S&P 500
17.9%
Hedge Fund Average
12.6%
Advantage
44.3%
Note: BlackBird Financial returns are presented net of all fees and expenses. S&P 500 returns include dividends.
Hedge fund industry average data sourced from HFR.
49.6%
A Snapshot of 2025
In last year’s letter, I highlighted three investments. Here's an update on
each.
The first was our largest holding, a company we’ve owned since December
2021. I wrote:
"I am confident this investment will yield substantial profits for BlackBird and
anticipate it will continue to be our largest holding through 2025.”
For several years, this investment was a drag on our performance. While the
business performed reasonably well, its share price remained depressed,
constrained by a pervasive but misguided narrative.
In 2025, our patience was rewarded. The stock rose approximately 75%,
and what had long been our largest holding became, by a wide margin, our
most profitable.
In my 2023 annual letter, I wrote of this same company: “There is a high
probability that this investment will generate more profit for BlackBird than
all our past investments combined.”
That prediction has now come true.
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The business remains excellent. The price, however, no longer offers the
margin of safety it did when shares were trading at half their current level.
Accordingly, in September, I sold half our stake. Even so, it remains our
largest position—though I’d be surprised if that will be the case when I write
to you a year from now.
The second investment I mentioned was Dollar General. In 2025, those
shares surged nearly 80%. As the price advanced, I reduced our exposure,
ultimately selling 87.5% of our original stake. What remains represents less
than 5% of our portfolio, which is meaningful, but not enormous by our
standards.
That brings me to the third investment—which was far less profitable.
Avis Budget Group is one of only two publicly traded U.S. car rental
companies. I acknowledged the challenges facing the industry but noted that
consolidation had instilled greater discipline, improving the economics
relative to the pre-pandemic era. I argued that the price we paid was low
enough to afford us both a margin of safety and the likely prospect of an
exceptional return.
Early in 2025, the stock dropped sharply. Trusting my analysis, I bought
more—substantially more.
Then, in late March, the stock took off. The company’s market value rose
from under $2 billion to roughly $4.5 billion by year-end.
You might assume I'm about to report a windfall. I'm not.
In late April, I sold our entire position for a negligible profit.
My mistake cost us well north of $10 million.
Mistakes
************
There is a common tendency to judge the quality of a decision by its
outcome. I consider this a fundamental error, one that muddles our thinking
and impairs our ability to improve.
Consider a simple example: your neighbor takes his retirement savings to
Las Vegas, puts it all on red, and doubles his money. Has he made a brilliant
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financial decision? Of course not! He made a reckless bet that happened to
pay off. If he keeps playing that game, the odds will eventually catch up with
him.
Now flip it around. A man drives to work every morning to support his
family. One day, a drunk driver runs a red light and kills him. Was going to
work a bad decision? Obviously not! It was the responsible choice, even if he
would have been luckier staying home.
I think about this distinction constantly when reviewing my own investment
decisions.
If I’d sold Avis because I lost confidence in the company’s long-term
prospects, and the stock later tripled, I would have no regrets. In that case,
I would view the sale as an intelligent decision, because it would have been
grounded in honest analysis and sound judgment.
But that is not what happened.
When I call our sale of Avis Budget Group a “mistake”, I do not do so
because the stock subsequently rose. I do so because I knew better at the
time. I had done the work. I understood the company's earning power. I
recognized that the price we accepted was well below intrinsic value. And
yet, I sold anyway.
New Investments
************
We initiated seven new positions in 2025. I'll focus on the two with the
greatest potential to influence our returns in the years ahead. At present,
both positions are small. But if prices decline, I intend to increase them
substantially.
Tidewater
In May, we made an investment in Tidewater, the largest operator of
offshore support vessels (OSV) in the world.
The company’s origins trace back to 1955, when Alden “Doc” Laborde, a
former Navy officer and petroleum engineer, identified a problem. Oil
companies drilling in the Gulf of Mexico had no reliable way to service
offshore platforms. The vessels in use, converted shrimp trawlers and fishing
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boats, were ill-suited to the task. Laborde constructed the first purpose-built
offshore support vessel, christened it the Ebb Tide, and in doing so created
an industry. Tidewater was the pioneer.
Like the oil industry it serves, the offshore vessel business has always been
brutally cyclical. Rising oil prices spur drilling and a wave of new vessel
orders. By the time those boats were delivered, the boom had turned to
bust, and the excess capacity drove the industry to ruin.
This is exactly what happened in the middle of last decade. Between 2011
and 2014, oil prices hovered near $100 per barrel. Times were good for the
OSV industry, and capacity grew quickly. Then, the US shale revolution and
OPEC’s unwillingness to cut production produced an oil glut, and prices
collapsed. The pain was widespread in the OSV sector, and nearly every
major operator, including Tidewater, filed for bankruptcy.
There have been two transformational changes over the past decade:
First, the industry has consolidated dramatically.
Coming out of the crisis, Tidewater merged with GulfMark, acquired Swire
Pacific Offshore, and purchased a large fleet of platform supply vessels from
Solstad. What had long been a fragmented industry of marginal operators
became a far more concentrated one, with Tidewater emerging as the clear
leader. The company now operates over 200 vessels across the Gulf of
Mexico, West Africa, the Middle East, and Southeast Asia.
Second, supply is shrinking—and cannot be replaced.
Between 2011 and 2014, OSV industry utilization and average day rates
increased 24% and 52%, respectively. As a result, construction of offshore
vessels increased significantly in order to meet customer demand. In the
years leading up to the collapse, shipyards delivered nearly 300 new vessels
annually. When oil prices plunged and OSV demand fell off, the industry
found itself with surplus capacity, and new construction came to a grinding
halt.
Since then, supply has been in steady decline. Each year, an average of 4%
of the global fleet of vessels reach the end of their useful lives and are
retired. This has already had a favorable impact on utilization and day rates,
both of which have improved dramatically, and I expect this trend to
continue.
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Day rates would need to rise to roughly $40,000 for new builds to become
economical. Until then, new vessel construction will remain muted. As the
fleet continues to tighten, the supply-demand dynamic will keep moving in
Tidewater's favor, pushing day rates higher until new supply is finally
unlocked. At that level, Tidewater would generate over $1 billion in
incremental revenue, and because most of the company's costs are fixed,
nearly all of it falls to the pre-tax line.
To be clear, I have no insight into where oil prices are headed or the level of
OSV demand over the coming years. Higher oil prices would accelerate the
thesis, but they are not required. With a structural tailwind pushing annual
profits above $1 billion—and a market cap at the time of our investment of
just $2 billion—I believe the odds of a successful outcome are exceptionally
high.
Builders FirstSource
In November, we established a position in the largest supplier of building
materials in the United States.
For over a century, building materials distribution was not very lucrative.
Thousands of independent lumberyards were scattered across the country,
each with no meaningful advantage. The industry was intensely competitive
and entirely commoditized. Pricing power was nonexistent. Margins were
thin, and returns on capital were mediocre at best.
Builders FirstSource was founded in 1998 in Dallas, Texas, with a simple
strategy: acquire regional building suppliers and stitch them together into
something with scale.
The company's early years were a whirlwind of acquisitions, each one adding
geographic reach, product capabilities, or manufacturing capacity. Then, in
2005, the company had its Initial Public Offering. This event provided
substantial capital for continued growth.
The timing appeared perfect. The American housing market was in the midst
of its most spectacular boom in history. Home prices were soaring,
construction crews couldn't build fast enough, and the appetite for lumber,
trusses, windows, and doors seemed limitless.
Then the music stopped.
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The housing bubble that had been building for years finally burst in 2008.
For companies whose fortunes were tied to new home construction, the
collapse was existential. Housing starts plummeted from over 2 million units
in 2005 to barely 500,000 by 2009. Overnight, demand for building
materials evaporated.
