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.