The concept of holding yourself out to the world as someone still willing to selectively accept “other people’s money” in a professional money management capacity has accumulated a lot of unpleasant compliance baggage. Unpleasant in the sense that if you are not innately a dirtbag, there are a lot of rules that seem silly. But I have generally given up wailing at the wind, so once a year we put out numbers and it’s that time of year: 2025 math net of all fees. And yes, please go down to the bottom and review the disclosures. And then we present an abbreviated year-end client letter for your perusal. Please contact us directly if any of this is of further pecuniary interest.
Greetings from our global headquarters in Hermosa Beach. If you are reading this, there are two pieces of good news; the first is that you have made it into 2026 with us, and secondly, we finished out a very successful year of investing on your behalf.
Cove Street Capital is beginning its 15th year as an independent investment management firm focused on select institutions and families. Some things have changed and some haven’t. On the latter, your portfolio remains deadly focused on value oriented, research driven, focused investing in mostly public US equities with enthusiasm and drive. Investment management is indoor work with no heavy lifting and the Principal grew up at a firm where 60-year-olds were still called kids. And it remains fun.
What has changed is partially the world and partially proclivity. Technology, yes we are using it, greatly enables scale, regulatory compliance and competence with fewer bodies. We have also narrowed our client focus – we are utterly capable of running money for the largest and most sophisticated pools of capital in the world, but we have lost interest in playing certain industry games that are counterproductive to client interests and are both time and soul-sucking activities. We remain open to chatting with like-minded parties and are open to interesting and properly incented structures to which we are obliquely alluding.
It would be somewhat disingenuous to suggest that our solid performance can be directly tied to a concerted effort to eliminate “stuff and people activity” which leaves more time for investing, because there are cycles and timing events that happen with little regard to what goes on at CSC. But it has helped. And is more fun.
The bigger contributors this year, like any other year, make themselves wonderfully obvious.
Viasat, Inc. (VSAT) more than tripled in 2025, with visible progress toward expanding global satellite capacity via its ViaSat-3 constellation and underlying growth in both commercial and defense segments. Additionally, Viasat sold access to a portion of its Spectrum assets for an enormous number which greatly assisted debt de-levering. We reduced our position after material gains but retain a 2.5% position, as we think there are a lot of things that can go right for them in the monstrous interest globally in the space industry, but we remain cognizant of competitive threats.
Butler National (BUKS) is one of the smaller sized companies in the portfolio with a focus in aerospace and defense, an area we continue to like. They oddly enough also have a Casino and sportsbook in Dodge City Kansas, which provides a steady spigot of cash with which to fund growth in aerospace. We have been supportive of the massive changes in the company since purchase which include a complete changeover of management and the Board, cost savings, internal spending for organic growth and share repurchase. There are 20% margins, solid free cashflow and a long runway of growth given their diminutive size in a growing industry. The stock was up roughly 80% in 2025 as “some” of the improvement is being recognized.
Clear Channel Outdoor Holdings (CCO) was a global billboard business. It is now a US regional business after a long and tortured process to sell off non-US assets and improve the balance sheet. We entered into the position in early 2025 as our research suggested this process was nearly over and the company had a reasonable chance to improve valuation as a result. We like the math of billboards, and have also had a big winner in Outdoor Media (OUT) which trades in a REIT format. We will note that the CCO balance sheet is merely “highly levered” today vs liquidity stricken, which is still not ideal and gives credence to rumors that the company needs to be sold in order to restore fiscal order. We see further upside from our nearly 60% gain in 2025 if that is the case. We have a 5% position in the pair.
Our three biggest detractors for the year were American Vanguard (AVD), Research Solutions (RSSS) and Six Flags (FUN). We continue to own all three in size, although there has been some movement for tax-selling reasons, which we expect to normalize itself by mid-January into this narrative.
American Vanguard (AVD) is a small agricultural chemical and products company that will soon no longer be based in of all places Newport Beach. We have been heavily involved in “setting up” the transformation at the company in the last year, which culminated again in Board Change and a new CEO. There is an old saw: Fixing things takes time, see previous statement if it takes time. We think it is worth our time because we see limited downside and arguably 3 to 4 times our cost basis with just a return to competence. We think the new CEO has made all the right moves as far as simplicity, focus, cost savings and balance sheet improvement. The last piece of that puzzle is underway as we speak in terms of a negotiation of the company’s long term bank line which is NOT the right structure for a highly seasonal agricultural company. This too shall pass and we think they will continue to demonstrate margin improvement and a return to a more normalized valuation. Once this is achieved, we can assess longer term ideas which seem aspirational at the current juncture, but is a non-zero probability. This is arguably the most coiled and near-er term spring in the portfolio.
Research Solutions (RSSS) is a longer term holding that is at an interesting existential juncture. The stock was down some 30% in 2025 after being up nearly twice that the year before. Per their own words, RSSS is a SaaS and AI company that simplifies research workflow for academic institutions, life science companies, and research organizations worldwide. As one of the only publisher-independent marketplaces for scientific, technical, and medical (STM) content, the company’s platform enables organizations to discover, access, manage and analyze scientific literature more efficiently, accelerating the pace of scientific discovery. The CEO is 67 and has done most things right to make this a properly run and profitable company with cash in the bank. We question whether it is possible from their smaller starting position, as we have learned a lot over the past two years and through a holding in Clarivate, a 10x sized competitor.
Six Flags Entertainment (FUN) is both a newish idea and a detractor for the year. Our work suggests this is fiendishly simple: a well-managed theme park should have high operating margins and generate cash after proper spending for park maintenance. It should be well run, well marketed and use off the shelf marketing and pricing algorithms to enable profitable levels of utilization. The merger of Six Flags and Cedar Fair has managed to do none of the above. More Board change from an investor standpoint, and a new CEO late in the year are the right steps to fix this. This is our other “not great balance sheet” company that can be simply fixed by running the business correctly and selling off “billions” of non-core assets as 12 of the company’s 35 parks generate almost 90% of their cashflow. The rest are less than optimal parking lots apparently. We think all the above is happening and think investor enthusiasm for the franchise will return. Slowly.
The portfolio overall is “barbelly” with a handful of 5% to 10% deep conviction ideas on one side and a handful of 1% to 2% “Grahmesque” cheap, misunderstood, illiquid values that have a funny way of producing as a group overtime. It is also a farm team for future liquidity events and management “advisory” exercises. There are no shortage of opportunities in the latter, but we always seek more of the former in a perfect world.
We gave you LOTS of words in a recent Strategy Letter (https://covestreetcapital.com/strategy-letter-number-62/) about the world at large. Said simply, and I usually say this every year, the long term “average” return on equities is 9%-ish. Shorter and Intermediate periods to which we have sadly as a world become addicted to, reflect that 9% plus or minus the valuation ladder or hole from which we start the measurement anew. A higher valuation today, detracts from returns tomorrow and vice versa. We would suggest we are starting from a “higher” level and thus would not be surprised to see lower than 9% for a period of time for the stock market averages.
But we don’t own market averages, we own individual investments in a focused strategy, which could produce results that are not particularly correlated with market averages, both up and down. Some holdings fall exactly into the previous scenario, but will provide excellent long-term returns. We also implement a self-help program with a number of our investments, where we are involved with management and the Board to assist their thinking in terms of “things/people that need to change, mistakes that need to stop being compounded, how money should be invested for longer term returns and investor outreach that needs improvement.” Combinations of these factors can produce excellent returns with little regard to the “market” at large.
That’s where we stand. I am always available for chat on almost any topic via your favorite communication tool, which includes actual face to face and lunch. Our office in Hermosa is conveniently located next to a world class taco and ocean view dining. Don’t be a stranger.
Jeffrey Bronchick,
Principal, Portfolio Manager
Performance Disclosure
