Geoffrey Batt will be speaking at the upcoming Value Investing Congress taking place May 6th & 7th in Las Vegas. To learn more and for a special discount to attend, please visit www.ValueInvestingCongress.com/VIL.

Introduction

Euphrates Advisors manages the Euphrates Iraq Fund, which applies a contrarian, deep value approach to investing in Iraqi equities. This article is a modified version of the December 2012 Investor Newsletter. It describes our experience in this frontier market in 2012, and highlights some opportunities available in 2013.

Our full-year net return belies the volatile monthly path that got us there. In the first half of 2012, selling overwhelmed the thinly traded market in which we deal, pushing Iraqi equities down to levels not seen since the darkest days of the civil war in 2006. Foreign investors, many in the form of generalist frontier funds with single-digit Iraq allocations, lost their nerve at the first sign of trouble and hastily parted ways with their stocks. The relationship between business value and market price meant nothing, as they sold with a determination that only increased each day the market moved lower.