Disclaimer: The below post is the Q2 2025 Investor Letter that I sent to investors in the Mindset Value Fund. This post is NOT a solicitation. I talk about stocks that I own and my view of the future. It is imperative that you do your own due diligence and not rely on anything written below. I’m posting this in order to show how my writing translates to actual performance. With that, I hope you enjoy and gain insights.
The Mindset Value Fund declined 8.6% on a net basis during Q2 and is down 20.5% year-to-date.
Can HireQuest Take Command of TruBlue?
HireQuest (NASDAQ: HQI) is a company we know well. We believe its franchise staffing model is a superior approach within the staffing industry. We originally invested at $7 per share in 2020 and rode it up to $25 on optimism that HQI could roll up the fragmented, vertically integrated staffing sector into its more efficient franchise model.
In hindsight, however, we underestimated the impact of three powerful headwinds that ultimately dragged the stock back down to earth:
Immigration Pressure: We didn’t anticipate the impact of a relatively open U.S. border. An influx of 8 to 10 million undocumented immigrants increased labor supply in the very sectors HQI served, undermining its legal staffing business.
Interest Rate Spike: Rising rates in 2022 caused unexpected friction between HQI corporate and its franchisees over workers’ comp expenses. This dynamic dragged on earnings for 10 consecutive quarters.
Poorly Timed Acquisition: HQI acquired a tech staffing firm just before widespread layoffs hit the technology sector.
These events hurt HQI’s results and prompted us to reevaluate and exit our position.
But we’ve always admired the franchise model—it generates strong cash flow, boasts high margins, and delivers excellent returns on capital. We also continue to believe CEO Rick Hermanns is a fantastic (though not infallible) operator. So, we kept watching.
Over the past few quarters, several positive developments caught our attention:
The workers’ comp drag is unwinding.
The tech acquisition, though poorly timed, was paid in cash and is now profitable.
And with immigration policy tightening under the Trump administration—ICE’s budget is expected to triple—we’re seeing early signs of employers verifying legal status more rigorously, which benefits HQI’s business.
More importantly, HQI made news that caused us to revisit the original bullish thesis: how HQI went public.
HQI went public by buying a poorly run, vertically integrated staffing firm called Command Center. After the acquisition, HQI flipped Command’s branches into franchises—ultimately selling those branches for more than the total acquisition cost. Remarkably, HQI—then the smaller company—got paid to take over its larger rival.
Now, imagine our surprise when, in May, HQI publicly expressed interest in acquiring a larger and inefficiently run vertically integrated staffing company called TrueBlue (NYSE: TBI). Apparently, TrueBlue has been ignoring HQI’s overtures for two years. With TBI’s share price falling and earnings weakening, we believe HQI may soon succeed in taking control. And if they take control, they can run the same playbook that HQI ran with Command Center and sell off all of TBI’s branches as franchises and turn TBI into a cash cow.
Our estimates suggest the combined company could generate $40–$50 million in annual EBITDA. Given the minimal capex requirements, much of that EBITDA could translate into free cash flow and thus the combined entity could be worth upwards of $1 billion.
We’ve re-established our position in HQI and have also initiated a position in TrueBlue. If a deal gains momentum, we may increase our stake further. We believe few investors truly understand the Command Center playbook—and if they did, HQI would be trading significantly higher.
Glass House on ICE
On the other end of the immigration issue lies Glass House (OTC: GLASF).
In a headline-grabbing event on July 10, ICE raided two Glass House facilities. Hundreds of individuals were arrested, and tragically, one worker died in an accidental fall. ICE also alleged the presence of underage undocumented workers. While teenagers can legally work in agriculture under federal law, California law prohibits anyone under 21 from being on-site at a cannabis cultivation facility.
Having toured Glass House dozens of times, I’ve never seen anyone who looked underage. I’m still in shock.
Right now, I’m left with more questions than answers. The media—Left and Right—have turned Glass House into a political punching bag, further clouding the situation.
Just a month earlier, on June 17, Glass House contacted preferred equity holders (including Mindset) with an offer: convert our preferred equity into a new, lower-interest convertible or redeem for cash. Given our strategy to refocus the Mindset Value Fund on small-cap value—and our other fund’s need for liquidity—we opted for cash. Our view was that we’d rather own common stock than hold an illiquid preferred.
We’ve now received our cash, but we haven’t reinvested in the common stock. In fact, we’ve reduced our Glass House exposure across our funds.
Why?
Because my job is to assess risk—and I don’t know what I don’t know. Cannabis investing is already complex, and I can't currently quantify the risk of further federal or state action. For now, we’re watching, waiting, and hoping this blows over so we can be buyers again.
Is Nelnet a Play on AI?
In May, I joined a group of value investors in attending Nelnet’s (NYSE: NNI) annual meeting in Lincoln, Nebraska. I left even more bullish than I was before.
Nelnet is aggressively rolling out AI across its business units. Here is some of what I wrote after I visited the company:
Nelnet is seeing breakthroughs in efficiency and throughput across the organization. For example, when dealing with thousands of templates for responding to student loan servicing inquiries, a new AI tool can narrow the choices down to three for the employee, rather than requiring them to sift through thousands manually.
Another example involves quality assurance. Previously, human employees listened to calls and provided feedback. Now, AI can perform this task in real time, offering feedback and suggestions instantly to the servicing agent. AI is also handling a significant volume of customer requests before human intervention is even needed. These developments are fundamentally transforming Nelnet’s servicing operations, resulting in dramatic improvements in efficiency and productivity. AI may also unlock new revenue opportunities and support growth across Nelnet’s diverse business lines.
While companies like Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT) are often seen as the core AI plays, what if Nelnet—and many others—are also major AI beneficiaries?
Why is this important? Management pointed out that the Biden administration allowed $1.2 trillion in student loans to be paused from repayment.
That’s “T” as in Trillion.
A few weeks ago, the Trump administration began notifying borrowers that repayments must resume. Nelnet, as one of the few loan servicers—and the largest, with the best reputation—is likely to service many of these loans. This will involve helping borrowers enter repayment plans and working to collect a significant portion of the $1.2 trillion.
So, just as Nelnet is facing a potential surge in servicing demand, it’s experiencing significant gains in productivity and efficiency. This means it can now service loans more effectively, more quickly, and potentially at a lower cost. That’s a recipe for meaningful profit growth.
We remain very bullish on the near-term and long-term potential of Nelnet.
Private Investing Housekeeping
One of our smaller private cannabis debt investments stopped paying interest and is exploring a sale or wind-down. We conservatively marked it down 50%, though we hope to recover the full amount. This position represents ~1% of the portfolio.
A small cannabis beverage investment recently raised dilutive capital and lost a founder. We marked it down 30%. It represents less than 0.5% of the portfolio.
We have not marked up or down our other private investments, including Uncle Arnie’s, as there have been no observable third-party transactions. That may change when Uncle Arnie’s completes its next funding round (expected in July or August). The anticipated increase in valuation should be large and should more than offset these markdowns.
Summary
With meaningful catalysts, expected growth, and improving earnings across our portfolio, we are optimistic about the second half of the year.
As always, please reach out with any questions or comments.
Sincerely,
Aaron M. Edelheit