The energy utility sector has provided its fair share of headlines this year. From crippling blackouts in SA, stand-offs between AGL and the Australian government over the Liddell coal power station to soaring energy prices, it has certainly been a talked about issue.
One company that can form part of the solution is Locality Planning Energy (ASX: LPE). LPE is an electricity retailer (largely in QLD) that specialises in serving strata communities. In a strata community, each lot pays its separate network and metering charges. Locality Planning Energy comes in and installs a parent meter and thus consolidates the network and metering charge for the strata. After this procedure is completed, the strata then becomes an embedded network with LPE as the electricity retailer. Continue reading
Scale. It’s a fickle thing. All companies want to harness its absolute potential, yet only a few really are able to fully utilise it. Every company who made the jump from a microcap used it. It is one of the oldest theory in economics, yet many microcap investors overlooks it. One aspect particularly overlooked is when a company is sub-scale. Continue reading
I recently read Buffett’s early partnership letters from 1957-1970. It’s an amazing collection of letters that dispense wisdom in his typical folksy charm. His investment record was leaps and bounds better than the Dow Jones Index by the time he liquidated the partnership. When he started in 1957, his partnership began with capital of $105,100 (adjusted for inflation, it would amount to ~$900k). In 1969, the partnership had a net asset of ~$100m (~$700m in today’s dollar).
To show you how special he was even at this young phase:
- Compounded results of 25.3% after management fees for 12 years
- Operated predominantly by himself with no other investment team
- He has said that in the early years, he had investment ideas “anywhere from 110% to 1000%” of the partnership’s capital.
I don’t think there will be another one like him.
However, we can all still learn something from him. Continue reading
In my previous post I mentioned the impact management can have and how taking a longer term view can be profitable. In Quickstep (ASX: QHL) there is a situation where a change of management might have provided a positive catalyst for a change in the long term value of the business.
Quickstep started in 2001 as an R&D company out of WA to commercialise their patented Qure process for composites manufacturing. The technology is valuable as it provides a way for fast curing of composites compared to the more traditional autoclave based manufacturing. Additionally, it has other advantages such as greater design flexibility, reduced capital investment and other cost savings. Continue reading
One of the things that compelled me to first dip my toes in investing was reading Peter Lynch’s One Up on Wall Street. The straightforward prose of the book, as well as its key conclusion- that average investors can do as well as, if not better than the professionals inspired me. It is the first book I always recommend to friends who wants to learn how to invest in the share market. Of course, as many of you have experienced, the theory is a lot more difficult to practice. Especially in microcaps, individual investors have significant disadvantages to institutional investors. In saying that, there are some key structural differences that evens the playing field for the individual investors.
So, I have put together some pros and cons of individual investors in the microcap space.
Note: I am assuming that the investors here are long-only and invests with no margin. Continue reading
“Risk means more things can happen than will happen.” Elroy Dimson
One of the most important lessons that I had early on in my investing experience is that it is more productive and profitable to think in probabilities, rather than absolutes. Unfortunately, it is a lesson that I sometimes need to re-learn. What I mean by that is thinking through the buying decision not as “is this stock definitely undervalued?” or “is this stock going to double?”, but rather as “is it more likely than not to be undervalued?” or “is the business more likely to be better in the future than it is now?” It is a subtle difference, but it re-focused my emphasis on not just the upside potential, but on the downside risk. Continue reading