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
Jumbo Interactive (ASX:JIN) is an Australian online lottery seller. It has a simple enough business model, yet it was the complete opposite of BPF in terms of its moat and the impact to my portfolio. It is (still) one of my best investments. The reason why it was misjudged by the market was due to 2 main reasons: internal short-term woes AND a misunderstanding of the strength of its business model.
This is another old article I wrote for my uni investment club. I’ve learnt a lot since I wrote this piece, especially after working part-time during uni in a extremely well run microcap fund. (Although I am currently working full time as a management consultant, my interest in stocks and investments have never waned). An update to the below article:
- My previous thinking to the advantages of micro-caps and small caps to uni students are just plain wrong.
- 1) Cheaper brokerage cost per share does not create any advantages because on an absolute basis (the brokerage cost itself), there is no difference between microcaps and large caps. To effectively evaluate brok
erage cost, you have to see it as a % of total amount.
- 2) Amazing price growth potential is just looking at 1 side of the coin. Microcaps are by nature a more volatile and less liquid asset class than large caps. Hence, while it can have amazing price growth, it can also turn the other way very suddenly (as I have found out firsthand). The impact a large buyer/seller has on the share price is more pronounced in micro caps due to its illiquidity. Nevertheless, you can turn this proverbial lemon, into your lemonade. Due to the large swings in price, if you do your work and have patient money, you can find some undervalued gems.
Some large-cap fund managers found out the high volatility the hard way when large swathes of insititutional money came to the smaller end of the ASX markets over the past few years. Now, they have reversed the tide and pulled the money back to the large-caps, leaving large falls in price in some microcap shares.
- The only advantage that I think microcap has is that due to its structure, it is more inefficiently priced and attracts less large/more sophisticated investors
- My portfolio is now predominantly micro caps and is more or less a highly concentrated portfolio. I am in Warren Buffett and Charlie Munger’s camp:
- “If you are a professional and have confidence, then I would advocate lots of concentration. For everyone else, if it’s not your game, participate in total diversification. If it’s your game, diversification doesn’t make sense. It’s crazy to put money in your twentieth choice rather than your first choice. . . . [Berkshire vice-chairman] Charlie [Munger] and I operated mostly with five positions. If I were running $50, $100, $200 million, I would have 80 percent in five positions, with 25 percent for the largest.” Warren Buffett
- I hardly go into commodities investing. This is perhaps due to lack of research and my general laziness, but I have always found it a strange business where you can do everything right and have the lowest cost of production and the right deposit, but you are still at the mercy of the commodity price
It’s a bit of a long one, so without further ado here it is below…