“Acting with the crowd ensures an acceptable mediocrity; acting independently runs the risk of unacceptable under-performance”
– Seth Klarman
This week I’ve been reading HBR’s Guide to Buying a Small Business, by Richard Ruback and Royce Yudkoff. What I enjoyed most about the book was its practicality and applicability – even if you’re not interested in private equity. The topics that Ruback and Yudkoff discuss are equally applicable in public markets investing – particularly small caps. Some of my takeaways that are applicable to investing in public markets:
- Look for stable as opposed to rapid growth. High growth means new customers quickly become the majority and with it their new demands and unknown loyalty
- Look for businesses with outstanding reputations, because, that is the simplest reason why customers keep returning
- The importance of being unimportant: if the business provides something that only makes up a small portion of its customers expenses, then those customers are less likely to switch to other suppliers
- If customers are sticky then growth should be coming from market growth, price increases or new product introductions as opposed to new customers won from competitors – because it should be hard to poach customers in the industry!
Stock news
Thalassa Holdings, which I first mentioned in the blog on 30/06/17 at 72p, announced it has agreed to preliminary terms for the acquisition of 100% of the WGP Group (the profitable section of the plc). They also announced a buyback at 85p (18% above the price when first mentioned). This highlights the multitude of ideas available to the micro-cap investor who has no limitations on the size of company they can pursue. I’m a firm believer that retail/private investors have more advantages over professional/institutional investors than dis-advantages and all it takes is a little work, turning over as many rocks as you can.
Links
Q2 report from Kayne Anderson Rudnick
Shocking revelation from Telit Communications regarding its CEO – we’ve met the company twice before and passed due to aggressive accounting policies. My favourite quote from the article was “Mr Cats, 56, has earned $23.5m since 2009, according to company accounts. That compares to cumulative net profit of $62.9m in the same period.”
Short but sweet article on how Charlie Munger made his first million
A timely article (for me) on the topic of evolutionary psychology
The physiological affects of short term vs. long term rewards
An update from Kuppy on an interesting trade in Aimia
WAM monthly update
A great article from Steven Kiel that runs through a special situation investment
Q2 from Arquitos Capital
Q2 from Alluvial Capital
Great article from the Acquirer’s Multiple discussing reminiscences of a stock operator
FT article on the potential turning point of the global shipping industry
Travis Wiedower with a list of US founder led small caps
Wiedower Capital report
Geoff Gannon on being arrogant and independent
Farnam Street Blog discussing Chaos Theory with their article The Butterfly Effect
Arowana monthly update
An exceptional piece from Broyhill on structuring your day for creativity
Q2 from IP Capital
Great interview with Jeff Gramm
EGP monthly update
John Huber discussing moats and his investment in Tencent
One of the most underappreciated genius’ of all time Claude Shannon on creative thinking
A treasure trove of value investing resources from CBS
Jeff Bezo’s daily routine
Q2 from Pershing Square with a great discussion on their investment in Hilton
A useful checklist from Peter Lynch
