weekly wrap 18/08/17

“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