The below is extracted from the December 2019 Alpha Prime Small & Mid Cap Fund investor letter where I briefly unpack our argument for quality in the small cap space: Quality: Above all else, we try to find good-quality, fast-growing, listed small cap businesses. Value: We invest in the cheapest of these options, constrained by our concentration &…
Santova: Global But With a Domestic Rating…
OLD ARTICLE – Originally posted on December 4, 2019 Santova Logistics (SNV) has been a core holding in the ASM Fund since its inception due to its unique, capital-lite business model with global reach and the potential for a compounding network effect across its operations. In brief, Santova offers a fourth-party logistics (“4PL”) solution for clients….
Lessons: Over-reliance on Management
OLD ARTICLE – Originally posted on January 7, 2020 The last couple of years have been very hard on those that invest in South African small cap stocks. Unfortunately, me, the Alpha Prime Small & Mid Cap Fund and my (incredibly resilient) investors have been no exception to this. Since the FTSE/JSE Small Cap Index’s…
Lessons: Two-edged Blade of an Anchor Shareholder
OLD ARTICLE – Originally posted on January 9, 2020 More than any other directive, human beings act in line with their individual incentives. In the natural world and bleeding into modern-day addictions to drugs, social media and pornography, human beings are predominantly incentivized by dopamines. In business, though, human beings are typically incentivized with money. The ability…
Lessons: Mining is (Dam) Complicated
OLD ARTICLE – Originally posted on February 10, 2020 I’ve been invested directly in a growing, junior coal miner for going half a decade, amongst several other mining-related investments. Likewise, I’ve followed a wide range of mining companies closely for even longer and previously was invested in a mining exploration company and poked around a…
Lessons: Management Over-value Themselves
OLD ARTICLE – Original posted on January 16, 2020 Per Wikipedia’s definition, “…illusory superiority is a condition of cognitive bias wherein a person overestimates their own qualities and abilities, in relation to the same qualities and abilities of other people.“ People tend to think that they are of above-average intelligence while, statistically, at least half are not….
Lessons: Narrow Doors Make for Tricky Thoroughfare
OLD ARTICLE – Original posted on January 27, 2020 As a fund manager of a small cap fund, I am keenly aware of liquidity in the stock market. It is not just a constraint but a risk that needs to be managed on both a granular and an aggregate basis. And, sometimes, it can also…
How Does Acquisitive Growth Work?
OLD ARTICLE – Original posted on January 4, 2017 Due to consolidation accounting (or “Group accounting”) rules, when one company controls another one (from 50% + 1 vote up to full-control of 100%, depending on circumstances), that first company (or the “parent” company) gets to accounting for both the financial performance of itself and the financial performance of all…
Lies, Damned Lies & Adjusted Earnings
OLD ARTICLE – Originally posted on September 23, 2016 When investing in a listed share, you are buying part of a business and own a portion of its future profits (or losses). Therefore, the per share earnings of a listed company are a big deal for investors with shares rising and falling base on them (or at least…
Forgotten Safeguard: Diversification
OLD ARTICLE – Original posted on April 7, 2016 The global economy is desynchronised with significantly diverging views at both global and country-level. China could implode, Europe could fragment and USA could falter. All of these could happen. And then you get commodity volatility coupled with massive forex swings (up and down)…. If you listen to…
Five Reasons Not To Invest In A Stock
OLD ARTICLE – Original posted April 1, 2016 Given the small cap space as a capital growth asset class and my predisposition towards being long, this website tends to be about which stocks to buy. Let me turn that on its head and give some (hopefully intuitive) pointers for which stocks to not buy. When you are…
Why Are You Investing in Small Caps?
OLD ARTICLE – Original posted on February 16, 2016 All the global uncertainty and domestic panic is a great opportunity to re-evaluate your risk profile as an investor. If you are reading this website, I think it is a fair assumption that you are interested in (if not actually actively) invest in the JSE small cap market….
The Value of Forecasts
OLD ARTICLE – Original posted on June 30, 2015 In the context of the stock market and its underlying individual listed companies, what is the value of building, making and using forecasts? By their very nature, forecasts for companies are an attempt to anticipate the future earnings of a company. They are not a promise of what the…
Independence = Overrated; Incentive = Underrated
OLD ARTICLE – Original posted on June 18, 2015 There is a lot emphasis on independence in various roles in financial markets. External auditors have to be independent, advisors hopefully too, wealth managers, some members of company Boards, and so on. All independent. But why? The theory goes that if a person is independent, then…
Understanding the “Quality” of Revenue
OLD ARTICLE – Original posted on May 6, 2015 Analysts love to reference the quality of a business’s revenue streams, but what exactly is this “quality”? How does one find “quality” revenue streams? Let me give you a fictitious scenario of Company A and Company B. Both companies are equal in every financial respect, for…
Pan African Resources: The Cheapest Hole-in-the-Ground
OLD ARTICLE – Original posted on December 29, 2014 Firstly, I have no strong conviction on gold. I think that it is largely an ego-based commodity driven by investment fashions. In the short- to medium-term I suspect that the collapsing gold price has less to do with gold and more to do with the strengthening…
How to Read Results Like an Analyst
OLD ARTICLE – Original posted on September 23, 2014 Here is a (brief) list on how to read a listed company’s results on the JSE like an analyst. I’m going to list a couple key things to work through with the intention that in a matter of minutes you’ll be able to work out if the…
Key Attributes of a “Ten Bagger”
OLD ARTICLE – Original posted on September 1, 2014 A “ten bagger” is colloquial for a share price that rises a thousand percent or, in other words, makes you ten times your money. In some ways the Holy Grail of investments, the key consideration is how do you go about finding a ten bagger? Firstly,…
Look Beyond the Numbers
OLD ARTICLE – Originally posted on September 29, 2019 When analyzing a listed company for investment purposes, its financial statements are obviously a key variable to work through. If you have to ask ‘why’, then I kindly refer to this series of short webinars I did a few years back: Four Pillars of Fundamentals. While…
Five Lessons with Liquidity
OLD ARTICLE – Original posted on July 28, 2013 Besides all the usual skills and knowledge that goes with investing in stocks, operating in the small cap space forces you to master handling positions in low liquidity stocks. Here are five rules to help you handle low liquidity stocks: 1. Stretch your time horizon Low…
Difference Between Value Investing & Being a Contrarian
OLD ARTICLE – Original posted on January 29, 2013 Value investing is a process of identifying potential investments that can be bought for less than they are actually worth. This is done via the valuation process. Once an undervalued investment is identified and it meets the criteria the investor is looking for, it is bought and…
Explanation of a “Reverse Listing”
OLD POST – Original posted on May 18, 2011 Company A is listed. It has only 100 shares of R1 each, hence a share capital and equity of exactly R100. However unrealistic, it also has no other assets, liabilities or operating costs. For all effective purposes, we would call Company A a “cash shell”, as…
Why Excess Cash Is A Drag
OLD ARTICLE – Original posted July 8, 2011 Ever heard the term “lazy balance sheet”? Perhaps you’ve heard the term “excess cash”? They may sound strange, but they are rooted in capital efficiency and the theory of maximizing shareholder returns. But, this is perhaps getting ahead of myself, so allow me to elaborate…\ Return on…
What Astoria’s Discount Should Be
OLD ARTICLE – Originally posted on April 5, 2016 Investment holding (IH) companies insert an extra layer of cost between the underlying assets and the ultimate investor. In theory, this layer of cost includes management which allocate capital like a fund manager, thus generating alpha with the IH company’s capital. The reality, though, is neither the structure…
Astral Foods: Quality With Converging Positives
OLD ARTICLE – Originally posted on February 4, 2020 As a well-run, ungeared domestic poultry stock, Astral Foods (code: ARL) has two major variables that largely dictate its fortunes: What cost must it pay to raise its chickens? What price can it sell its chicken products at? Firstly, Astral’s long-term track record is superb, proving…