YouSaid · the spoken record

Kyle Mowery

lines on the record: 101
first: 2024-02-19
most recent: 2024-02-19
sittings or episodes: 1
sources: podcast

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“Ah man the cheapest stock I think the way that we look at these are on free cash flow so there's a lot of businesses that will buy in the 25 to 30 percent free cash flow out like two years now if the numbers come in according to our base case you know most of the businesses because we don't do deep deep cyclicals or things that like If something's like tied to the price of a metal or oil, WTI goes to 100, I make a trillion dollars. If it goes to 50, I'm completely wiped out. Like that is not our play at all. So, you know, most of them are volume-based. Oh, if this product commercializes, then it's a sticky product. It's probably a 10% free cash field. So if we're buying it at 30 and we're right, we triple our money.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“No glass door, what it's like to work at the company. Right. There's a lot of information that this management team tells the street that they're so kind to their employees and they hang up with Wall Street and start dropping F-bombs on their employees. It's like, okay, well, that's going to engender a lot of turnover on your staff. People don't like getting yelled at. No one does. So there's going to be issues with culture there. And if there's issues with culture, then you want to know that before you invest in the company rather than say after.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I mean, look, of course, you're going to have situations where companies are going to miss earnings and they're going to be earned earnings, right? But by and large, if you're doing really exceptional fundamental research on the companies, you're going to get more right than wrong, right? If you're taking a one to three year approach, any one quarter should not be the driver of your thesis, right? Each of those data points should be a confirmatory or at least not disconfirming what you're already underwritten. Of course, you're going to have stocks down and up on earnings. That's part and parcel of the game. But if you're doing the proper research, which, by the way, includes speaking with formers, different internet boards, there's a lot of information in the public domain that's not on the SEC's website, but it's absolutely public information about.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“80% just within a few weeks. So, how do you try and get ahead of the curve? It's just kind of a suspicion that management is doing this. I don't know it for sure. But, you know, I think our funds, capital can be deployed elsewhere better elsewhere.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“And how do you try and be ahead of the curve in terms of analyzing your thesis, we got to get out of the stock because our thesis changed. We were bullish for X, Y, Z reason. Now our thesis has changed. I bet a lot of the issue, though, is that the information that comes out that would change your thesis, like say in a quarterly earnings, everyone gets at the same time and their thesis changes too, and the stocks Snapchat comes to mind recently is down 30%. Like New York Community Bank share investors. I bet their thesis changed when they found out what happened. And that's why the stock is down.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Exactly. And you know, show me the incentives and I'll show you the outcome, right? Back to Munger. And so that's why reading the proxy and understanding who's getting paid what and why and how. And the proxy will tell you it's there in black and white and many times managements will spin this long story, you know, and that most of them are grade sales people because how do you get those jobs? These jobs are incredibly lucrative. You have to be very convincing, very intelligent and polished to do that. And so it's very easy for these people to delude themselves as well as you, the public markets investor. And that's why look at the proxy and really getting down to brass tacks on how the compensation structure works is so important, especially in small caps.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“They can get paid a lot of money by just issuing a ton of stock using that as cash to buy a new company and then increasing revenue and increasing EBITDA, but total you own the share, you just got diluted and it's not accretive.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Depends on what they're incentivized to do, right? Which is why reading the proxy is so important. If the CEO is being compensated on total EBITDA rather than on a per share metric, he or she is far more likely to pursue a path of M&A and that path of M&A typically would not add much value in many M&A transactions destroy value for shareholders.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“They make money and they're cheap. Price to earnings of five. I mean, how can I lose? It's a lose of when they make that those earnings. They don't deploy it in a way that is optionally efficient, either in terms of what paying down debt, buying back stock, what, so they tend to what? Do they tend to prioritize growth of top line numbers over other metrics? Because in economics 101, you learn companies make product up until they stop making money. Their marginal repl equals marginal cost. I think studying public companies, not just in the value world, that's not true. So, what do management do?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Tuck in acquisition to bolster their product suite. And then you get on the phone management and say, wait a minute, I thought you said your product suite was excellent. Why'd you do this? And say, oh, well, we actually really just needed, and it's like, okay, well, you were lying the first time, right? You don't say that to them, but you hang up and then say it to your team, right? I mean, it's just. That happens often in public markets investing in all kept spectrums, but certainly in small caps. Capital allocation is a huge problem. Most management and boards treat it very fluppantly. They treat the company as if they're not owners in a way. And that's really challenging for people like me.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“So, one of the unique aspects of being a public market investor is you're operating with pieces of information at any one time. A lot of times, of course, you get the gap numbers and you get a lot of what the management wants to tell you, but you don't really know what it's like to work inside the company. You're not really up to speed, right? Like that's private information. So we're always operating with imperfect information. Or there's they do a tuck in because of, oh, we need to bolster the products. Like, well, hang on.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Or proved inaccurate, then we get out, right? Intellectual honesty requires that if your thesis is wrong, you just get out. It's fine to be wrong. It's not fine to lose money, right? I mean, we're wrong all the time. That's not something that no person in history of the world can be right all the time. And so that's fine. The world is changing constantly. And as long as things are tracking our base case, we stay in the investment. And if not, then we move on.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Our batting average is never going to be 100%. It just isn't. And why is that? Well, the world's a complex place, right? You know, for instance, we were long certain transportation companies in late twenty nineteen, and lo and behold, here comes COVID, right? That did not help their free cash flow, certainly through that period, right? I mean, the world is a messy place and it changes constantly, not only industries, but also competition within industries. New products arise, competitors or governments change regulation or companies or customers just change their preferences in the consumer landscape. Customers just, you know, now they want to, you know, wear on branded shoes rather than Nike, right? Or whatever it is. I mean, the world is a complex place. And so when our assumptions change.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“As someone who was invested in seen through the process of seeing an investment worker or not work, what are some conclusions that you draw about? Let's start when it doesn't work. So, you know, I'm sure you've got a lot of companies with a price earnings of anywhere from $5 to $10. You've seen a lot of them work. You've seen a lot of them haven't. The ones that didn't work, what were the reasons that those investments failed? And how do you know when to get out?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“style business. Sometimes the DNA is really high and the CapEx is really low. So the free cash flow is determined by what comes in minus the CapEx. And so it just allows us to normalize to free cash flow easily in that way.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yes, and some of my investing heroes, including the late, great Charlie Munger, you know, despise Ebadah. Ebadah, for me, the reason I use it is it allows us to normalize for balance sheets, right? So we on every single one of our companies, we start with net income and then we walk to EBITDA, both the management number. And then if we think some of the adjustments don't make any sense, we'll actually throw them out. So that is before the income statement, before the balance sheet has any impact on the free cash flow, we will be able to normalize that number. Certainly one of the things that we didn't discuss yet is capital expenditures or CapEx. Over time, that should equal depreciation and amortization, which is the DA and EBITDA. But for a short period of time, if you got an older, you know,”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Tell me about the metrics that you use. You said EBITDA, you talked a lot about free cash flow. I don't think I've heard you talked about use net income, although that is commonly was thought of as earnings. Why do you focus on EBITDA and free cash flow over net income? And especially I'd say EBITDA has somewhat of a shaky reputation, especially on the yoke, because there are a lot of key costs that are not being included in UDA.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, I distinctly despise price to sales. And the reason is I can sell a lot of products unprofitably and that never generates any return for the owner of the business. That's the way I think about the world if you own a stock, you own a fractional interest in a business. In this case, why is it value investing? It's value investing because we're focused on unit economics. We're focused on free cash flow. But when we originally underwrote the business, free cash flow was going to be in 2026 and beyond, right? And so that was, I think we originally bought it in late 21 or 22, but I can't exactly remember, but we still own it today. And we think the business just continues to get better in terms of the unit economics, in terms of where the numbers are going. There's absolutely its value stock because it's cheap relative to.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Cost to taking the car to auction, there's a cost of taking your team to the auction, right? So ACV is actually disrupting with technology this central business in a way that's very, very efficient for the user. And so we think they're going to have a network effect business and be very, very profitable in a couple years and far higher than the street is, in fact, modeling.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Correct, yes, they do not have a B2C offering. It's typically, think of it as a funnel. I mean, if you're an auto dealer, you know, and you say you're a Ford dealer and you receive Alexis trade-in, well, you might be able to sell it on your lot. You might have a sister dealer ship who's Toyota or Lexus. You can sell it to them at a reasonable price. And most transactions occur in that manner. But if not, if you have it on your lot or maybe you have five lexes and you really only want three on your lot, what people historically used to do would be go to take it to the auction. You go to the auction, you take your mechanics, a couple mechanics so they can, you know, peek under the hood at the cars or run them through their diagnostics. And so you'd have a sense for it. Car would come up on a block. You'd bid on it. And you'd buy and sell and transact in that way. But there's a”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Is actually better than a wholesale in person. And I think ultimately there'll be a place for both wholesale in person, which have existed for 100 plus years.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“That business was negative EBITDA when we invested in it primarily because they were focused on geographic expansion. The unit economics in their original markets, which were primarily in the Northeast, U.S. Northeast, were exceptional once they got to the maturation, which is typically in year three. But if you take that, the unit economic model and you say, okay, we're going to go national, which is, and I'm shortening the story, but if we're going to go national and you invest, there's going to be a lot of individual cohorts that are losing money in years one and two, but as they mature into three, four, five, the curve as the company comes up the EBITDA curve, it becomes highly, highly profitable. Wonderful unit economics on a per car basis even better economics on a geographic DMA basis. And the product and service of the digital auto.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, absolutely. Okay. You know, I brought up that we don't just do sort of industrial businesses with good free cash flow. There's a business called ACV Auctions. That business does wholesale. So it's B2B, auto auctions online. Okay. And so instead of going to a regional auto sale and trading with the guy you've been friends with for 30 years, you actually can sell the car anywhere in the US and have ACV auctions go through and do the financing, do the transportation, really prove out with audio and visual use the use of technology to, you know, you don't have to see the car or take a mechanic to the car. They have mechanics that provide reports that they back, et cetera.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“In some case, in case it just stopped losing money, so it earned one penny, then the price to earning ratio can be like, you know, a thousand or something like that. Do you ever invest in unprofitable companies?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yes, we certainly do some network effect Garpy type stuff. But yes, I think what's probably most interesting for this interview is value because that's a unique fact with respect to what we do that others aren't as focused on today.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“The future. So you have it with solar solar growth. So you have a stock that's beginning capital return. It has no financial leverage. And that money is actually flowing back to shareholders. There's no empire building. There's no giant facility to go build. There's no industry-wide M&A cycle to be had. And so we think that the free cash flow that's generated by Faroglobe is going to flow through to consumers, right? And so if nothing happens other than that cash is returned to me via dividend or share or purchase, iron 15 to 20% a year. But if the multiple rises and multiple is just shorthand for what folks are willing to pay for the business or what they valuation. Yeah, it's DCF, right?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Among your first call or two for supply, right? And if you steady the inflation reduction act in the European climate bill, you see that that is in fact being encouraged by the authorities in terms of domestic supply. So you have a business, that business Faroglobe used to be levered with respect to the balance sheet. It is now completely unlevered. It used to not pay a dividend and not have share repurchase, right? And it used to be focused primarily in markets that were very cyclical. So industrials, autos, construction, et cetera. However, that's not the case now. Now the business is completely unleavered, the capital return policy begins in 24 and runs out a ways. And we think the stock is trading at a 15 to 20 percent free cash flow yield on this year's numbers. And we think numbers go higher out into the”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so a lot of times what you're trying to do is invest in the company during a period of inflection. And perhaps the best way to answer that question is to use an example. So there's a company, and we've been public that we own this. It's in our 13F as well called Farro Globe. Farro Globe is the largest American and European producer of silicon metal and ferro silicon. Silicon metal is an industrial product, right? Dare I even say a certain amount of commodity aspects to that, although their grades are high purity, which is very important because another one of the inmarkets for silicon metal is actually polysilicon, which turns into solar panels. If you're going to be producing domestically sourced solar panels in the US or EU, Farro Globe is likely going to be”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“But if you look at Microsoft, for example, one of the magnificent seven stocks, you can paint a picture of, you know, I can easily see how this could be worth, this could double in five years or something like that. But for a value name that's growing its earnings at maybe a lower rate, how do you get that? Is it a re-rating? Are you saying, okay, I expect this company to go from a pre-PE of price earnings of six to 10 or what?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“So, a small cap value stock going up 100% against the risk of it going down 20%. That's your five to one upside. How do you find, I guess, that upside convexity in value names given that the asset class, and maybe I'm just thinking about the regional banks, have a history, and again, you said you don't invest in the regional banks, but they have a history of the upside is 20% and the downside is 100%. Again, I'm just thinking about regional banks in particular.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yes, stock price, so I kind of just threw the portfolio management piece in at the end. You know, for us, we develop a fundamental estimation of what the company is going to do over the next five years. And we have stress case, base case, upside case. Pretty standard modeling strategy, right? The value is all in getting the qualitative inputs right. But you take the best, the base case and the stress case and say you think the stock can go up 100% and you think if you're wrong, you lose twenty percent. Well, that's pretty good, right? That's five to one.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“And from there, it's really a force ranking, the most asymmetric companies upside downside of all the qualitative work that you've done. So that's a very brief synopsis.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Historical gap reported numbers. And we actually do use the sell side's numbers, at least directional numbers in terms of is this company experiencing an inflection over the next couple years kicks out a lot of things to look at. And many times we don't agree with the cell side's work. And that's fine. But when you're taking 1,100 down to something that's more manageable, say, you know, 200, 150, 200, and then you can actually go through and do fundamental deep dive, understand the company's service offering, product suite, and really understand the industry structure and really do qualitative deep dive, right, in the vein of Gram and Dodge style analysis of the business and really understand what's going on with the business. And then that's how you generate your expected free cash flow.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“So, the Russell 2000 is actually dominated by a lot of companies that require domain specific expertise. So financials like regional banks would be one, or that's a specialist game. Another would be, say, oil and gas, right? The best oil deals never leave Houston. I don't live in Houston. I'm not playing in that sandbox. So, you know, that we scrub out, that's about 1,100 companies. If you're doing fundamental research, you're going to be able to find something to do in 1100 companies, right? That is a very, very broad and deep sandbox. And so from there, we certainly do screen off.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“If you're right on your thesis, it'll play out over a handful of earnings announcements as the normalized expectations for the profitability of the business rise. The stock price usually does to a certain extent.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“One really strong way to do it in small cap specifically is looking for a business that has inflecting numbers going higher of EBITDA and free cash flow over the next one to three years. One year extends past some of the multi-manager quote unquote pod style hedge funds. And then we're certainly not playing a longer term five to ten year private equity or venture capital type approach. But if you're looking in that one to three year period and you're right on where the numbers are going and the company has a good balance sheet and the returning capital or at least investing in high return on invested capital projects, you're likely to get paid as a small cap investor. And so you're looking out one to three years look for inflecting free cash flow. If you can position yourself in front of it, you don't have to get the timing super precise on any one quarter or two.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Price to book is like how much the market cap is relative to the book value or the equity value. And often the most overvalued companies on that metric actually are some of the highest qualities companies in the world, like Apple. I just checked is one of the highest price to book multiples company, the S&P 500. And that's because all of the value is intangible and not accounted for on the balance sheet. Okay. So how do you find value in the value names? Like what are your edge over buying a in a passive approach to value names? Tell us about your process about like finding those winners.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“When you have returns that are so quick or seemingly so quick in, say, COVID and post COVID for the technology world, I mean, other than 2022, you bought stock in MAG 7, you made a good return in pretty quick, right? So it can lull many into complacency on small caps as an asset class.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Well, I personally use free cash flow. Free cash flow in the end is what's available for the owners over time. Over time, the returns to a stock should roughly approximate the free cash flow available for owners. Now, that is a long time frame and beyond the length of time of how many people think about stocks. It's at least a decade plus, right? Because in any one year, price as determined by market participants buying or selling stock has very little to do with the underlying business on a day-to-day transaction by transaction basis. But as you lengthen your timeframe, that is accurate. Now, for those of us who are trying to pick stocks for return, you then need to be both right and then you need to have the right time horizon. And I think that is a challenge for many, especially.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“On a daily or weekly basis, and I have been for a long time and probably will be for my entire life, right? So that's a distinctly different scenario than something labeled quote unquote value”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“World that's driven by technology, book matters less and less for most companies, book value was something that was in every analyst report twenty, twenty five years ago, and it's not a focus for most firms, including ours, right? Replacement cost can, in certain instances, especially if the company's on the block to be sold add value, but replacement cost itself, not even a number that is something that is reasonable to most companies anymore. It's not something that is even calculable. But in terms of what has occurred in the market, sure. Also network effects, most value companies don't have massive network effects and things like Amazon, Apple, you just completely locked in in terms of I'm, you know, as a natural person, users of those products.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Well, everything in the market's cyclical, you referenced O eight, I agree with you that largely value since O eight has been spelled with four letters and not five. This is value is a dirty word to a lot of people. Some people use the word fundamental, some people use the word inflection, but value and on its face. I think value as a factor gets a bad rap because it's largely based or at least the academic research is largely based on price to book. And in a”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“So that's small cap. One of the facts of being small. What about the value factor? I think, you know, a lot of people, myself, including when they first get into investing, they say, oh, obviously I want value so that that is a cheap company. So get away from the company with a 30 price to earnings ratio. How about price to earnings of 10 or even three, you know, later on they discover that the companies with the price earnings ratio of three often has a lower quality or more cyclical, has more debt, has some issues that the market is concerned about that the company with PE of 30 does not. And so I think you value as a factor has underperformed for quite a long time. And that is somewhat historical, I believe, probably in 2008 and before, like most historical periods actually, the value factor performed. Cheap stocks did better. Do you have an explanation for why cheap stocks are actually doing worse? And then we'll get into why, you know, how there's that's a greater opportunity.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, it's finding companies that are going through inflections on their products. You know, you mentioned things that used to be nanocapped or things that'll graduate out of small cap into mid and large. Yeah, absolutely. That's something we love to see. But there's a lot of other businesses that maybe the in-market is only so big, right? And maybe it's a GDP plus grower and it's a very cyclical business. That's an area where active managers can add value, especially if you are in a long short category in terms of able to express short positions, which we are, by the way. So in that type of scenario, you know, being specific and trying to avoid, you know, getting lumped into a giant style factor box game where you're just replicating style factors, that's a way that one can and should, in my opinion, try to add value working in small caps.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Names haven't even reported earnings yet, so it's not as much of a fundamental market as it used to be in small caps. And so small caps in an asset class, if you think about it as an asset class, which I do, by the way, because it's its own cottage industry. There's different investment banks. There's different players, the board and management quality is wildly divergent. There's some exceptional boards and some great management teams, but by and large, the quality is pretty low. And, you know, a lot of the boards or personal fiefdoms of the CEOs and whatnot. And so, you know, it's really incumbent on small cap investors to use a rifle rather than a shotgun approach. That's how I like to think about it. I mean, you're in an asset class that doesn't have flows. It doesn't have a lot of sex appeal. And yet, you know, how can one still eke out a solid return?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, so one of the things we've been operating, we're in year 13 now. And one of the biggest changes that we've experienced over that time period really kind of really reached an inflection point in, say, 2017, 2018. And that was the rise of passive. Everyone is well aware that passive flows have gone more to just by an index rather than to active management. Active management, long only, especially up and down the cap spectrum, so small, mid, large, and mega, very dormant industry shrinking even. And then the rise of style factors and momentum, certainly year to date, we're typing this in February of 24. Year to date, you know, momentum has just been anything with momentum has worked. Anything without momentum has lagged. The indices for the reason of the style factor, right?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Exactly where they are, or they used to be mid caps, and it's a low quality business, and sort of those kinds of stuff. So needless to say, positive yet, you were very bullish on the stocks that you and your fund owns, but how would you say are you bullish on the asset class of small cap in the world of asset allocation? What is your outlook on that small cap universe?”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“How would you define that universe? And one thing, Kyle, that I hear a lot is, oh, the stock market isn't as strong, you know, the bull market isn't as strong in stocks as it might seem because the Russell 2000 is still quite weak. So that's the index of small cap. So your world is contained in the Russell 2000, but your world is not, you know, the Russell 2000 because you're just selecting a handful of stocks or a portfolio among the Russell 2000. And I kind of have an issue with that talking point because there's a structural weakness that many people, I is not an original point, but many people have identified that a lot of small caps are small caps because they used to be nano caps and they're growing like crazy and they're going to go up in price. I mean, you don't buy stocks because you want them to stay at the current valuation. You want them to appreciate and value. But a lot of small caps are in the Russell 2000 because they were small caps 20 years ago and they.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Yeah, our sweet spot is about one to three billion, but yeah, I think the Russell 2000 goes up a little bit past $3 billion now. But for a lot of these products and services are not something that everyone's heard of or maybe even would use day-to-day. There's a lot of B2B type services, a lot of things that aren't household names that fall in the index, but they have been around for a long time and or they are, you know, revolutionizing their industry, whatnot. But an area for deep research shops to really add value.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT
“Where we're looking on a fundamental basis and we're looking for businesses that are significantly mispriced and really misunderstood. The sell side largely is unfocused on that area because why would they, right? Their business model requires significant trading volume. So there's an element of fundamental edge still very much exists in small caps. And that's where the cottage industry of small cap managers try to make their living, of which our firm is one.”
2024-02-19 · Forward Guidance · Secrets of Small Cap Value Investing | Kyle Mowery · IDENTIFIED FROM THE TRANSCRIPT