In their recent 100th episode of the VALUE: After Hours Podcast, Taylor, Brewster, Carlisle, and friends discuss This Is The Best Time Of Year To Find Opportunities. Here’s an excerpt from the podcast:
Ian: Yeah, it’s something I think we see every year, but I think this year, it’s been more pronounced. I think every time kind of between this period when companies report Q3 earnings and the end of the year, you have obviously people selling for tax reasons, whether that’s tax loss or tax gain. But I think also, especially, in microcap where I would say, in general, the average investor is shorter term, even shorter-term focused than even the larger cap companies, people just don’t want to wait four months to get the next data point.
Especially, if they know what the next data point likely is, whether it’s mediocre or even good, why wait for months to see a result that is coming. They’d rather just sell it here and even buy it back higher later. It’s kind of counterintuitive, obviously, to what people should do, and that’s why it’s a really good opportunistic time to look at companies. If you have more than a six-month timeframe, now’s a good time to be looking at some of these companies that have been taken out to the woodshed. You can see it. Really, ever since November 15th which is the deadline for companies report Q3 results. I mean, the iShares micro-cap, ETF is straight down.
Bill: Huh, that’s interesting.
Ian: It’s pretty pronounced.
Bill: What if I personally am in the fetal position and have no confidence, is microcap where I should go to?
Ian: [laughs] I don’t know about that.
Ian: It’s funny though. When you think about it, it’s excruciating for people to know that they could be sitting on dead money. It’s like they would rather just have the money on the sidelines and just even buy it back higher after a Q4 result. Because then when you get Q4 results into Q1, it’s an abbreviated time period. it’s like two months. You don’t have to wait a couple of months or 45 days. It’s got the opposite effect where you have a lot of activity. It’s a couple of data points, bang, bang, and people get really involved at that point in time.
Tobias: So, does the lack of liquidity means they trade down pretty heavily through Q4, but that’s great if you’re– If you know that that’s going on, you can go through and hoover them up. Is that part of what you do?
Ian: Yeah, honestly, I’m still susceptible to it as well. My portfolio has things that are down over the last two weeks a lot as well but I have the longer timeframe than a lot of people. But I do find that– [crosstalk]
Jake: It’s more like eight, not six months.
Ian: Yeah, exactly. Six months in one day, somewhere around there. [laughs] But it is a great time. Because there’s always a tax reason to sell something and then on top of it, impatience. But yeah, how are you guys doing?
Tobias: Are you kind of growthy small and micro? Is that fair to characterize it that way, do you think?
Ian: Yeah, I think it is. I think that’s fair. I’m primarily looking for unique businesses that can sustain 20%, 30%, 50% organic growth rates that aren’t selling me two products that another thousandth company tried to market the same type of product or service a little bit differently, trying to gain share, but a company that truly has a unique product or service so that– It’s kind of two things I try to play off of number one is, tailwinds, trying to invest in an area that has a tailwind with it.
Then, number two down to the company level, scarcity. I’m a big fan of scarcity of all forms. Trying to find those scarce businesses where there’s not another one like it, and specifically, it’s great when you can find, one, where there’s not another company like it, but there’s very few other public ways to buy a company like that. So, where you have this tailwind where it’s only focused on a couple of ideas, that’s right for price appreciation, that’s primarily what I’m trying to find when I try to buy things hopefully undervalued valuation that can get overvalued. That’s what I mean by that.
Tobias: Right. Have you been tagged in this growth so often, has that impacted you or that sort of trade idiosyncratically?
Ian: No. I mean I’ve been tagged in a few of them. Recently, we have a few growthier positions that are larger, I would say larger microcap, you know, that have been tagged in that as well. In fact, I was just looking at it. I think between end of October and today, there’s a few that are down 20%, 30% just in three weeks. So, I’m feeling it as well but I see it opportunistically.
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