I've been a personal investor since the mid-1990's, always with my own money. What started out as a hobby and passion became a career. I transitioned from a writer / reporter to institutional finance working as a sell-side analyst at CSFB and BMO from 1999 to 2012, with two years off from 2002-2004 for B-school (go Bearcats!). I paid for my MBA with MYG puts when steel prices were rising and buying FWLT out of bankruptcy.
I worked at BMO from '04-'12 - I was laid off when they dropped coverage of my sector - and I expected to move to the buyside, but it never worked out that way. I was surprised at the reluctance to hire from the sell side, but I also understand the difference between writing reports or issuing recommendations and actually putting money to work.
I think "ageism" may have also been an issue and no doubt, personality as well. People want employees who look, think and act like themselves, and there aren't that many self-deprecating, slightly anxious, left-leaning liberals in finance who can't let an inappropriate comment go untold. IF there are they hired from Wharton.
Still, the time spent looking wasn't a total loss; I looked for a job and I found my kids.
And now I'm starting a business, what I call the "food truck" version of a fund, by starting out as an RIA, a low cost hurdle, in order to get experience managing other people's money, experience the stress of it, and hopefully over time I can attract institutional money by showing and hewing to a process and with it, generate a strong and steady track record.
As I'm going through the process of investing other people's money, I've come to realize how incredibly personal investing is. At the mutual fund level, ETF level or widely diversified portfolio level, this obviously isn't the case.
But at the stock picking level - what we call "active investing" - with other people's money at stake, where I don't want to lose someone else's hard earned income, and where I'm really focused on investing in businesses that can out earn and out-return other opportunities over time, where the choices are narrow and deeply researched, it's an incredibly personal process, the winnowing, the selecting and the deciding.
I recently bought shares of EVI - a tiny $16M market cap / $14.6M EV* co that distributes laundry and dry cleaning equipment - and the balance sheet just screamed to me, with a valuation below the median of its last 10 quarters, even while other investors seemed to have lost interest in the co. And if EV is adjusted for the growth in EBITDA margin, it's actually cheaper per unit of margin than it was when it was 1/2 the price.
If I spent my time listening to what other people say and write, I'd be pulled this way and that and would never have bought it, or half the other things I have owned over time (and usually it's the things I've bought on others advice that I often kick myself for doing afterwards).
I find my "center" getting back to what attracted me to investing in the first place; the process of discovery, reading about every company on the Yahoo! industry browser, industry by industry, below a certain market cap threshold, reading its profile and filings.
If a company can't use language properly to explain itself to me, I'm not interested. If it can, and the business makes sense to me, I'll check the numbers. If there's an opportunity to grow balance sheet and cash flow, I'll build a model and look at history over a cycle, 12 quarters and the rest annual. I'll look at performance, read old filings and a rough valuation history.
Porter's "five forces" is a simple but well established method of thinking about a business or at least framing questions that can develop further leads, always asking myself, "what don't I know?".
I'll check the competitors. If the competitors seem better positioned, I'll look at them. If at any time it seems like I went down the wrong hole, I go back. But if this all checks out and the valuation seems appropriate, I'll start compiling sources of people to call for information.
That process worked for me when I started out nearly 20 years ago. In the interstitial period I learned a whole lot more about business analysis and strategy, traveled the world with CEO's and CFO's, talked with some of the smartest investors and I wrote a ton of earnings notes and forecasts. In the process, I gained a wealth of knowledge that should help with my business, including that when the narrative wraps up too easily, you've probably already lost.
And now I'm excited to getting back to doing what excited me about this in the first place and sharing those ideas with people here as well, and putting money to work, the purest kind of investing of all.
* In calculating EV, I deduct customer deposits from cash b/c that's really a form of working capital.
- Long Cast Advisers
- Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com