On this week’s Consuelo Mack WealthTrack we have an exclusive interview with legendary “Great Investor” Charles “Chuck” Royce. Royce pioneered investing in small company stocks with his Royce Pennsylvania Mutual Fund forty years ago this year. He’ll explain why high quality small cap stocks are undervalued compared to large cap stocks right now and the advantages they offer to investors from the vantage points of portfolio diversity, international exposure and income, three characteristics normally not associated with the small cap universe.
Highlights: Can buy stocks at book value at ROE of 15%. That should return 10-12% over long period of time (3-5 years).
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Canyon Balanced Funds was up more than 41% net since the end of last year's first quarter. It took about 10 months for the fund to recover from the lows in that quarter, a few months longer than the 2009 rebound after the Global Financial Crisis. The fund has a little over $26 million in Read More
The big question is how long to wait. However even retirees should buy equities because many of the alternatives are dangerous and bizarre . Additionally, companies will compound your wealth whether there is deflation or inflation.
Chuck says that daily volatility is not a positive for investors, which has tripled in the last 5-10 years. ETFs, HFT and online trading are likely behind this rise. However the daily volatility should not effect long term returns.
Monthly volatility has barely changed over the years.
Value has become cliche, but from operating standpoint Chuck looks at operations as a whole and thinks of himself as a risk manager. Balance sheet risk is the biggest risk that Chuck pays attention to.
Small companies still have a lot of sales abroad. Small caps are more volatile than large caps.
Likes companies that are illiquid and hopes that they will become more liquid over time.
Chuck likes money managers and recently bought one in the UK. Chuck does not like banks since they are hard to evaluate. Money managers have higher margins, are easier to understand and are cheap.
Most people do not understand that there are many high quality small caps, and they are not all about M&A or growth.
Market ignores dividend yields of small cap companies.
Dividend paying company that Chucks likes is Lazard.
Full video below: