Brian Bares, Bares Capital Management – The Small Cap Advantage
Brian Bares is author of The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns, and the founder & portfolio manager at Bares.
Bares leans more toward the Munger approach and focusses on the small/micro-cap space
- Small Caps
- Better compounders
- Persistently outperform larger cap stocks
- More good ideas
- Less market efficiency in prices
- Less or No analyst coverage
- 3k-4k companies smaller than those falling in the Russell 2000
- Most mangers typically start with a screen
- Bares leary of ‘rear view mirror’ aspect
- Screen leads more to ‘just cheap’
- Bares uses a ‘Moats & Management’ search
- First search for 40 ‘best’ companies in small/micro space
- Then get into the valuation of this group
- Pare down to the ‘best’ 10 options
- Long Term price is approximately the long term growth in business value per share
- Moat +Management=Quantitative
- Find before other managers
- Find before the results are in the 10-K
- 8 analysts are constantly on the road
- Intentionally stay small
- Note: over 80% of market risk is diversified away in first 8 stocks (assuming they are un-correlated)
- Example is Stratasys, Inc. (NASDAQ:SSYS)
- Manufacture 3-D printers
- Nascent industry & growing quickly
- ‘Razor Blade’ model
- Came from #2 position (Former #1, 3-D Systems dropped the ball) now has +41% market share
- The management invested the technology
- Deal with HP for branding of printers
- Important part of Moat – also have established distribution network
- Q&A
- Turnover?
- Around 30% – less worry for them as they manage institutional money
- Turnover?
- Is it different in the post – financial crisis?
- Some companies have had a level of trouble, but many they invest in have no debt
- Experience with takeovers of companies you are in?
- ½ dozen or so (not always a good deal)
- Mistakes you’ve made?
- In the sales area – part of the story that is not working/growing
- Value vs. Growth?
- No distinction – linked
Value Investor Conference: Omaha, Nebraska – May 4rd, 2012
Dustin Hunter, SunRift Capital Partners (www.sunriftcp.com)
(These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.)