Focusing on smaller companies…..because others are not

Investing differently does not guarantee success but investing like others (and the index) guarantees mediocrity.

If we want to achieve a different result, we must do what the crowd isn’t.

Smaller Companies: from the demand side

  • Few brokers and analysts are interested in smaller companies (there isn’t a big enough pool of brokerage fees to be earned and, after all, brokers have expenses to cover).
  • Most institutions will only buy ideas that they are fed by brokers; few institutions and fund managers want to get involved in primary research. Why deploy resources when larger companies can be analysed from the comfort of their desks?
  • Let us also empathise: the fact is most Fund Managers work in a corporate structure. In such settings, investing in larger, more well-known companies like Thomas Cook is perceived as the safe option. There is an old saying…..You don’t get fired for buying IBM.

We take the opposite view. We particularly like to fish where others are not fishing – in the belief that the world does not need another Fund or investment house to invest in  Unilever.

Smaller Companies: from the supply side

  • Smaller companies are often focused on a single line of business, easier to understand, more nimble and can grow faster than larger companies. We prefer speedboats over oil tankers.
  • We place heavy emphasis on the people running the business and want to know the embedded culture of a company. It is easier to feel the fabric of the business in smaller companies than in larger ones.
  • Often, a small company is the founder’s life’s work. This results in a strong alignment of management and shareholder interests and a culture in which decisions are taken for the long term. We like that.

To clarify, when we say smaller companies, we do not mean start-ups, micro-caps, loss-making or blue-sky companies. Our smaller companies may be smaller than a company like Unilever by a factor of 100 or more but they are well established, operate in niche areas of the economy and serve their customers well. They are generating revenue in the millions and profitable. The average age of the companies within our portfolio is 73 years and they cumulatively employ over 70,000 people.

To find out more about the type of companies that we like, please see the “Companies” section of the website.

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