Alta fox presentation “The makings of a multi bagger”

[Spekulatius]

Alta Fox Capital published the result from an impressive study looking at multibagger microcap stocks from 2015 to 2020. very interesting read and some of the stocks may be good buys even now:

https://static1.squarespace.com/static/5aaacb57506fbe4636414126/t/5f5ba8c6bba8c27b79d66af7/1599842551653/Conclusion+Deck-+Makings+of+a+MultiBagger_compressed+(1).pdf

[thowed]

Many thanks for this.

 

A number of names I know a little, from various Intl small-cap funds I follow, so interesting to learn more about them, and even more interesting to find about the others.

 

Further confirms my suspicion that Rule of Law is a good thing (for lots of reasons!).  Australia and Scandinavian small-caps are interesting hunting grounds, though arguably Australia is better-placed for the 21st Century and Asian growth.

 

Depressing that the UK PM seems less convinced about the Rule of Law at the moment, though encouraging that so many in his own party have spoken up against him (something that perhaps some other countries could learn from...).

 

p.s. Last para not intended to be partisan in any way - can apply to any political party.

[BG2008]

This is one of the most impressive presentations ever by 3 interns

[Packer16]

It does have alot of data on each name which is nice screen for more deep dives.

[Spekulatius]

Fun fact: There are 3 Salmon producers from Norway in this list of high performers. They are all clustered towards the end .

[BG2008]

Fun fact: There are 3 Salmon producers from Norway in this list of high performers. They are all clustered towards the end .

 

I noticed that and I was wondering what created the set up for that, I need to look back again.  This is a really interesting analysis. It seems like if you double revenue and do a little better with EBITDA, the multiple expands by double.  So a 2.5x in EBITDA translate into a 5x when the EV/EBITDA goes from 8-9x to 18x.  Interesting thought process.

[BG2008]

Whether intentional or not, this is great marketing for Alta Fox.  It really built a brand for them.

[Gregmal]

Few can find them quite like Connor Haley.

[Spekulatius]

Fun fact: There are 3 Salmon producers from Norway in this list of high performers. They are all clustered towards the end .

 

I noticed that and I was wondering what created the set up for that, I need to look back again.  This is a really interesting analysis. It seems like if you double revenue and do a little better with EBITDA, the multiple expands by double.  So a 2.5x in EBITDA translate into a 5x when the EV/EBITDA goes from 8-9x to 18x.  Interesting thought process.

 

Well, it works that way for the stocks that performed well - you pretty much need multiple expansion to get into the top performance tier. The fact that the market  has seen multiple expansion during the time frame (2015-2020) also helped.

 

The salmon producers probably started out  a cyclical trough In 2015. I recall the industry had problem a few years ago. I also dimly recall that Einhorn shorted a Norwegian salmon producer at some point, which didn’t work out for him.

[brker_guy]

Spekulatius, remarkable and most impressive collection of ideas that I have come across as an investor!  Super outstanding work and great attention to details with 4 pages of analysis per idea!  Thank you kindly for sharing 645 pages of wonderful collection of hard work.

[scorpioncapital]

Few can find them quite like Connor Haley.

 

Time for an ETF perhaps?

[BG2008]

One thing that has not happened and really surprised me is that there weren't as many "de-leveraging plays"

 

Perhaps, this is a matter of times.  After 08/09, there were quite a bunch of deleveraging plays where a company was over levered going into the crisis and the stock got crushed.  SL Green was one such example, went from $140 down to $8, raised a bit of equity in early 2009 and then went to over $100 per share in 2013-2014ish.  Perhaps, 6-7 years post crisis, the capital markets would have already figured out who is a clown and who has a real business. So the debt capital markets would have more than accommodated the highly levered companies.  Or that the company would have managed to pay down debt.  Some examples that I can remember from 08/09 are:

 

SL Green and most REITs

Napco (locks and such)

Builder's First Source

Ashland

 

 

[Jurgis]

A (largish) number of healthcare companies outperformed. IMO that's a tough area to invest though. Unless you really know the area, predicting results and sales in pharma/medical devices is difficult. And you mostly cannot value them on early financial results, since success/failure completely changes the future sales/income.

 

So possible choices:

1. Skip healthcare cos

2. Learn the area - lot's of work - and possibly multiple Ph.D.s required to cover even part of it

3. Hire a bunch of Ph.D.s - like Seth Klarman did. I wonder what are his results in bio.

4. Invest in hedge fund or mutual fund. There are couple hedge funds that may have been mentioned who perform(ed) really well. I don't know if there are any great mutual funds or ETFs. IIRC, Fidelity Biotech fund has very so-so results.

5. Scatter shot based on some heuristics/etc.

 

I'm vacillating between 1, 4, and 5.

[BG2008]

A (largish) number of healthcare companies outperformed. IMO that's a tough area to invest though. Unless you really know the area, predicting results and sales in pharma/medical devices is difficult. And you mostly cannot value them on early financial results, since success/failure completely changes the future sales/income.

 

So possible choices:

1. Skip healthcare cos

2. Learn the area - lot's of work - and possibly multiple Ph.D.s required to cover even part of it

3. Hire a bunch of Ph.D.s - like Seth Klarman did. I wonder what are his results in bio.

4. Invest in hedge fund or mutual fund. There are couple hedge funds that may have been mentioned who perform(ed) really well. I don't know if there are any great mutual funds or ETFs. IIRC, Fidelity Biotech fund has very so-so results.

5. Scatter shot based on some heuristics/etc.

 

I'm vacillating between 1, 4, and 5.

 

I put healthcare in kind of similar category as O&G as I will probably not get any better at it in the long run

[Spekulatius]

A (largish) number of healthcare companies outperformed. IMO that's a tough area to invest though. Unless you really know the area, predicting results and sales in pharma/medical devices is difficult. And you mostly cannot value them on early financial results, since success/failure completely changes the future sales/income.

 

So possible choices:

1. Skip healthcare cos

2. Learn the area - lot's of work - and possibly multiple Ph.D.s required to cover even part of it

3. Hire a bunch of Ph.D.s - like Seth Klarman did. I wonder what are his results in bio.

4. Invest in hedge fund or mutual fund. There are couple hedge funds that may have been mentioned who perform(ed) really well. I don't know if there are any great mutual funds or ETFs. IIRC, Fidelity Biotech fund has very so-so results.

5. Scatter shot based on some heuristics/etc.

 

I'm vacillating between 1, 4, and 5.

 

The pick and shovel plays like ILMN, BAX, BDX, A, TMO, CRL have been doing very well and don’t really require an in depth knowledge. THe alternative is to bet on track record and/management team. That’s sort of what I am doing with BMRN.

 

I think it gets hard with biotech or device startups with no track record

[Spekulatius]

One thing that has not happened and really surprised me is that there weren't as many "de-leveraging plays"

 

Perhaps, this is a matter of times.  After 08/09, there were quite a bunch of deleveraging plays where a company was over levered going into the crisis and the stock got crushed.  SL Green was one such example, went from $140 down to $8, raised a bit of equity in early 2009 and then went to over $100 per share in 2013-2014ish.  Perhaps, 6-7 years post crisis, the capital markets would have already figured out who is a clown and who has a real business. So the debt capital markets would have more than accommodated the highly levered companies.  Or that the company would have managed to pay down debt.  Some examples that I can remember from 08/09 are:

 

SL Green and most REITs

Napco (locks and such)

Builder's First Source

Ashland

 

Right now, deleveraging really doesn’t move the income statement much, because interest rates are low and credit readily available, even for very crummy credit. So deleveraging is a poor use of cash flow in most cases and not much value accrues to equity. This is very different than 2009/2009.

[shamelesscloner]

Chris Mayer, author of 100 Baggers, is big on using insider ownership as a filter. This doesn't appear to be mentioned as a factor in the study, and might be a useful addition. I just looked up the top performer (ZYXI) and the founder/CEO has a 50% equity stake.

[Cigarbutt]

Chris Mayer, author of 100 Baggers, is big on using insider ownership as a filter. This doesn't appear to be mentioned as a factor in the study, and might be a useful addition. I just looked up the top performer (ZYXI) and the founder/CEO has a 50% equity stake.

The Alta Fox presentation is interesting but Mr. Mayer, in his book, mentions the problem of survivorship bias: "There are severe limitations or problems with a study like this. For one thing, I’m only looking at these extreme successes. There is hindsight bias, in that things can look obvious now. And there is survivorship bias, in that other companies may have looked similar at one point but failed to deliver a hundredfold gain. I am aware of these issues and others. They are hard to correct".

I'm not saying you're wrong and it's interesting to look at ingredients leading to the best outcomes but when looking at those candidates early on, many are swinging for the fences in a way. It may be more prudent to use a basket approach. You may want to try to spot let's say ten of them and watch them over ten years or something. I've done this exercise and this is a nice way to build humility.

 

[Pelagic]

For anyone else who gets an error message trying to open the original link, this one from their site worked for me. I got the same error message opening it from a couple different reddit threads too.

 

https://static1.squarespace.com/static/5aaacb57506fbe4636414126/t/5f85c428b4bac16b20450df0/1602602051503/Conclusion+Deck-+Makings+of+a+MultiBagger+-+FINAL-compressed.pdf