WEBVTT - Voya’s Coyne on Small-Cap Growth Metrics

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<v Speaker 1>Welcome to Inside Active, a podcast about active managers that

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<v Speaker 1>goes beyond sound bites and headlines and looks deeper into

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<v Speaker 1>the processes, challenges, and philosophies and security selection. I'm David Cohne,

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<v Speaker 1>i lead mutual fund and active research at Bloomberg Intelligence.

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<v Speaker 1>Today my co host is Michael Casper, sector and small

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<v Speaker 1>cap strategists at Bloomberg Intelligence. Mike, thank you for joining

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<v Speaker 1>me today.

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<v Speaker 2>Thank you, David.

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<v Speaker 1>So, last week you wrote a research note titled What's

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<v Speaker 1>priced into small Caps? After stocks Route? Do you give

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<v Speaker 1>us a brief overview of how small cap stocks have

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<v Speaker 1>been performing this month and what could happen if economic

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<v Speaker 1>data softens.

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<v Speaker 2>Yeah. So it's obviously been a big downturn for the

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<v Speaker 2>Russell two thousand this month, but what we're really seeing

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<v Speaker 2>and what we try to get at, is it's priced

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<v Speaker 2>into the market, and what we're seeing in our models,

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<v Speaker 2>our fair value model, is that a credit crunch of

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<v Speaker 2>some sort was priced into the Russell two thousand. It

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<v Speaker 2>seems just putting in consensus numbers for the two tens

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<v Speaker 2>next twelve month sales growth and the change in the

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<v Speaker 2>FED balance sheet kind of zeroing that out with the

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<v Speaker 2>end of taper coming later this year, you get to

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<v Speaker 2>about a five point eight percent high yeal to OS

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<v Speaker 2>spread that was baked into the Russell two thousand at

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<v Speaker 2>its low in August. So that to give you some perspective,

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<v Speaker 2>that gets you to a one point two seven times

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<v Speaker 2>multiple on price to sales multiple in the Russell two thousand,

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<v Speaker 2>So significant credit, you know, crunch priced in something it

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<v Speaker 2>can to you know, the end of the SBB crisis, right,

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<v Speaker 2>So twenty twenty three back to those highs if you

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<v Speaker 2>think about it. But on the revenue side, not a

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<v Speaker 2>lot even changes if macro softens, right, So macro expectations

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<v Speaker 2>we we commonly use economist forecasts in our model, those

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<v Speaker 2>were already pretty weak, and if you just zero out

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<v Speaker 2>GDP growth, for example, zero out new orders growth, you're

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<v Speaker 2>still only at about a point five percent revenue contraction

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<v Speaker 2>over the year ahead, and that's significantly lower than what

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<v Speaker 2>consensus expecting for the next twelve months. So there's not

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<v Speaker 2>a lot of weakness that can be additionally priced, at

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<v Speaker 2>least on the revenue side, and kind of any upside

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<v Speaker 2>that we get from revenues could be a significant driver

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<v Speaker 2>of the Russell two thousand going forward. The one thing

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<v Speaker 2>I'll mention everybody asked me about recession case and what

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<v Speaker 2>that might look like for the Russell two thousand. We

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<v Speaker 2>took the average recession experience and modeled how that affects

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<v Speaker 2>each of the component variables in our fait value model.

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<v Speaker 2>Putting that into the model, you get about a nineteen

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<v Speaker 2>percent drop in sales growth, a drop in the multiple

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<v Speaker 2>to one point one five times, and you end up

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<v Speaker 2>around the October twenty twenty three low on the Russell

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<v Speaker 2>two thousand. So at that point in time, the way

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<v Speaker 2>I'm framing it at least is that significant economic weakness

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<v Speaker 2>was already paced into the Russell two thousand. So I

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<v Speaker 2>think things are, you know, pretty well solidified on the downside.

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<v Speaker 2>It's just how do we get to some of the

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<v Speaker 2>more upside for the Russell two thousand.

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<v Speaker 1>Okay, Well, speaking of the Russell two thousand and small caps,

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<v Speaker 1>i'd like to welcome Michael Coyin, manager of the Voye

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<v Speaker 1>Small Cap Growth Fund. Mike, thank you so much for

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<v Speaker 1>joining us.

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<v Speaker 3>Thanks for having me.

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<v Speaker 1>Well, before we get into your fund, i'd like to

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<v Speaker 1>ask how portfolio managers got their start, So if you

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<v Speaker 1>could just kind of give us an overview of how

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<v Speaker 1>you got started in investing.

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<v Speaker 3>Yeah, sounds great. I started investing on the by side

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<v Speaker 3>a couple of years out of college after doing an

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<v Speaker 3>investment banking extint on Wall Street. Started at a private

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<v Speaker 3>equity mezzanine fund in Boston with a particular focus on

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<v Speaker 3>growth coupled with cash flow generation. Fast forward a couple

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<v Speaker 3>of years, I started working at Columbia Management on the

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<v Speaker 3>small cap growth team, and the Voya small Cap Growth

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<v Speaker 3>Team now is a derivation of that existing team. So

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<v Speaker 3>we've been working on that team longer than I care

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<v Speaker 3>to admit, twenty two years, but consistent investment of philosophy

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<v Speaker 3>and process being applied over that entire timeframe, which is

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<v Speaker 3>good because the experience I had at the private equity

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<v Speaker 3>shop I worked at really was a good dovetail into

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<v Speaker 3>what we do here from a fundamental analysis standpoint.

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<v Speaker 1>Well, that's actually kind of brings me to my next

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<v Speaker 1>question is, could you kind of give us an overview

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<v Speaker 1>of your investment process or philosophy. I know you mentioned

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<v Speaker 1>cash flow.

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<v Speaker 3>Yeah, so our investment of philosophy is fairly simple. We

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<v Speaker 3>look for companies that grow at a fifteen percent top

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<v Speaker 3>and bottom line rate. At a minimum, and then look

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<v Speaker 3>at what we consider sustainable valuations. And sustainable valuations I'll

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<v Speaker 3>get into in a bit here. I know that we'll

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<v Speaker 3>discuss that during the process, but ultimately we want to

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<v Speaker 3>see a twenty percent upside to our price target when

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<v Speaker 3>we buy a stock in the portfolio. When I think

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<v Speaker 3>about the process itself, it really comes down to fundamental analysis.

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<v Speaker 3>We look at the market that a company addresses, it's

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<v Speaker 3>market share. We look at competitive modes. Are they able

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<v Speaker 3>to pass along price increases they're getting to their customers

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<v Speaker 3>so they can see expanding margins over time. We do

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<v Speaker 3>have a particular emphasis on operating cash flow as opposed

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<v Speaker 3>to free cash flow because we are small cap growth investors.

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<v Speaker 3>We want to see our companies reinvest back into the

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<v Speaker 3>flywheel that does allow them to grow as long as

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<v Speaker 3>that flywheel produces acceptable rates of return, which is an

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<v Speaker 3>excessive what their cost of capital is. So it's really

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<v Speaker 3>not rocket science on the philosophy or process, but it's

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<v Speaker 3>a lot of hard work and that's really what we've

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<v Speaker 3>done over the two years I've been doing it. The

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<v Speaker 3>process in philosophy actually predates me by seven years, so

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<v Speaker 3>it's been applied for almost thirty years.

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<v Speaker 2>So we know how Russell defines their growth in to

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<v Speaker 2>see is SMP defines it a little bit differently. You know,

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<v Speaker 2>how do you define and search for growth companies? Do

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<v Speaker 2>you have any favorite metrics that you like to use

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<v Speaker 2>when you're you're looking for companies.

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<v Speaker 3>We certainly touched on a few of them already. You know,

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<v Speaker 3>growth growth first. You know, you want to see companies

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<v Speaker 3>that grow at an acceptable rate, whether that's organic growth

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<v Speaker 3>or inorganic growth. We do like seeing organic growth over

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<v Speaker 3>inorganic growth, but a lot of times companies do a

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<v Speaker 3>very good job of showing both and producing strong growth

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<v Speaker 3>metrics by acquisitions as well. The other thing we look at,

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<v Speaker 3>as I mentioned before, operating cash flow, And then we

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<v Speaker 3>certainly want to see a balance sheet that is healthy

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<v Speaker 3>and allows them the flexibility to go pursue ustment strategies

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<v Speaker 3>that they want to pursue and doesn't hinder them. So

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<v Speaker 3>we'd have some leverage metrics we look at as kind

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<v Speaker 3>of an exclusionary metric for companies that we screen for.

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<v Speaker 2>And how do you think about valuations? Do you have

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<v Speaker 2>any favorite metrics you mentioned operating cash flow, You might

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<v Speaker 2>use a free cash flow yield or something like that.

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<v Speaker 2>Do you have any favorite valuation metrics that you use?

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<v Speaker 3>So operating cash flow is really a proxy to determine

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<v Speaker 3>the quality of earnings. Companies use adjusted net income, which

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<v Speaker 3>is adjusted from gap. You have to validate those adjustments,

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<v Speaker 3>and then we compare that adjusted net income to operating

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<v Speaker 3>cash flow and would like to see operating cash flow

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<v Speaker 3>in excess of that adjusted net income to validate that.

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<v Speaker 3>It's a metric we want to use going forward. The

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<v Speaker 3>reason we do that is, as you know, management teams

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<v Speaker 3>like to adjust for a lot of things that I

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<v Speaker 3>don't want to adjust for and give them credit for

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<v Speaker 3>because they want to see their stock price higher, and

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<v Speaker 3>that's the main metric. So dovetailing into that and saying,

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<v Speaker 3>answering your question, what are my favorite valuation metrics, we

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<v Speaker 3>certainly look at p I don't love a revenue multiples,

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<v Speaker 3>although some people use them, so I pay attention to them.

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<v Speaker 3>EBITDA would fit into the same category. I do like

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<v Speaker 3>using earnings because it factors in all expenses. When you

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<v Speaker 3>start looking at EBITDA and or revenue, it really does

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<v Speaker 3>a factor in all the expenses. Interests and taxes are

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<v Speaker 3>real expenses. As you know. So that's really why we

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<v Speaker 3>try to at least balance our valuation perspective through a

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<v Speaker 3>number of different metrics.

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<v Speaker 1>Well, you know, speaking of valuations, you had earlier mentioned

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<v Speaker 1>sustainable valuations, how do you determine those?

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<v Speaker 3>So sustainable valuations we look at as a proxy for

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<v Speaker 3>what the companies traded at in the past. First of all,

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<v Speaker 3>we have to validate the fundamentals that have dictated that

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<v Speaker 3>valuation framework in the past are still relevant. But assuming

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<v Speaker 3>they are, we like to buy a stock in the

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<v Speaker 3>lower two thirds of its valuation range. And the reason

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<v Speaker 3>for that is if you buy a stock and its

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<v Speaker 3>peak valuation or close to its peak valuation, you're not

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<v Speaker 3>only betting on the earnings growth that you've predicted, you

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<v Speaker 3>are assuming that it's going to hold that high end

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<v Speaker 3>of that valuation range. And those are two tough assumptions

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<v Speaker 3>to make. In conjunction with one another, you have two

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<v Speaker 3>ways to lose. You have valuation compression. You lose on

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<v Speaker 3>valuation compression, or you can miss on earnings misses. You

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<v Speaker 3>want to mitigate the downside by really buying them at

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<v Speaker 3>a fair price. And if a stock's not at a

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<v Speaker 3>fair price, we put it on our watch list, and

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<v Speaker 3>I've had stocks on my watch list for five days,

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<v Speaker 3>five months, and in some cases five years. So it's

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<v Speaker 3>just one of those things that you have to realize

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<v Speaker 3>buying a stock correctly is an important part of the

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<v Speaker 3>investment process.

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<v Speaker 2>And what sectors do you find the most interesting right now?

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<v Speaker 2>Do you have any specific sector loads?

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<v Speaker 3>Yeah, you know, I think there's there's a lot of

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<v Speaker 3>interesting things going off on the market right now. You know,

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<v Speaker 3>we have had been overweight semiconductors for the first half

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<v Speaker 3>of the year. I think there's still some interesting, interesting

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<v Speaker 3>investment opportunities there, but we've been fading that group a

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<v Speaker 3>little bit and really been dusting off software. Software has

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<v Speaker 3>been an underperforming industry over the first six months of

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<v Speaker 3>the year and years, and what we're seeing is companies

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<v Speaker 3>reassessing their expectations and now they seem more levels set.

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<v Speaker 3>But as you talked about hard landing or recessionary risks,

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<v Speaker 3>that's certainly only valid if we have a soft landing scenario,

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<v Speaker 3>So you know, we're we're being mindful of that. You know,

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<v Speaker 3>with the FED being prospectively likely to lower rates, we're

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<v Speaker 3>also looking some interest rate sensitive areas such as capital equipment,

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<v Speaker 3>such as home building building products. Some financials have some

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<v Speaker 3>tailwinds on that front. Some consumer names have some tailwins

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<v Speaker 3>on that front, but I think that'll take a little

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<v Speaker 3>longer to work its way out, specifically low end consumers.

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<v Speaker 1>You mentioned some technology industries. I know the strategy is

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<v Speaker 1>bottom up, but do you look at macro factors at

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<v Speaker 1>all or is it mainly just looking at the best

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<v Speaker 1>opportunity or the best opportunities happen to be in a

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<v Speaker 1>particular industry or sector.

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<v Speaker 3>We do not. We don't play macro economists when we're

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<v Speaker 3>constructing the portfolio. We really let it flow from the

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<v Speaker 3>bottom up. But that's not to say we don't consider

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<v Speaker 3>or pay attention to macro factors. I think you have

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<v Speaker 3>to be insane to not at least pay attention to

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<v Speaker 3>what's going on around you when you're investing, especially in

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<v Speaker 3>small cap. But at the same time, it's not dictating

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<v Speaker 3>solely what we're doing, uh, because ultimately we're here to

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<v Speaker 3>pick stocks and outperform the market, and we feel like

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<v Speaker 3>we can do that with a nice healthy balance of

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<v Speaker 3>fundamental analysis, UH, good risk war judgment as well as

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<v Speaker 3>macro considerations.

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<v Speaker 2>And I already opined on what I think caused last

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<v Speaker 2>week's sell off a little bit. But what's your opinion

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<v Speaker 2>on it? Do you think it meaningfully changes anything?

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<v Speaker 3>Well, it's interesting market psychology. I always say, you know,

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<v Speaker 3>the my job is part art and part science, and

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<v Speaker 3>I think the art part of it is very under

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<v Speaker 3>appreciated and that the art part only comes with experience.

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<v Speaker 3>But when you think about what's happened over the last

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<v Speaker 3>six weeks, Uh, you had some data come out in

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<v Speaker 3>early July, uh, you know, software CPI data and the

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<v Speaker 3>FED signal that they are ready to cut, so that

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<v Speaker 3>that proverbial you know, bad news was good news. Fast

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<v Speaker 3>forward a couple of weeks. You had a weaker PMI data,

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<v Speaker 3>and you had weaker jobs data come out really the

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<v Speaker 3>last week of July, first week of August, and bad

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<v Speaker 3>news became bad news all of a sudden because the

0:13:18.640 --> 0:13:25.920
<v Speaker 3>risk of recessionary the recessionary economic backdrops increased precipitously. So

0:13:26.360 --> 0:13:28.120
<v Speaker 3>I think the you know, and I think there was

0:13:28.160 --> 0:13:33.720
<v Speaker 3>an overreaction in the market that was exasperated by something

0:13:33.760 --> 0:13:38.480
<v Speaker 3>that was completely irrelevant to US fundamentals, in that the

0:13:39.200 --> 0:13:43.319
<v Speaker 3>Japanese the Bank of Japan raised interest rates by twenty

0:13:43.360 --> 0:13:47.520
<v Speaker 3>five basis points and expressed a willingness to do so

0:13:47.760 --> 0:13:50.600
<v Speaker 3>more through the balance of the years. So that really

0:13:50.960 --> 0:13:54.320
<v Speaker 3>caused an unwind of the the yen carry trade, and

0:13:54.360 --> 0:13:56.800
<v Speaker 3>so I think that really threw gasoline on the fire

0:13:57.640 --> 0:13:59.560
<v Speaker 3>relative to the selloff. You saw a lot of risk

0:13:59.600 --> 0:14:02.080
<v Speaker 3>based that sets sell off. So you talked about small

0:14:02.120 --> 0:14:06.040
<v Speaker 3>cap really underperforming month to date, and I think that's

0:14:06.160 --> 0:14:07.439
<v Speaker 3>part of what happened.

0:14:08.679 --> 0:14:10.679
<v Speaker 2>And do you have any opinion on where the Russell

0:14:10.720 --> 0:14:13.280
<v Speaker 2>two thousand might be going from here? I know a

0:14:13.280 --> 0:14:15.199
<v Speaker 2>lot of the growth drivers got removed back in the

0:14:15.240 --> 0:14:19.040
<v Speaker 2>Juneery constitution, but any color you have on that.

0:14:19.080 --> 0:14:21.640
<v Speaker 3>Well, I've really I liked hearing what you said about

0:14:22.120 --> 0:14:26.840
<v Speaker 3>your historical perspective on the October lows, the October twenty

0:14:26.880 --> 0:14:29.600
<v Speaker 3>twenty three lows, and I do agree with you. At

0:14:29.600 --> 0:14:33.160
<v Speaker 3>that point in time, we were adding to names and adding

0:14:33.200 --> 0:14:39.840
<v Speaker 3>to companies that had higher growth profiles because in higher

0:14:39.840 --> 0:14:44.360
<v Speaker 3>growth being companies that had twenty forty percent type of

0:14:44.480 --> 0:14:46.960
<v Speaker 3>top line growth because they were priced at a discount.

0:14:47.640 --> 0:14:50.440
<v Speaker 3>That time is pasted. I don't think we're at those

0:14:50.560 --> 0:14:54.360
<v Speaker 3>levels now, but we're certainly selling off. You know, there's

0:14:54.400 --> 0:14:56.320
<v Speaker 3>two factors that are going to determine where we go.

0:14:56.360 --> 0:14:58.440
<v Speaker 3>Are we going to go into a soft landing scenario

0:14:58.520 --> 0:15:01.320
<v Speaker 3>or a hard landing scenario landing scenario. I think small

0:15:01.320 --> 0:15:05.120
<v Speaker 3>caps have a pocket of underperformance ahead of us, and

0:15:05.600 --> 0:15:09.160
<v Speaker 3>that will be a challenge until you know, we reach

0:15:09.320 --> 0:15:12.600
<v Speaker 3>the determination that we're in that environment and then they'll

0:15:12.640 --> 0:15:15.760
<v Speaker 3>start out performing in a soft landing environment. I think

0:15:15.760 --> 0:15:20.120
<v Speaker 3>we're already in the outperformance timeframe now with obviously what

0:15:20.160 --> 0:15:22.000
<v Speaker 3>we've seen recently as a hiccup to that.

0:15:23.840 --> 0:15:26.240
<v Speaker 1>One thing you mentioned earlier, and the kind I think

0:15:26.240 --> 0:15:29.600
<v Speaker 1>it ties into the discussion is you know, risk and

0:15:29.680 --> 0:15:33.160
<v Speaker 1>reward and how that factors in? How do you evaluate

0:15:33.280 --> 0:15:35.400
<v Speaker 1>risk and reward or you know, should I say what

0:15:35.480 --> 0:15:36.280
<v Speaker 1>keeps you up at night?

0:15:37.720 --> 0:15:40.080
<v Speaker 3>Risk and reward? You know? Again, this goes back to

0:15:40.120 --> 0:15:43.080
<v Speaker 3>that art and science part of the job. But the

0:15:43.120 --> 0:15:45.120
<v Speaker 3>science part of it, which is probably what you're more

0:15:45.160 --> 0:15:47.320
<v Speaker 3>interested in, and I'll get into the art part here

0:15:47.360 --> 0:15:52.000
<v Speaker 3>in a second, is really evaluating what a stock can

0:15:52.040 --> 0:15:54.760
<v Speaker 3>do and the fundamentals of a company can do in

0:15:54.800 --> 0:15:57.720
<v Speaker 3>a variety of scenarios. It's really a probability matrix. If

0:15:57.760 --> 0:16:00.560
<v Speaker 3>you will, you can do a two point probability matrix

0:16:00.640 --> 0:16:04.200
<v Speaker 3>or have one hundred point probability matrix. I don't have

0:16:04.280 --> 0:16:07.120
<v Speaker 3>the time to do one hundred point probability matrix, so

0:16:07.160 --> 0:16:09.800
<v Speaker 3>we tend to do a three point probability matrix. A

0:16:09.840 --> 0:16:13.120
<v Speaker 3>base case, barecase, a gold case, not dissimilar from a

0:16:13.160 --> 0:16:16.600
<v Speaker 3>lot of other folks. And what's the backdrop there, and

0:16:16.640 --> 0:16:19.240
<v Speaker 3>what's the multiple structure that that's going to yield, And

0:16:19.320 --> 0:16:22.480
<v Speaker 3>so we look at an upside downside scenario. Now, when

0:16:22.480 --> 0:16:26.560
<v Speaker 3>we're in the middle of making evaluations on companies that

0:16:26.600 --> 0:16:30.560
<v Speaker 3>are trading in the marketplace, what we use as as

0:16:30.600 --> 0:16:37.400
<v Speaker 3>a instructive tool is watching how stocks react to different news,

0:16:37.440 --> 0:16:39.520
<v Speaker 3>and that's the art part of this job. It's really

0:16:39.600 --> 0:16:43.480
<v Speaker 3>the price discovery process. If you see a company miss

0:16:43.480 --> 0:16:46.760
<v Speaker 3>and guide down the stocks flat or up. A lot

0:16:46.800 --> 0:16:49.120
<v Speaker 3>of times bad news is priced in, at least for

0:16:49.160 --> 0:16:51.200
<v Speaker 3>the near term, and so that's something to take a

0:16:51.240 --> 0:16:53.800
<v Speaker 3>mental note of because if you like that company, it's

0:16:53.800 --> 0:16:56.280
<v Speaker 3>probably not a bad time to start buying it, and

0:16:56.720 --> 0:17:01.000
<v Speaker 3>understanding the market already has really tepid expectations there and

0:17:01.560 --> 0:17:04.880
<v Speaker 3>if they can produce any sort of upside that's likely

0:17:05.480 --> 0:17:06.840
<v Speaker 3>going to be good for the stock price.

0:17:09.040 --> 0:17:11.840
<v Speaker 2>What are you seeing from earning season and fundamentals. Are

0:17:11.880 --> 0:17:13.360
<v Speaker 2>there any major takeaways that you have.

0:17:13.800 --> 0:17:16.920
<v Speaker 3>I think the major takeaway is that cyclicality is being

0:17:18.840 --> 0:17:23.159
<v Speaker 3>is certainly being demonstrated in earnings. I mean, they're the

0:17:23.359 --> 0:17:31.639
<v Speaker 3>cyclical companies are are certainly feeling the economic slowdown, the

0:17:31.840 --> 0:17:36.640
<v Speaker 3>interest rate tightening that the Fed's done. You know, since

0:17:36.720 --> 0:17:40.960
<v Speaker 3>kind of that twenty twenty three timeframe is certainly or

0:17:41.320 --> 0:17:45.359
<v Speaker 3>twenty two time frame really is certainly taking hold. And

0:17:45.480 --> 0:17:52.719
<v Speaker 3>so what you're what we're seeing there is a challenged

0:17:53.119 --> 0:17:57.360
<v Speaker 3>backdrop for many companies that are dependent on access to capital.

0:17:57.640 --> 0:18:02.399
<v Speaker 3>And so when when we see that and the FED

0:18:02.680 --> 0:18:06.320
<v Speaker 3>is too tight in which in my opinion, they're a

0:18:06.359 --> 0:18:08.600
<v Speaker 3>little bit too tight right now. They need to start loosening.

0:18:08.600 --> 0:18:11.520
<v Speaker 3>Are we behind the curve potentially? I don't think they're

0:18:11.560 --> 0:18:13.760
<v Speaker 3>too far behind the curve here, so I think they

0:18:13.800 --> 0:18:16.000
<v Speaker 3>can catch up, but I think I think they need

0:18:16.000 --> 0:18:17.520
<v Speaker 3>to start moving in September.

0:18:19.320 --> 0:18:24.080
<v Speaker 1>I'd like to ask managers some reflective questions in your opinion,

0:18:24.560 --> 0:18:26.320
<v Speaker 1>you know, what do you think or how has small

0:18:26.359 --> 0:18:29.360
<v Speaker 1>cap investing changed since you started in the business.

0:18:30.680 --> 0:18:33.840
<v Speaker 3>You know, it's an interesting question. I think the private

0:18:33.840 --> 0:18:38.160
<v Speaker 3>equity arena being able to be so well funded over

0:18:38.200 --> 0:18:40.320
<v Speaker 3>the last twenty two years since I've been doing small

0:18:40.359 --> 0:18:45.720
<v Speaker 3>gap specifically, they've been able to fund companies far longer

0:18:45.760 --> 0:18:49.480
<v Speaker 3>than they've previously been willing to fund them. And so

0:18:49.680 --> 0:18:54.480
<v Speaker 3>in some cases that you know, good companies have bypassed.

0:18:55.040 --> 0:18:59.000
<v Speaker 3>My definition of small gap is that doesn't happen frequently,

0:18:59.040 --> 0:19:05.160
<v Speaker 3>but it happens. That's probably the biggest difference. You obviously

0:19:05.240 --> 0:19:08.439
<v Speaker 3>have a lot of different types of investors. You have

0:19:08.520 --> 0:19:16.880
<v Speaker 3>high frequency traders, you have AI driven investment investment managers. However,

0:19:17.440 --> 0:19:24.240
<v Speaker 3>the core fundamental evaluation backdrop of investing is still relevant,

0:19:24.359 --> 0:19:31.120
<v Speaker 3>and our investment philosophy and process has produced between four

0:19:31.200 --> 0:19:33.600
<v Speaker 3>hundred and four hundred and fifty basis points of outperformance

0:19:33.640 --> 0:19:37.360
<v Speaker 3>over a twenty nine year timeframe. So it's still relevant,

0:19:38.040 --> 0:19:41.680
<v Speaker 3>and it's still useful to have somebody with their hands

0:19:41.680 --> 0:19:43.919
<v Speaker 3>on the steering wheel instead of putting it into a

0:19:43.920 --> 0:19:48.639
<v Speaker 3>computer and just letting it run. So I'm talking to

0:19:48.680 --> 0:19:51.000
<v Speaker 3>my own book here, but that's my opinion.

0:19:52.000 --> 0:19:55.560
<v Speaker 1>So you mentioned with private equity, are you seeing I

0:19:55.560 --> 0:19:59.359
<v Speaker 1>guess less opportunities with companies not going as you know,

0:19:59.400 --> 0:20:01.159
<v Speaker 1>public as often as they used to.

0:20:01.600 --> 0:20:03.680
<v Speaker 3>I would say on the on the margin. You might

0:20:03.720 --> 0:20:07.640
<v Speaker 3>see one or two companies that fit the description of

0:20:07.640 --> 0:20:10.840
<v Speaker 3>what I'm saying, but instead of a company coming public

0:20:10.960 --> 0:20:13.840
<v Speaker 3>at five hundred million, they may come public at one

0:20:13.840 --> 0:20:17.200
<v Speaker 3>point five to two billion. Still small cap. The definition

0:20:17.280 --> 0:20:20.280
<v Speaker 3>of small cap has certainly gone up from a cap perspective,

0:20:20.320 --> 0:20:22.840
<v Speaker 3>but so has large cap. I mean, we have a

0:20:22.840 --> 0:20:25.560
<v Speaker 3>handful of three trillion dollar market cap companies, or did

0:20:25.760 --> 0:20:29.560
<v Speaker 3>at one point in time, and you look at small

0:20:29.600 --> 0:20:33.080
<v Speaker 3>cap or our range of small cap is really kind

0:20:33.080 --> 0:20:36.840
<v Speaker 3>of that five hundred million to call it seven billion

0:20:36.920 --> 0:20:42.439
<v Speaker 3>on an entry point basis. And you know, our ability

0:20:42.520 --> 0:20:45.120
<v Speaker 3>to buy a stock is really determined by liquidity. One

0:20:45.119 --> 0:20:47.760
<v Speaker 3>of the big things we look at from a risk

0:20:47.800 --> 0:20:50.879
<v Speaker 3>perspective is liquidity. We want to make sure that we

0:20:50.920 --> 0:20:52.679
<v Speaker 3>can trade in and out of a stock in an

0:20:52.720 --> 0:20:54.040
<v Speaker 3>acceptable period of time.

0:20:55.560 --> 0:20:59.520
<v Speaker 1>Okay, well, this is great. I really appreciate you coming on,

0:21:00.520 --> 0:21:03.160
<v Speaker 1>Mike and Mike. Thank you so much for joining me today.

0:21:03.560 --> 0:21:05.639
<v Speaker 3>Thank you well, David and Mike, thanks for having me.

0:21:05.760 --> 0:21:09.440
<v Speaker 3>Appreciate it, and we'll do it again sometime.

0:21:09.240 --> 0:21:12.760
<v Speaker 1>Soon, definitely until our next episode. This is David Cone

0:21:12.760 --> 0:21:13.720
<v Speaker 1>with Inside Active