Speaker 1: Strap on your parachute. It's time for What Goes Up
Speaker 1: with Sarah Ponzick and Mike Reagan. Hello and welcome to
Speaker 1: What Goes Up, a Bloomberg weekly market podcast. I'm Sarah Ponzek,
Speaker 1: reporter on the Cross Asset team, and Mike Reagan, a
Speaker 1: senior editor at Bloomberg. This week on the show, an
Speaker 1: election like no other. At the time of recording this episode,
Speaker 1: the next president of the United States has still not
Speaker 1: been declared. There's questions over the Senate too. But even so,
Speaker 1: stocks stage their best post election rally and history and
Speaker 1: text talks are back on top. So what's the deal, Mike, Well, Sarah,
Speaker 1: I don't know, but I will tell you. What the
Speaker 1: deal is with the end of the show is that
Speaker 1: we will finish off with the craziest things we saw
Speaker 1: in markets, of course, and uh. The deal is for
Speaker 1: listeners out there, if you saw something crazy, please give
Speaker 1: us a call on the Bloomberg Podcast hotline and leave
Speaker 1: us a voicemail and maybe we'll play your crazy thing
Speaker 1: on the show. Number is six four six three to
Speaker 1: four three four nine zero. Uh and sorry, Sarah. Very
Speaker 1: excited for this week's guests. As you know, I usually
Speaker 1: I'm excited regardless who the guest is, but especially excited
Speaker 1: this week first time on the show. He is a
Speaker 1: portfolio manager at Buffalo Funds. His name is Jamie Quare. Jamie,
Speaker 1: welcome to the show. Thanks for having me on. And Sarah,
Speaker 1: that firm name again is Buffalo Funds. You know, Buffalo
Speaker 1: Funds are like regular funds, just with hot sauce on top.
Speaker 1: Of course, you know Buffalo That was in my favorite
Speaker 1: slace night. I heard our other guests grown at that joke,
Speaker 1: I think, which is not a good sign. Uh. And
Speaker 1: that voice that is our very own Chris Nag, executive
Speaker 1: editor at Bloomberg for Markets. Chris hasn't been on this
Speaker 1: show in a while, but he's got his own fan
Speaker 1: club out there who demands his appearance occasionally. So obviously
Speaker 1: very powerful fan club. They've managed to keep me keep
Speaker 1: me off the show for about nine months. If we
Speaker 1: weren't living through a pandemic right now, we weren't doing
Speaker 1: the podcast through Zoom, and we were still in the office,
Speaker 1: you know, you would be on more often. Yeah, I'm
Speaker 1: Sarah's boss, I would point out at this point. But anyway,
Speaker 1: your evaluation period is coming up. So we're having we'll
Speaker 1: have Chris on for every episode for the rest of you.
Speaker 1: But but Jai, of course I was joking about the
Speaker 1: hot sauce, but not a joke about how hot that
Speaker 1: that small cap fund has been doing really impressive. I
Speaker 1: want to get into your specific strategy because it's obviously
Speaker 1: you're doing something right. But before that, I want to
Speaker 1: talk a little bit about just small caps as an
Speaker 1: asset class um. You know, obviously, if you're you're looking
Speaker 1: at just the Russell two thousand, uh, still down on
Speaker 1: the year last time I checked, really been underperforming the
Speaker 1: SMP with all the mega caps for a few years. Now,
Speaker 1: what is sort of your outlook for not your fund
Speaker 1: and your specific stock picks in the fund, but just
Speaker 1: the small caps as an asset class in general. I
Speaker 1: think there's this kind of notion that maybe a need
Speaker 1: sort of a big fiscal stimulus, uh some kind of
Speaker 1: blue way from the election that that looks like it's
Speaker 1: not going to happen. But what's been holding small caps
Speaker 1: back compared to the mega caps in the SMP, And
Speaker 1: is there any reason to believe that the whole asset
Speaker 1: class can can sort of turn around and sort of
Speaker 1: close up that performance gap. Yeah, I don't know if
Speaker 1: that's totally fair, and i'd separate a little bit the
Speaker 1: kind of the growth versus value performance that we've seen
Speaker 1: within small caps. So certainly the value names have been
Speaker 1: dramatically underperforming growth this year, but growth in small cap
Speaker 1: has done quite well. If anything, I think that's probably
Speaker 1: going to continue to to go in terms of being
Speaker 1: a in favor of growth going forward. So, you know,
Speaker 1: things probably would have been a little bit better for
Speaker 1: small caps over the last couple of days if um,
Speaker 1: you know, there had been a massive stimulus, which looks
Speaker 1: like obviously it's not going to come through with with
Speaker 1: kind of a split Congress. But overall, um, everything continues
Speaker 1: to be quite solid and the outlook is still very
Speaker 1: strong for small caps. Earnings have gone quite well. Um.
Speaker 1: You know, we still have the same I think concerns
Speaker 1: that everyone else does in terms of kind of what's
Speaker 1: going to happen with covid UM, But you know, we've
Speaker 1: got an accommodate of fed UM. I think it did
Speaker 1: will eventually have a little bit more stimulus that comes
Speaker 1: probably next year, maybe as a skinnier package that may
Speaker 1: come in the lame duck period. But overall, I think
Speaker 1: the autook for small cap is still still quite solid.
Speaker 1: So Jamie, just keeping it broad for now with the
Speaker 1: outcome of the election, Yes, it's still unclear, but is
Speaker 1: there any reason to believe though that the status quo
Speaker 1: and markets is going to change over the next twelve
Speaker 1: months three years, Let's keep it a little shorter, say
Speaker 1: twelve months with the outcome that we've seen, even though
Speaker 1: at least as it stands, it doesn't look like markets
Speaker 1: getting exactly what we were told it was pricing in
Speaker 1: ahead of time. Yeah, you know, I think from the election,
Speaker 1: I think the results really kind of threaded the need
Speaker 1: of pretty perfectly, and just in terms of you know,
Speaker 1: what would have been the best for the markets and again,
Speaker 1: like you mentioned, especially for growth investors. Um. Again, because
Speaker 1: we have a split Congress, we're not going to have
Speaker 1: a huge stimulus, so that you know, the market overall
Speaker 1: really likes to see gridlock, and that's certainly what we're
Speaker 1: getting from here. Um. And you know, it really takes
Speaker 1: off things like you know, tax increases on both the
Speaker 1: corporate and personal side. Um. You know, the interest rates
Speaker 1: are probably gonna stay pretty low given that we're probably
Speaker 1: not going to have this big reflationary period that was
Speaker 1: expected if if we boosted stimulus pretty dramatically. So yeah,
Speaker 1: like I said, I think it's really is kind of
Speaker 1: status quo and and really the best possible outlook that
Speaker 1: we could have gotten from the election we got. You know, Chris,
Speaker 1: I'm I'm thinking back to when I started working for
Speaker 1: you with Bloomberg. I'm really gonna date myself here, way
Speaker 1: back in early two thousand and seven. Uh, George W.
Speaker 1: Bush was was still the president. Uh, you know, obviously, Uh,
Speaker 1: there was that two thousand and eight election, Um, and
Speaker 1: there was certainly some talk about while is Obama gonna
Speaker 1: be good or bad for the stock market, but really
Speaker 1: the whole world was was just distracted with the financial
Speaker 1: crisis at that point. I don't ever remember politics being
Speaker 1: this important to markets as they've been in the last
Speaker 1: few years, the Trump the Trump uh administrations specifically, How
Speaker 1: do you look at the intersection of politics and markets
Speaker 1: going forward? I mean it's I feel like the business
Speaker 1: page and the political pages of the newspapers have been
Speaker 1: fused together in the last four years. Are they going
Speaker 1: to be attached at the hip going forward? Is the
Speaker 1: political narrative under a Biden administration going to also be
Speaker 1: the market narrative, do you think, uh? Or will that
Speaker 1: wear off eventually and we'll be back to ignoring politics
Speaker 1: like we used to. Yeah. I mean what I would
Speaker 1: say is our role in the press will be, no
Speaker 1: matter whether it matters or not, it will be to
Speaker 1: make sure that those narratives are joined at the hips,
Speaker 1: whether they deserve to be or otherwise. What what I mean.
Speaker 1: I do feel like that's sort of the the key
Speaker 1: thing and the point that there is I'd be very
Speaker 1: interested to hear how our guests feels about that. I mean,
Speaker 1: there's a perception right now because of whatever some of
Speaker 1: the big personalities, possibly possibly because of things like Twitter,
Speaker 1: that no matter what happens on Earth, Uh, it gets
Speaker 1: dialed back to politics. And I wonder if you know
Speaker 1: it actually does matter significantly more now than it did
Speaker 1: back in the you know, Obama period or Bush period,
Speaker 1: or if it's just something that we we as journalists
Speaker 1: like to ascribe like everyone else. I mean, you look
Speaker 1: at the beginning of the Obama period, there was a
Speaker 1: lot you know, there was nothing like what's going on now, obviously,
Speaker 1: but there was a fair amount of naysayers willing to
Speaker 1: speak up against his likely stewardship of the things like
Speaker 1: the economy, in the stock market, and certainly in the
Speaker 1: stock market, nothing could have played out anymore against the naysayers.
Speaker 1: And to me, I look at something like that and
Speaker 1: I say, there's any of this is Is this just
Speaker 1: an imagined correlation that we should you know, to some
Speaker 1: degree stop talk. But I wonder what our guests thinks
Speaker 1: of how much of his investment philosophies premised on anything
Speaker 1: having to do with the government. Yeah, so Jamie, let's
Speaker 1: pose that question to you. Then our markets and politics
Speaker 1: actually tied at the hip, and should they be. I
Speaker 1: think they've been that way for the last four years.
Speaker 1: But I don't think there will be as much in
Speaker 1: the next four years. I mean, clearly we had a
Speaker 1: very polarizing figure in the White House, which certainly I
Speaker 1: think brought a lot more attention to that post than
Speaker 1: other than I Otherwise we would have had um But
Speaker 1: you know, I think it kind of is going to
Speaker 1: go back a little bit more to you know, more
Speaker 1: like how it was when Obama with an office, and
Speaker 1: when not every day had an event with a controversial
Speaker 1: tweet or something that was controversial that the market needed
Speaker 1: to figure out. You know, there are a few issues
Speaker 1: that will have to think about, you know, come early
Speaker 1: next year, when most likely Biden has inaugurated. But um,
Speaker 1: you know, I just don't think it's going to be
Speaker 1: quite as much of a focus going forward as it
Speaker 1: has been in the past. And quite honestly, just to
Speaker 1: mention one thing, in terms of how we manage money, UM,
Speaker 1: it has very little to do, quite honest with who's
Speaker 1: in the White House. Um. You know, we had a
Speaker 1: few names here and there that would have probably done
Speaker 1: better if the election had turned out different. But the
Speaker 1: way we invest, um, you know, with our process, it
Speaker 1: really kind of depends on what are the underlying long
Speaker 1: term trends that we see that are really impacting the
Speaker 1: companies that we invest. Uh, and that's going to change,
Speaker 1: not going to change regardless of who's in the White
Speaker 1: House or how much controversy there is in politics going
Speaker 1: on at the time. Jam's gonna say, I don't get
Speaker 1: the impression that you really thought about positioning for for
Speaker 1: this election too much at all. You seem to look
Speaker 1: for companies that have sort of a longer secular story, Uh,
Speaker 1: that is you know, I don't know if that was
Speaker 1: on purpose or it just so happens that the companies
Speaker 1: you're looking at are a little bit insulated from sort
Speaker 1: of the whims of the market. But walk us through
Speaker 1: how you do go about picking stocks, because I feel
Speaker 1: like this the small cap universe is so large that
Speaker 1: I'm always reus how managers like you start narrowing it down.
Speaker 1: I mean, does it start with some sort of stock
Speaker 1: screen for evaluation or growth metrics, or is it more
Speaker 1: sector specific targets. Walk us through sort of how you'll
Speaker 1: pick your next stop. What will be some of the
Speaker 1: criteria you're you're out on the look for. Yeah, sure,
Speaker 1: let me start with our process, Mike, so um, you know,
Speaker 1: it's pretty unique, but I think pretty intuitive. We really
Speaker 1: start with kind of looking at We've identified twenty six
Speaker 1: long term trends that we think are going to underlie
Speaker 1: the secular growth opportunities that we'd like to invest in.
Speaker 1: So these are things like corporate outsourcing, increasing demand for communications, bandwidth,
Speaker 1: e commerce, stuff like that. And generally these are long
Speaker 1: term trends, they don't tend to change much. We usually
Speaker 1: think about them being here for at least three to
Speaker 1: five years before they can kind of be considered a
Speaker 1: trend for us. UM. It really keeps us out of
Speaker 1: really deep cyclical companies and UM really we think it's
Speaker 1: going to give us a good positive tail when for
Speaker 1: the companies that we invest in, then we have a
Speaker 1: bottoms up effort where we go and we look to
Speaker 1: idea to find what we call premier companies UM. These
Speaker 1: are ones that have solid revenue growth. We like companies
Speaker 1: with high recurring revenues that don't have to resell their
Speaker 1: entire book of business every quarter to make their numbers.
Speaker 1: And we like proven management teams that we know we're
Speaker 1: gonna under promise and over deliver relative to the targets
Speaker 1: they set out for the street, companies with high margins
Speaker 1: UM and that are hopefully increasing scalable business models UH,
Speaker 1: and ones that really have kind of a sustainable competitive
Speaker 1: advantage versus their peers. So a lot of our ideas
Speaker 1: really kind of come out of what we shake out
Speaker 1: from those twenty six trends. You know, in addition to that,
Speaker 1: we have a lot of experience. We average about twenty
Speaker 1: nine years among the three of us that manage this product,
Speaker 1: and so you know, knowing those companies that since we've
Speaker 1: done this for a long time, we know the companies
Speaker 1: that are kind of stuck in small cap and are
Speaker 1: not likely to ever get out of small cap. We
Speaker 1: know those companies. And since we follow you know, particular industries,
Speaker 1: we know there's when there's a cyclical change in the
Speaker 1: space that we cover, or maybe some one that's gaining
Speaker 1: market share within that that we need to kind of
Speaker 1: take a look at a closer level. But that's really
Speaker 1: kind of how our ideas really shake out. In addition
Speaker 1: to you know, of course corporate management teams going on
Speaker 1: the road doing zoom calls, he says, instead of in
Speaker 1: office meetings. We look at the I p O market
Speaker 1: as well. So um, really our ideas came from a
Speaker 1: lot of different places. So before I get into some
Speaker 1: of those specific picks, Jamie, I want to talk about
Speaker 1: secular growth on a broad level. This week, the narrative
Speaker 1: has been all of a sudden that we might not
Speaker 1: get the blue wave that was expected. We've seen bond
Speaker 1: yields come down, and all of a sudden, secular growth
Speaker 1: has really come back and vogue across the markets. I mean,
Speaker 1: by Thursday, the NAZAC was up more than nine percent.
Speaker 1: It was pretty unbelievable. Is is there any way to
Speaker 1: actually explain this that, after the run that the NAZAC
Speaker 1: has already had, this here, all of a sudden the
Speaker 1: market gets an outcome that wasn't necessarily expected and you
Speaker 1: get a nine percent boost in less than a week. Yeah,
Speaker 1: not really no, But um I would say, as we've
Speaker 1: discussed a lot ourselves, I mean, the thing with the
Speaker 1: nastack goes up has become this sort of kind of
Speaker 1: funereal like I believe we were using the word buzzard
Speaker 1: like kind of symbol over the market at this point.
Speaker 1: It is not. I guess on one level, there is
Speaker 1: a cycle, there's a growth stock kind of optimism involved
Speaker 1: in that. But another just as uh watertight interpretation of
Speaker 1: what's going on there is that it's people expressing a
Speaker 1: kind of defensive pessimism about the economy and COVID. Why
Speaker 1: wouldn't you express such a thing right now? And you
Speaker 1: know you've got these basically bulletproof, as you have reported
Speaker 1: on before, almost in assailable intangible assets that do nothing
Speaker 1: but to throw off money, and you know you're safe,
Speaker 1: like like you would buy toothpaste stocks or whatever in
Speaker 1: the seventies. Now you buy basically all of the instruments
Speaker 1: that we're now talking over. I mean there's some Google,
Speaker 1: there's some uh Apple, there's probably some Facebook involved in
Speaker 1: what we're doing right now. You can't avoid any of
Speaker 1: this stuff. So people are buying that stuff like crazy
Speaker 1: just because they need similar to part money. And God knows,
Speaker 1: it's gone done nothing but gone up basically since forever,
Speaker 1: as far as the last five years are concerned. So
Speaker 1: I'm not sure that there's some kind of signal about
Speaker 1: the economy or good tidings or good time. There may
Speaker 1: very well be the opposite in that, and that, you know,
Speaker 1: I guess for lack of in the absence of better evidence,
Speaker 1: is what's happening again right now. People are just doing
Speaker 1: what they've learned to do in a Pavlovian way. I
Speaker 1: guess the fear comes in when you have such a
Speaker 1: concentration in such a few names. I mean, what is
Speaker 1: the top four weights in the SMP are inde right now. So, Jamie,
Speaker 1: I'm wondering from your perspective, when you're assembling of fund
Speaker 1: like yours, do you worry about sort of um, Obviously
Speaker 1: you're not going to have a concentration of individual names
Speaker 1: that high, I would assume, But do you worry about, say,
Speaker 1: a concentration in specific sectors. You know, I'm looking at
Speaker 1: the small cap fund a lot of biotech, healthcare, pretty
Speaker 1: heavy waiting there. Do you at least mentally or actually
Speaker 1: have written down somewhere any type of limit on on
Speaker 1: the waitings of sectors or is it just flow from
Speaker 1: your process and you don't you're kind of agnostic to
Speaker 1: to what sectors you're you're loaded into. Yeah, we do
Speaker 1: have some limits on industry waitings about they're so high
Speaker 1: that quite honestly, I don't think I would ever get
Speaker 1: close to kind of what stated saying our perspectives, but
Speaker 1: certainly we have to think about that. Um. You know,
Speaker 1: you mentioned biotech. It is a very very large part
Speaker 1: of the rest of the two thousand growth index. And
Speaker 1: quite honestly, these are companies that aren't aren't really kind
Speaker 1: of what we spend a lot of times doing. They're
Speaker 1: heavily reliant on the capital markets to fund their future growth.
Speaker 1: There's a lot of binary risk that comes with you know,
Speaker 1: clinical stage assets, whether they're able to hit endpoints and
Speaker 1: stocks her up a ton, and if you miss it's
Speaker 1: lick out below. So, um, you know, we we try
Speaker 1: to find areas. So in healthcare it's things like you know,
Speaker 1: diagnostics or you know, some tools companies that we can
Speaker 1: get exposure to healthcare with businesses that we can actually
Speaker 1: feel good about owning. Um. But certainly, yeah, we kind
Speaker 1: of keep an eye on what's in the benchmark. We
Speaker 1: don't run our portfolio relative to what's in the bench
Speaker 1: market really comes more from the bottoms up ideas that
Speaker 1: we're finding. But um, yeah, like you said, we we
Speaker 1: don't have a huge concentration within any particular name, and
Speaker 1: we don't like to have huge overweights or underweights, um,
Speaker 1: relative to each individual sector that we will make a
Speaker 1: little bit of sector bets here and there. I'm looking
Speaker 1: at your performance right now, so here to day, a
Speaker 1: ninety nine percentile one year, ninety percentile goes on three year,
Speaker 1: five year. I'm curious this year though obviously it's been
Speaker 1: a pretty dynamic year in the midst of a pandemic
Speaker 1: the election, even though you might not factor that into
Speaker 1: your process too much. I wonder if there's anything this
Speaker 1: year that's really changed your outlook and how do you
Speaker 1: change any holdings or boost holdings within the portfolio. Yeah,
Speaker 1: we did do a few things, um, you know around
Speaker 1: the pandemic obviously made it a little bit different from
Speaker 1: kind of a normal year year like you talked about overall,
Speaker 1: you know, our process doesn't change again like I spoke up,
Speaker 1: but certainly when you see a you know, pandemic, and
Speaker 1: it's definitely an effect. How uh it affects the consumers.
Speaker 1: So we had a lot of names that kind of
Speaker 1: had rallied in to say January names have done you
Speaker 1: know quite well that we kind of said, all right,
Speaker 1: consumer can be pretty weak here, so we cut back
Speaker 1: quite a bit on those consumer names. And then of
Speaker 1: course when um, you know, the pandemic hit, you really
Speaker 1: got to take a look and see, you know, what's
Speaker 1: the truth stickle cality of some of these businesses. You know,
Speaker 1: how recurring are their revenues, you know, is what's their
Speaker 1: opportunity to be like once things start to recover. Um,
Speaker 1: So we did make some changes on what you know,
Speaker 1: we sold in consumer, but a few things here that
Speaker 1: we thought would actually kind of be beneficiaries. Certainly that's
Speaker 1: our trends go. There's some trends that actually accelerated through this.
Speaker 1: You know, I mentioned kind of e commerce and increasing
Speaker 1: demand for communications bandwidth. Um, you know, we we like
Speaker 1: to take advantage of some of those areas that you know,
Speaker 1: we had some socks that still got whacked despite you know,
Speaker 1: the fundamental is actually probably improving. So we kind of
Speaker 1: adjusted our portfolio accordingly. And so you know, that's part
Speaker 1: of the reason basically why I turnovers up a little
Speaker 1: bit higher than kind of on the normal years. We
Speaker 1: did try to take advantage of of some of those opportunities.
Speaker 1: One thing I love about looking under the hood of
Speaker 1: small cap funds is a lot of names that aren't
Speaker 1: exactly household names. You know, you think about how the
Speaker 1: like I was saying, the markets dominated in the large
Speaker 1: cap area by such a small number of name small caps.
Speaker 1: It's always intriguing to me. Sorry, I feel like we
Speaker 1: should list the some sicker symbols uh in Jamie's funds
Speaker 1: and see if NJ can can identify the stocks. I
Speaker 1: like it. It's a game other than prices, right, and
Speaker 1: I'm not the target of it. Okay, yeah, okay, Chris,
Speaker 1: all right, I'll start with an easy one because this
Speaker 1: is what I actually recognized. Ticker symbol love Southwest. No, No,
Speaker 1: that's all you, Madel. This is l O V like
Speaker 1: the old Al Green song. H. I don't know, yeah
Speaker 1: I did, I would. I didn't know the symbol, but
Speaker 1: it's love sack, which is those bits bank chairs. Right.
Speaker 1: What do you like about love sack, Jamie? What got
Speaker 1: you into that that name? Yeah? So what initially got
Speaker 1: us into it is the stock and they had great
Speaker 1: products um and the stock actually kind of gotten beaten
Speaker 1: up because of China terrorists as they sourced all out
Speaker 1: of their goods out of China. But you know, we
Speaker 1: actually kind of took a test drive, went over to
Speaker 1: the store, like to the products, found them really compelling.
Speaker 1: A Like you said, they have basically a modern version
Speaker 1: of a bean bag, and they've been getting into sectionals
Speaker 1: which they call sactionals, and they have a lot of
Speaker 1: innovation around kind of new product there that we got
Speaker 1: excited about. And Stock was, you know, we thought very
Speaker 1: very much undervalued. One of the things that they did
Speaker 1: exceptionally well during the during the pandemic time was you know,
Speaker 1: they had about nineties showrooms that they had, Uh clearly
Speaker 1: a lot of those got closed, so they they furloughed
Speaker 1: some employees but actually got some and kind of got
Speaker 1: them online and readjusted their marketing campaign to more digital,
Speaker 1: and sales actually kind of took off from there. So
Speaker 1: you know, it's a product that can be delivered to
Speaker 1: the home through FedEx, and it's it's one that you
Speaker 1: know for a you know, kind of smaller cap uh
Speaker 1: team that manages it. They've done an acceptable job and
Speaker 1: kind of pivoting this period through the through the pandemic,
Speaker 1: and I've done quite well, Sarah. I've got one of
Speaker 1: them right in my basement here where I'm recording this
Speaker 1: podcast from. So there. Yeah, that's that's uh, that's why right, Well,
Speaker 1: here's here's what. I'm not gonna put an ad on
Speaker 1: the spot again, because, like I said, you're en evaluation
Speaker 1: time is coming up. I'll put you up. I'll put
Speaker 1: you on the spot, Sarah band I am cheating because
Speaker 1: I have J's portfolio lists up in front of me,
Speaker 1: So I'm gonna go ahead and say Bandwidth, this is
Speaker 1: a two and alp pcent waiting in his portfolio and
Speaker 1: basically software based communications for customers. Jamie, talk us through
Speaker 1: that one. What's uh, this seems to be kind of
Speaker 1: a theme in your picks series. Um, you know soft
Speaker 1: sort of next generation soft communication software. Is that is
Speaker 1: that fair? Yeah? That is extremely fair. Again, software, it's
Speaker 1: kind of tough right now because a lot of the
Speaker 1: high growth names have some really high valuations. But uh,
Speaker 1: this is one I think still on evaluation basis, you
Speaker 1: can make a really good case for So they actually
Speaker 1: have really good software expertise and they carry a lot
Speaker 1: of traffic for the next gen cutting unified communications companies.
Speaker 1: If you've ever heard of ring Central or eight by
Speaker 1: eight or Microsoft Skype for business, even companies like Zoom.
Speaker 1: If you dial into a Zoom call instead of going
Speaker 1: over the internet but actually dialing us your in your phone,
Speaker 1: you're on Zoom's network. So all of their customers are
Speaker 1: big share gainers. They've seen really nice accelerating growth. It's
Speaker 1: again really highly recurring revenue. They've actually been getting into larger,
Speaker 1: more strategic accounts, and they've actually been expanding internationally. They
Speaker 1: did it starting organically a couple of years ago, but
Speaker 1: recently made an acquisition of a coming called Voxbone out
Speaker 1: of Belgium. Uh, that's really going to accelerate their growth
Speaker 1: into Europe overall. That was highly creative as well. You know,
Speaker 1: the margins there. They've kind of been investing for the
Speaker 1: last couple of years in sales, but they're actually starting
Speaker 1: to show some good margin expansion. So and again, like
Speaker 1: imaged evaluation, it's just over kind of eight times next
Speaker 1: year's sales. If you look at the sas comp group,
Speaker 1: it's kind of probably twice that much. So it's one
Speaker 1: that I think, although it's done quite well, it's got
Speaker 1: a lot more to go from evaluation standpoint. Al Right,
Speaker 1: I feel like that that kind of thing is vastly
Speaker 1: more relevant, big surprise than who's in the White House.
Speaker 1: I mean, again, not that this stuff is in any
Speaker 1: way reliable as a specific timing tools. We are learning
Speaker 1: this week in a way. I mean, we had last week,
Speaker 1: we had this gigantic sell off that everyone putting us
Speaker 1: sort of wrote off to valuations and people are you know,
Speaker 1: COVID was alienating people from finally from the big fang structure.
Speaker 1: And now those stocks are up whatever you said, or
Speaker 1: we're ten percent ten percent in three days, So that
Speaker 1: that bit of valuation stem didn't quite work out this time, Jim.
Speaker 1: Yet you know that Chris brings up a great point
Speaker 1: about valuations I always wonder how a small cap manager
Speaker 1: approaches valuations. Obviously, if you're looking at forward estimates UM
Speaker 1: for small cap companies not necessarily always a robust analysts
Speaker 1: coverage for some of the smaller names, especially, do you
Speaker 1: just sort of do all that work yourself or the
Speaker 1: analysts on your team and you don't rely on the
Speaker 1: cell side for their estimates. How do you sort of approach, uh,
Speaker 1: figure out valuations on on some of the less covered names. Yeah,
Speaker 1: we'll usually take a look at able to go through
Speaker 1: a model and kind of decide where the upside could
Speaker 1: be relative to street estimates. Obviously, you want street estimates
Speaker 1: lower than where where you think they're gonna come in
Speaker 1: because certainly missing estimates can be pretty devastating for these
Speaker 1: small companies. UM. But yeah, you really got to dig
Speaker 1: into the model understand um the drivers of of the
Speaker 1: top line and margin expansion UM and really, again I
Speaker 1: think it goes back to the inn if since he
Speaker 1: has that class, you know, if you're able to go
Speaker 1: in there and really peel apart where you think a
Speaker 1: company could make UH, and if it's vastly higher than
Speaker 1: where the street is, that's where you can make really
Speaker 1: good money, So those consensus estimates sound like they even
Speaker 1: though they're a little thinner, and then maybe the number
Speaker 1: of estimates you get, they still matter a lot for
Speaker 1: the small caps. Uh. I guess you know, it makes
Speaker 1: me think, you know, the whole passive craze uh in
Speaker 1: buying index funds tracking the SMP is not as popular
Speaker 1: on the small cap level. Is that just a perennial
Speaker 1: opportunity for active managers in the small cap space that's
Speaker 1: less efficient, sort of less covered market. Yeah, I think
Speaker 1: it kind of is. You know, I'm still amazed when
Speaker 1: I talk to people who kind of either index or
Speaker 1: kind of smart data their small cap exposure, just because
Speaker 1: it is so inefficient, and you know, as more money
Speaker 1: kind of moves into those, I think it's actually making
Speaker 1: things a bit easier for active managers. Um. You know,
Speaker 1: you you kind of to be careful when you say
Speaker 1: things like that, but you know, we tend to see
Speaker 1: things that just they either get to valuations that are
Speaker 1: just too high because you know that, you know, people
Speaker 1: who have multi factor models that they're you know, just
Speaker 1: continuing to drive them higher higher, and you know you've
Speaker 1: got nothing but downside. I mean it really I think
Speaker 1: brings out a lot more opportunities and that's great for
Speaker 1: active managers and small gap So one lest question for you,
Speaker 1: Jamie before we get to our crazy things. Mike mentioned
Speaker 1: love Sack and Bandwidth, and your other top holdings are
Speaker 1: all in the healthcare space, in the Tera Lovengo health
Speaker 1: care d X. Can't that be a really tricky space
Speaker 1: and you have some really high flyers, you also have
Speaker 1: ones that don't do so well. So how do you
Speaker 1: go about actually sifting through the space and trying to
Speaker 1: find ones that you don't think are going to fall
Speaker 1: on the wrong side of the equation? Yeah, like I
Speaker 1: mentioned earlier, it's kind of tough that, you know, biotech,
Speaker 1: it's pretty large the index, and that's really an area
Speaker 1: that we kind of don't like, the binary risk and
Speaker 1: the reliance on the capital markets. So we've done a
Speaker 1: few things. We we get pretty active and say the
Speaker 1: tools space and even the healthcare diagnostic space, and that's
Speaker 1: kind of a one area that we actually like a
Speaker 1: lot right now is especially genomic diagnostics. Um, you know,
Speaker 1: if you think about it, we've sequenced the human genome
Speaker 1: about twenty years ago at a cost of hundreds of
Speaker 1: millions of dollars with now that same sequence costs underd
Speaker 1: a thousand dollars. And so we're able to incorporate that
Speaker 1: data into screening tools and diagnostic tools with a lot
Speaker 1: better accuracy, a lot less invasively, UM, and we can
Speaker 1: test for a lot new things of new things. So
Speaker 1: you know, oregon transplant rejection, identifying cancers or in genetic
Speaker 1: mutations or monitoring for cancer relapses. UM. There's a huge
Speaker 1: market that's opened up because of this, and so you know,
Speaker 1: we try to find companies that we think are gonna
Speaker 1: be able to take advantage of that, Like those names
Speaker 1: that you talked about, Nitaria, care to X, those are
Speaker 1: good examples, sir. I feel like I hear your puppy
Speaker 1: Marley in the background there, wondering if you can hear.
Speaker 1: I feel really bad. She's really upset right now. I
Speaker 1: think she's demanding some crazy things. He is demanding some
Speaker 1: crazy things. She's demanding me to come get her. She's
Speaker 1: demanding stand clear of the craziest things we saw in
Speaker 1: markets this week. Anyway, you know what, I'd never start
Speaker 1: with the crazy things. I'm gonna start with the crazy
Speaker 1: things just because mine is kind of obvious. And it's
Speaker 1: you know, we woke up Wednesday morning. We have no
Speaker 1: idea who the president is. We have no idea who's
Speaker 1: going to control the Senate. We do know this sort
Speaker 1: of nightmare scenario of Trump Trump not necessarily going quietly
Speaker 1: into the good night is unfolding before our eyes. And
Speaker 1: yet we see this the most incredible stock market rally, uh,
Speaker 1: we've seen in a while, especially post election today. You know,
Speaker 1: talk to my book a little bit here, but I
Speaker 1: had a story out suggesting that a a Biden win
Speaker 1: without a blue wave uh taken over Congress would not
Speaker 1: exactly be friendly to the market. And I will piggyback
Speaker 1: off of you because my crazy thing was also a
Speaker 1: bit obvious, just the fact, uh, Tuesday evening, as the
Speaker 1: results are coming in, and we knew that Sam had
Speaker 1: had changed the limit rules and they had announced this
Speaker 1: dynamic circuit breaker essentially if one of the index futures
Speaker 1: rise or falls three and a half percent within sixty minutes,
Speaker 1: And it happened, and we got a all of two
Speaker 1: minutes trading hall. You know, by the time by the
Speaker 1: time we got a story out, it was over pretty
Speaker 1: good stuff. Chris, you got anything crazier than that for
Speaker 1: the week. I mean I would just say Mike building
Speaker 1: on yours and building on seris to a degree big
Speaker 1: rally on Wednesday, But they equalated SMP was flat, which
Speaker 1: is amazing. The regular weight it was up two and
Speaker 1: a half percent or whatever, The natstack was up it's
Speaker 1: traditional eight thousand percent, and the and the equal equal
Speaker 1: weight was flat, meaning meaning that um, everything else in
Speaker 1: the index other than basically tech, basically the thangs didn't
Speaker 1: do anything. I mean a lot of it fell to
Speaker 1: bit JV. You must with you're holding, you must see
Speaker 1: that a lot these sort of massive reactions to some
Speaker 1: sort of press release that most of us cannot understand
Speaker 1: in in the biotech or healthcare industry, that that must
Speaker 1: be a pretty common occurrence for some of those stocks
Speaker 1: you hold. I guess actually it is, especially with biotech.
Speaker 1: I mean, you know, even on data you may think
Speaker 1: is kind of okay, if it's kind of just missed
Speaker 1: a little something, Uh that's sometimes I'll just go and
Speaker 1: punish it. I mean a lot of it is just
Speaker 1: based on kind of you know, what was sentiment going
Speaker 1: into it, and uh, you know, any disappointment. I mean,
Speaker 1: we have one stock today that Uh, you know, we
Speaker 1: like a lot um. I thought it was kinda a
Speaker 1: little bit more of a turnaround. Uh, and they came
Speaker 1: up with good numbers, raised guy stocks. I mean, it's
Speaker 1: about the last that class, and you just gotta be
Speaker 1: put your chin strap on and get going. How about you, Jamie?
Speaker 1: Have you did you see anything crazy this week? You
Speaker 1: know a lot of what you mentioned. I mean there
Speaker 1: was just a few things, you know, at last regards
Speaker 1: with your election, I was kind of really shocked that
Speaker 1: Republicans ended up picking It looks like it's gonna be
Speaker 1: about six seats in the in the House instead of
Speaker 1: losing five to fifteen, which that if that was a
Speaker 1: big surprise. That was pretty surprising. Yeah, alright, good stuff
Speaker 1: all around, Sarah. I I feel like I neglected the
Speaker 1: alternative asset class this week. Well luckily though we did
Speaker 1: get right in. Uh. People are getting creative on how
Speaker 1: they're reaching out. This one was a Twitter dm um
Speaker 1: from at Quintessential. So it's piggybacking on something that you
Speaker 1: highlighted recently, which is that very expensive asteroid. People love
Speaker 1: this asteroid. But he said, he said, Mike may have
Speaker 1: found this already. He gave you credit, and then he said,
Speaker 1: if not, definitely one of the crazier things I've seen.
Speaker 1: Wonder what type of modeling is used to determine asteroid value?
Speaker 1: And then he sent me a link about the ten
Speaker 1: thousand quadrillion dollar asteroid, which it's not just iron, it's iron, nickel,
Speaker 1: and plenty of other materials as well, where metals like gold, platinum, cobalt, iridium,
Speaker 1: and rhenium to Mike, so add that to the iron.
Speaker 1: Someone's got to figure out a way to wrangle that
Speaker 1: aster I think Elon Musk I think it's gonna bring
Speaker 1: that sucker home. I have no doubt. I think that's
Speaker 1: I've said before. I think that's what's embedded in the
Speaker 1: Tesla's valuation, is that Elon is going to go out there,
Speaker 1: He's gonna he's gonna latch onto that aster all right.
Speaker 1: Unfortunately that we're gonna have to leave it there. Jamie
Speaker 1: Player and Chris n G thanks so much for coming
Speaker 1: on the show this week. Thanks thanks for having me.
Speaker 1: What goes up? We'll be back next week. Until then,
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