The Challenge of Running a Microcap Fund

The value investing in legends class is one of the highlights of the Heilbrunn year. It’s filled with special moments, including the annual visit from our guest today, Elizabeth Lilly.

Beth embodies the principles and practices of value investing like very few people do. She makes investing look easy and her lecture always captures the pure essence of value investing.

Elizabeth Lilly is Chief Investment Officer and Executive Vice President for The Pohlad Companies, LLC where she oversees the public and private investments for the Pohlad family. Beth began her career with Goldman Sachs in 1985 and shortly after moved to Greenwich, Connecticut to work as an analyst in Fund American Companies in 1988. In 1997, she co-founded Woodland Partners in Minneapolis which focused on investing in small capitalization equities.

In 2002, Woodland Partners was acquired by GAMCO Investors where she went on to serve as a Senior Vice President and Portfolio Manager of the $1.4 billion Teton Westwood Mighty Mites Fund and as a member of the value portfolio management team. In 2017, Beth founded Crocus Hill Partners to focus on investments in small and micro capitalization equities but a year later she left to join the investment arm of the Pohlad family in an opportunity that was impossible to pass on. Beth is a graduate of Hobart/William Smith College and a dear friend of the Heilbrunn Center. 

On this episode, Elizabeth and I discuss how her passion for investing was ignited from in childhood, the many value investing legends she has had the opportunity to learn from during her career, how she founded her firm before ultimately landing her dream job at Pohland Companies, her approaches to idea sourcing and risk management, and so much more!

Key Topics:

• How Beth’s mother and grandparents shaped her passion for investing (3:29)
• Why Beth attributes her research job at Goldman to pure luck (5:21)
• Leaving Goldman Sachs (7:58)
• The legendary Bob Rose (9:40)
• The first turning point in Beth’s career (11:16)
• Beth’s phenomenal experience at Fund American (12:54)
• Talking investing with Warren Buffett (14:22)
• The fundamentals of investing (16:12)
• Why Beth has a notebook on her at all times (17:38)
• The key elements of a good value investing firm (19:03)
• Beth’s focus on small-cap stocks (20:29)
• Beth’s introduction to Mario Gabelli (21:06)
• How a value trap is created (22:44)
• Why the management team is the best protection from a value trap (23:21)
• Getting comfortable with the artistic side of investing (25:33)
• Preparing to ask insightful questions (27:23)
• Talking to management as a shareholder (29:37)
• The benefit of constructive activism (31:51)
• Crocs as a case study of a compounder (33:19)
• Beth’s approach to valuation (35:06)
• Sourcing ideas with curiosity (36:28)
• Building up a valuable database (38:04)
• The seamless transition after being acquired by GAMCO (39:10)
• How Beth’s career at GAMCO increased her interest in the microcap space (40:35)
• Beth’s experience managing the Teton Westwood Mighty Mites Fund (42:01)
• Founding Crocus Hill partners in 2017 (44:47)
• Beth’s connection to the Pohlad family (45:56)
• Taking the dream job at Pohlad (47:29)
• The similarities between investing in public and private markets (49:25)
• Why Beth is eager to pass on the training she received (52:22)
• How the pandemic has shifted Beth’s thinking on businesses (53:54)
• Applying value investing principles to non-traditional value companies (56:27)
• And much more!

Mentioned in this Episode:

• Pohlad Investment Management, LLC
• Benjamin Graham’s Book | The Intelligent Investor
• Howard Marks’ Memo | Something of Value

Thanks for Listening!

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