VANCOUVER 2023 Investor Keynotes with Paul Andreola / Dave Barr / Harold Leishman / Ryan Irvine / Hamed Shahbazi / Brent Todd
Sep 21, 2023
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Investor keynotes from the VANCOUVER 2023 event: Paul Andreola shares his microcap investing strategies, Dave Barr discusses finding successful microcap companies, Harold Leishman talks about investing in microcap stocks, Hamed Shahbazi highlights the growth of Well Health Technologies, Brent Todd explores opportunities for investing in microcap companies, and Ryan Irvine discusses analyzing micro cap valuations and risks in the market.
Liquidity volatility plays a crucial role in market dynamics and can impact investment outcomes.
Capturing upside volatility while minimizing downside volatility is essential for maximizing returns and managing risk effectively.
Monitoring liquidity levels can provide insights into the overall health and potential direction of the market.
Understanding the relationship between liquidity and market peaks can help inform investment decisions and risk management strategies.
Microcap stocks present attractive investment opportunities due to current undervaluation, favorable market conditions, and potential catalysts for growth.
Deep dives
The Importance of Liquidity Volatility in Venture Capital Markets
Liquidity volatility refers to the rate at which liquidity changes in a market. In times of declining liquidity, it becomes harder to buy or sell assets without affecting prices. Conversely, growing liquidity indicates that more investors are entering the market, making transactions easier to execute. Generally, market peaks coincide with peaks in liquidity. For example, during the 2008 financial crisis, liquidity decreased by 66% while the S&P 500 experienced a 48% decline. However, after reaching a bottom in 2012, liquidity increased by 430% over a nine-year period, coinciding with one of the greatest bull markets in history. This highlights the importance of macro factors in investing and emphasizes the impact of liquidity volatility on market dynamics.
Maximizing Returns by Capturing Upside Volatility and Minimizing Downside Volatility
To maximize returns and mitigate risks, it is vital to capture upside volatility while minimizing downside volatility. By capturing 100% of the upside and only 50% of the downside, investors can shorten the recovery period after a downturn and avoid making emotional decisions at the bottom of the market. This approach has been successful in wealth management, where a 15% annualized return with favorable risk management has been achieved. Similar principles can apply to venture capital investing, where avoiding downside volatility can enhance long-term returns and overall portfolio performance.
The Relationship between Liquidity and Market Peaks
Market peaks often coincide with peaks in liquidity, as observed in the S&P 500 monthly dollar turnover. During the 2008 financial crisis, liquidity declined by 66% while prices dropped by 48%. However, as the market recovered, liquidity increased by 430% over nine years, leading to one of the strongest bull runs in history. This demonstrates the interplay between liquidity and market dynamics, suggesting that monitoring liquidity levels can provide insights into the overall health and potential direction of the market.
The Impact of Macroeconomic Factors on Venture Capital Investing
Macro factors, such as liquidity volatility, have significant implications for venture capital investing. Understanding the relationship between liquidity and market peaks can help investors make informed decisions and manage risk effectively. By identifying periods of declining liquidity and potential market downturns, investors can adjust their strategies and capitalize on opportunities. Considering macroeconomic factors alongside fundamental analysis can enhance investment outcomes and position investors to navigate market cycles successfully.
The Case for Investing in Microcaps
Microcaps present a unique investment opportunity, especially given the current market conditions. The two-and-a-half-year bear market has created undervalued microcap stocks, with many companies trading at significant discounts to their book value. Additionally, the Canadian dollar's low value and the strong North American economy provide favorable conditions for microcap businesses. The trend of re-onshoring and the potential for infrastructure spending further contribute to the growth potential of microcap stocks. This is the third-best buying opportunity, presenting the potential for substantial returns as microcap companies continue to expand their profitability.
Investment Tips for Microcaps
When considering microcap investments, focus on companies that demonstrate an ever-increasing stream of profits. Rather than being lured by 'better mouse traps,' assess the company's ability to sell their product profitably. Pay attention to the company's journey in finding their customer base and sustainable profitability. Look for microcap companies with a low number of shares outstanding, as this can contribute to potential upside. Consider where the company is going rather than focusing solely on historical performance. Look for catalysts that can drive profitability and sustainable growth.
Case Study: ADF Group
The ADF Group, a Montreal-based company specializing in engineering and manufacturing steel for construction, serves as a case study. The company went from a loss of a nickel in 2020 to achieving profitability in subsequent years. They made strategic investments in automation and expanded their market, resulting in increased profitability and margin expansion. In a market where many large caps are overvalued, microcap stocks like ADF Group can present more reasonable valuations and potential for substantial returns.
Conclusion
The current market offers an opportune time to invest in microcap stocks, given their undervalued nature and potential for growth. The prolonged bear market, favorable economic conditions, and potential catalysts make microcaps an attractive investment option. When investing in microcaps, focus on companies with a clear path to profitability and consider where they are on their growth trajectory. By being mindful of these factors and paying attention to the broader market environment, investors can capitalize on the potential returns offered by microcap stocks.
Shiller PE highlights market valuation
The podcast discusses the Shiller PE ratio as an indicator of market valuation. The ratio shows that current valuations are still high at 31.3, being 47% above the 20-year average. It is noted that while the market is not historically cheap, it is better than the peak valuations seen in November 2021. The speaker emphasizes the need for caution and highlights the existence of risk in the market.
Focus on small-cap stocks and portfolio concentration
The podcast highlights the potential value in the small-cap area and suggests being careful with debt-heavy and cyclical businesses. The speaker recommends focusing on cash-rich businesses with strong balance sheets and the ability to weather downturns. Portfolio concentration is encouraged, with 15 to 25 stocks being the sweet spot. Examples of small-cap stocks with growth potential are given, such as Dynacore, Polaris Renewables, Inmode, and Greenbrook TMS.
For this episode, I compiled all the investor keynotes into one extra long audio episode for you to consume (each individual keynote is on the Planet MicroCap YouTube Channel). Quick note on audio, this was all recorded live at the event with live Q&A, so please excuse any time lapses in between questions during the Q&A portion and keep in mind for quality purposes. Each speaker provided incredible insights, and the order for each segment goes:
1. Paul Andreola (SmallCap Discoveries): https://www.youtube.com/watch?v=q-K1i4hTwVY
2. Dave Barr (PenderFund): https://www.youtube.com/watch?v=8oVfaLurCVI
3. Harold Leishman (Canaccord Genuity): https://www.youtube.com/watch?v=apkFD3gDwYk
4. Fireside Q&A with Hamed Shahbazi (WELL Health Technologies): https://www.youtube.com/watch?v=cZ6ZESXEySohttps://www.youtube.com/watch?v=cZ6ZESXEySo
6. Ryan Irvine (Keystone Financial): https://www.youtube.com/watch?v=Z_JjbZTJ6kI
Links to each individual keynote is next to the speaker.
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