Patrick Wolff shares his thoughts investing in 2024, battleground stocks, MicroCaps + $TACT thesis
Jan 12, 2024
auto_awesome
Patrick Wolff, former US Chess champion, discusses a wide range of topics including the right to buy stocks, domestic vs. international focus, indexing vs. single stock investing, battleground stocks, advantages of investing in MicroCap stocks, and shares his thesis on Transact Technologies $TACT.
Investing in MicroCap stocks can offer individual investors an information advantage and potential market outperformance.
Considering a larger allocation to developed markets outside the US, like Europe and Japan, could present a favorable asset allocation strategy.
Having a convicted edge and building an information advantage through deep research can elevate stock picking and potentially achieve better-than-average market returns.
Deep dives
The Importance of Intelligent Investing in Micro Caps
Micro cap stocks, typically defined as companies with a market capitalization below $500 million, offer an opportunity for individual investors to generate an information advantage. The micro cap space is often overlooked by institutional investors, leading to potential inefficiencies and undervalued opportunities. While micro caps come with higher risk and greater volatility, careful research and analysis can uncover high-quality businesses that have been overlooked by the market. It is important to focus on micro caps that are growing their intrinsic value over time, rather than those that are stagnant or a potential "melting ice cube". By identifying and investing in micro caps with growth potential, investors can potentially outperform the broader market.
The Valuation Advantage of Investing in Europe and Japan
European and Japanese stock markets have historically underperformed compared to the US market. However, various factors suggest that these markets have the potential to outperform in the coming years. Valuations in Europe, especially in countries like the UK, have been depressed, offering opportunities for investors. Additionally, Europe and Japan have experienced improved earnings per share growth in recent years, narrowing the gap with the US. Reversion to the mean and structural changes, such as financial sector reforms, could further boost the performance of these markets. As such, considering a larger allocation to developed markets outside the US could present a favorable asset allocation strategy.
The Significance of Generating a Convicted Edge in Stock Picking
When it comes to stock picking, having a convicted edge is crucial. For retail investors, the right to buy stocks goes beyond legal permission; it implies doing serious research and analysis to develop a strong investment thesis. Investing in index funds can provide average market returns, but for those willing to put in the effort, focused stock picking can offer potentially higher returns. Building an information advantage through deep research and identifying micro cap stocks or undervalued opportunities can give investors an edge. It is important to avoid battleground stocks, which can be more susceptible to volatility and uncertainty. By remaining disciplined and targeting companies with growing intrinsic value, investors can elevate their stock picking game and potentially achieve better-than-average market returns.
Investing in Stocks: Finding a Niche
One of the keys to successful investing is finding a niche where you can have an edge in terms of information, process, or access. This could be in stocks or other investment opportunities. By finding a niche, you can have a right to invest and potentially achieve sustainable long-term results.
Building a Portfolio: Tax and Time Efficiency
When building an investment portfolio, it is important to consider tax and time efficiency. This could involve allocating assets between tax-advantaged and non-tax-advantaged accounts. By doing so, you can optimize your tax position and time horizon. Additionally, having a portfolio with around 15 to 20 stocks strikes a balance between diversification and manageable time commitment.
Patrick Wolff, full-time private investor, joins to have a general discussion a wide range of topics: his background (former US Chess champion in 1992 and 1995), the right to buy stocks, domestic vs. international focus, indexing vs. single stock investing, battleground stocks, advantages investing in MicroCap stocks and closes with his thesis on Transact Technologies $TACT.
Chapters:
[0:00] Introduction + Episode sponsor: Fundamental Edge
[2:01] Patrick Wolff's background
[7:10] The right to buy stocks
[12:37] Domestic vs. International focus; European markets
[21:04] Indexing vs. single stock investing; tax efficiency; time efficiency
[32:56] Diversification and circle of competence
[37:53] Battleground stocks
[40:19] MicroCap stocks
[47:13] $TACT Transact Technologies thesis
Today's episode is sponsored by: Fundamental Edge
You’ve probably heard it’s an “apprenticeship” system, or that you’ll “learn by osmosis”? But what if there was a better way to learn the equity analyst job? Fundamental Edge is re-defining training on the buy-side. Website: https://www.fundamentedge.com/
Whether you’re already in the seat or looking to break in, the Analyst Academy from Fundamental Edge offers a thorough and flexible path to developing the tools and frameworks employed by leading hedge funds. Breaking in: https://www.fundamentedge.com/breaking-in