Cara Denver Jacobsen, Nierenberg, D3 Family Funds– 10 ...
Value Investor Conference: Omaha, Nebraska – May 4th, 2012Dustin Hunter, SunRift Capital Partners () (These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.)Cara Denver Jacobsen, Nierenberg, D3 Family Funds– 10 Years in Micro Cap LandCara is a portfolio manager at the fund.D3 FundsTypically hold 8-12 stocksTypically hold 6-7 yearsSeek growth – not cigar butts3 year lockupMicro caps are least efficient; they look for ‘insight information’Pay attention to macro as wellMicro CapLeast Efficient capitalizationHistoric small cap performance advantageLiquidity as an investment style (Roger Ibbotson)Ability to influence management and boardConcentratedCompetitive advantage (know each idea better)Diversification vs. Di-worsification (too many stocks dilute best ideas)High Conviction (must be able to ‘move the needle’)Ability to influence management and board (yes, intentionally here twice)General idea sourcesRead…Look at out of favor issuesLook at lots of issuesLook at multiple industry cyclesLook at lots of sourcesHome health care 08’-09’, Tech 02’, Gold mining 04’, Mortgage/Housing 08’-09’2012-13’ potential ideasNatural gas (more rational behavior), Solar, Western Europe, Tankers (scrap prices above ship values, order books low)Specific idea sources52 week lowsDaily price % declinersRead a lot…ScreensSpin outsBusted IPO’s300 Limited partners and CEO’s of former invested companies13-F’s of smart people (issues may not be down long)Build high convictionPattern recognition in similar situationsRelative values of similar situationsNormalized operating and value metricsLearn the specific industryDig for value creation opportunitiesLook at multiple cycles for specific companyDue diligence - in addition to typical itemsInterview major shareholdersFocus on the people running the business – in a long term investment, they are your partnersEx. Multiplus (MPLU3.SA) BrazilLoyalty Coalition Network – (TAM air frequent flier program)Spin out from the airline business – Network effect (barrier to entry) in established relationshipMarket share leaderUses ‘points’ which are like float in insurance and have an expirationSpun out 2-1/2 years ago & average ROE has been 37%Cash flow machineCompare to toll roadNegative working capital10 month floatMinimum fixed assets and little capexRisk is poor use of cashTAM merger could lead to additional businessReasons for depressed pricesSpin out IPO so parent is controlling shareholderComplicated accountingOnly 1 comparable (Aeroplan, Canada)Potential TAM conflict of interestQ&ADefine micro-capUp to $1.5B if not followedAverage under $400MHow concentrated in a single name?Up to 20% ................
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