Small Simple Stocks @SmallSimplStoks

Interesting to see that the right strategy in index investing (DCAing, buying the dip) might be the exact wrong strategy for stock picking. Buying the index dip usually works: worst case it might take a few years, but the index always goes to new highs (at least if you buy America). They are sudden and quick to recover. You don't agonize on your losses for years. That's the reality we lived in for a couple of decades. Buying a stock dip seldom works: first a stock has a much longer runway down the hill. In fact, per Mauboussin, the median stock drawdown is 85%. They are not sudden: they take 2.5 years to get there. Worse: on average, they never get back to previous highs. The median recovery is at 90% of the previous high, with another 2.5 years to get there. In theory it can generate attractive returns. If you're able to accumulate a stock on the way down, you don't care if it never goes back to previous high. When your average cost base is 40% of the previous high, if you sell it at 80%, that's still a x2 in just a few years. But here you have to believe that: 1. You will accumulate late enough on the drawdown cycle. Buy it too soon and your TSR breaks completely. Personally I have no clue why some stocks fall -30% and others fall -70%. Was Novo a sound buy at -30%? Possibly. Yet it fell again to -70%. 2. You won't get shaken out by the market whilst the stock goes sideway. The market will tell you everyday that you're wrong for investing in that stock. Look at Nike today. It's hard to find anyone bullish on it right now, even though base rates on a 75% drawdown clearly are in your favor. 3. The management itself won't get shaken out. You often can see reflexivity at work in drawdowns. A fine company can panic looking at the price ticker, and start doing dumb things: buying a large competitor to smooth out earnings, firing a perfectly fine CEO and replacing him with a "turnaround" specialist, or just capitulating and selling to PE at a discount. Those are 3 demanding assumptions. It can be done, but you need to have nerves of steel, and it needs to be a strategy on several positions, not just one. Contrast it to the index: here you just have to believe that the world will keep running as it has for the past 80 years. That's still an assumption, but an easier one to live by. So, to my fellow index investors that dabble in stock picking: beware of your "index" muscles. They are likely not the ones you need to succeed in that arena.

Well that's not something you see everyday: Basicnet invests 3m€ into an obscure vehicle (I.E. 15% of their pro forma profit), only to lose it all barely 2 months later. That does't look fishy at all

@Quality_stocksA Arguable, but might put Safran/GE Aerospace above Airbus. Jet engine manufacturing > aircraft assembly in terms of barriers to entry

@global_smallcap Thanks for raising this! Close to an EV/EBITDA of x5 now, bargain levels. What do you think of the organic growth? We're clearly below double digits, and mgmt "expect revenue growth to moderate in the coming quarters"

7/ A small, simple stock at a slightly demanding valuation. If we get in, the reasoning would be simple and honest: we trust the management will deliver the same way they delivered for the past 20 years.

6/ What you have to believe for this investment to work: - Operating margins can endure around 8-10% (Tier 1 IT contractors: 12-15%) – watch for wage inflation - AI won’t disrupt the company position - Founder’s eventual successor will apply the same strategy (CEO’s son recently promoted head of the CH BU) - EU IT budgets remain on the rise

All right, next up, Sword Group, $SWP.PA. Simple story, with a valuation twist. Key figures first: EU IT contractor, €280M market cap, founder-led, ~€360M€ sales, 9% op margin, 4 geos (BeLux, CH, UK, MEA), ~60% of sales generated from regulated entities (EU, government, international org), top 10 customers = 27% sales, sales/FTE ~100k, turnover 10%. What we like, keeping it simple.

This pains me. Perfectly fine company (Titan SA, cement producer), led by a family member for years. Then a CEO from a large peer takes his place, and this is what we get: the most generic strategy that could apply to any cement producer. What a way to show your experience!

@sidecarcap Agreed. It pays to keep it simple. The more "complex" you get, the more angles you open to be proven wrong.

In investing, it seems most of what you learn will still be of some value 50 years later. In many corporate jobs, it is the opposite: Marketing, Operations, Finance, even Sales. You spend 90% of your day on activities that will be redundant in 10-20 years.

@brentlsaunders @ESCRSofficial "I go to you because you give me a quote in 2 hours, not in 2 days like your competitors". Simple. Yet We'd been saying for years to the board that our main differentiation lay in value-added services. In practice 5 out of 100 customers mentioned them. Long road ahead...

I'm long $QRS.WA. Not an investment advice, do your own research.

What you have to believe for this investment to work: - Valuation can sustain a market drawdown (fwd EV/EBITDA ~x7 excl. perf fees) - AuMs are sticky - Passive investing market share gains will be incremental, not nominal - Current management fees (~1.1-1,2% of AuM) are sustainable - Buyback policy (100% of profit) will continue

All right, first pitch, here it goes Quercus TFI – $QRS.WA – a Polish asset manager, $170M market cap, ~$2.8B AuM, founder-led, net cash ~$25M. Owns 75% of Xelion, #1 non-bank distributor. P/E x9, +83% EPS growth in H1 26. What we like, keeping it simple. A 🧵