‘It’s a huge structural advantage not to have a lot of money. I think I could make you 50 percent a year on $1 million. No, I know I could. I guarantee that.’
You almost have to be a multi-billionaire to spruik the advantages of not having a lot of money.
But Buffett, quoted above, isn’t talking about the advantages of flying economy class over first class. Or the benefits of scrubbing down your own home rather than hiring that chore out to a cleaning service.
No. Buffett is talking about the advantages small investors have over big institutional funds.
You’ll sometimes hear these big funds referred to as ‘the smart money’. That’s because they’ve got a lot of researchers digging up details on stocks that ‘ordinary’ investors won’t have access to.
But here’s the catch.
The big boys play with investments in the many millions on single transactions. Their total funds under management often reach into the many billions of dollars.
This effectively locks the big players out of the often highly lucrative small-cap sector of the market. After all, if you need to shift $20 million into a new stock, you can hardly buy into a company valued at $50 million without immediately moving the market.
Fortunately, as Buffett points out, you and I don’t have this problem.
Nor, it seems, does billionaire investor Alex Waislitz. Though clearly he’s investing more than just a few hundred dollars at a time.
Buffett, Waislitz, and Volkering…
His secret to success? Activist investing in small-cap and microcap companies.
From The Australian:
‘Billionaire investor Alex Waislitz keeps finding winners in some of the country’s smallest listed companies.
‘Waislitz has at least five stocks that have doubled in value over the past 12 months, ranging from one of the hottest companies on the ASX to small but fast growing technology and energy plays.
‘The best stock for the billionaire’s private investment group Thorney has quietly been one of the best small cap floats this year, Melbourne education technology company ReadCloud…
‘Waislitz also has long been a shareholder in another startling success, fintech company Afterpay — which has doubled in value in the last two months alone. Afterpay shares are up 143 per cent this year.’
You can see his top three picks in the graph below:
Source: Bloomberg / The Australian
[Click to open new window]
Of course, none of this is news to our own small-cap expert, Sam Volkering.
Sam runs five separate investment advisory services at Port Phillip Publishing. Three of them focus on technology stocks and cryptocurrencies. The other two are all about microcap and small-cap stocks.
Sam’s reasoning for that aligns closely with Warren Buffett and Alex Waislitz.
In fact, over at Australian Small-Cap Investigator, Sam recommended Touchcorp Ltd [ASX:TCH] to his readers back in June 2016. That was before the merger of Afterpay and Touchcorp in July 2017 formed the newly named Afterpay Touch Group Ltd [ASX:APT].
The Australian labels Afterpay’s share price performance a ‘startling success’. But there was nothing startling about it to Sam.
At the time of recommendation he wrote that ‘E-commerce and digital payments stock could help net a quick-fire 65% by year’s end’.
Readers who took Sam’s advice and held onto the stock — as he’s recommended doing — have done far better than 65%.
How much better?
As of Monday morning’s market open, the share price was up 455.1% since Sam tipped the stock.
The best small-cap stocks
Now before you rush out and buy shares in Afterpay, be aware that it’s currently trading well above Sam’s recommended buy-up-to price. That doesn’t mean the share price might not go higher. But it does mean if you choose to invest, be sure to do your own research.
While on a note of caution, obviously not every one of Sam’s small-cap picks matches the success of Afterpay. Small-cap stocks tend to be more volatile and risky. Some will go down in value. Never invest money you’re not prepared to lose.
Having said that, overall Sam’s track record at Australian Small-Cap Investigator has been stellar. Good enough, in fact, to earn an A+ in Port Phillip Publishing’s annual report card for 2017.
You can see the performance of Sam’s open positions in the service from February 2016 through to January 2018 below:
Source: Port Phillip Publishing Report Card
[Click to open new window]
Now as I mentioned above, Afterpay is no longer an active recommendation. Nor are a few of Sam’s other best performing stocks.
But if you’re hunting for big gains in the smaller end of the market, don’t worry. Sam has narrowed his focus down to three Aussie listed small-cap picks he believes could deliver returns of 1,000% — or more — within the next 18 months.
He details everything in his new report, ‘Three 10X Stocks to Buy Before They Break Out’.
For Money Morning
P.S: The article above is an edited extract from Tuesday’s edition of Port Phillip Insider.