Much has been made of the “Great Rotation” of late and the move away from highly concentrated large caps into small-cap equities, particularly in the US.
Greg Dean, founder of Langdon Equity Partners, is having none of it. When quizzed about whether the rotation was impacting how Dean and his team invest, the short answer was ‘no’.
Late last year, amid widespread commentary about 2024 being the ‘year for small caps’, Langdon wrote about the time and energy people spend talking about timing in small caps and called it a “big waste of time”. Dean feels a similar way about the rotation.
“The reality is if you wait for the perfect time, you've probably missed out on a lot of opportunity during that period when fewer people were interested”, says Dean.
Dean founded Langdon in 2021 on the concept of a “clean sheet of paper” – i.e. not being beholden to anyone but investors.
His philosophy is built on deep research and holding management to account, allowing him to ‘trust but verify’. He adds that speaking with management is a delicate balance that is often “executed poorly”.
“You think you have to be aggressive and definitive or you have to be a “yes” person and agree with everything that they're telling you, and neither of those is optimal”, says Dean.
In the following episode of The Rules of Investing, Dean delves deeper into small-cap investing, explains why he and his team take more than 300 individual company meetings each year, talks through the current portfolio tilt, and shares why the fund favours Europe over the US.
He also upacks two global small-cap stock ideas that highlight Langdon’s approach.
Note: This episode was recorded on 31 July 2024. You can watch the video or listen to the podcast below.
https://www.livewiremarkets.com/wires/why-trying-to-time-small-caps-is-a-big-waste-of-time-and-2-long-term-stock-ideas
Timecodes0:00 - Intro 1:36 - Investment background and founding Langdon 5:05 - Biggest influences over the journey and why small caps? 8:39 - Investment philosophy origin story 11:01 - When is enough, enough? 12:45 - The Great Rotation and current market conditions 15:31 - Company meetings how the best stand out 20:09 - Honing the craft 23:42 - Current portfolio: underweight US, overweight Europe 26:58 - Why cashflow is Landon's North Star 28:07 - Other non-negotiables 29:12 - Testing beliefs 30:40 - Navigating patience as a small-cap investor 32:57 - Small-cap stock ideas 37:52 - What are investors getting wrong about today's markets? 49:27 - Courage of conviction 41:29 - The five-year stock