10th Birthday: 10 years of Small Cap Investing

Richard Hemming

Under the radar report 10 years

Give Small Caps a go!  We did and 10 years of Under the Radar Report have been a fun and profitable ride.

12 years ago I phoned up The Idle Speculator, now our portfolio manager, from London and told him about an idea I had for attacking the under researched, unloved market for Australian Small Caps.

I could see some of the big money being made on the London Stock Exchange, but having covered this space in Australia for some years prior to the global financial crisis, I could see that the ASX actually had much more potential.

For one thing, there is its weighting towards mining and mining services. Another factor is technology, where Australia has been a world leader in many fields because of its small population and strong education. Think medical, payments and IT to name a few.

There are so many stocks listed on the ASX that I just knew we would have a good time.

As it happened, TIS didn’t need convincing and was on the same wavelength. The big deal was convincing Caroline. This happened gradually.

ASX 10 year chart

We all fell in love with little Aussie companies with big futures

Over time, we all fell in love with the companies and the stories we were covering and their money making future.

We met the underground mining contractor, come Northern Star Resources (NST) founder, Bill Beament, who convinced us the Pauslens mine near Kalgoorlie was the ticket to riches. We met another ambitious mining executive, Jake Klein, who had a banking background but seemed to have the Midas touch when it came to buying and selling gold mines.

I knew the Tudehope brothers from the past and was already impressed with their vision for Macquarie Telecoms (MAQ). But we saw them under a great deal of pressure as their plans for a service orientated data centre business required more funds than many in the market were prepared to give them. They did it without raising much equity capital. That is the power of the founder owner/operator.

I spoke to Afterpay’s Nicholas Molnar, who seemed very confident for someone so young. He articulated his plans to build on the global payments landscape in a way I had never heard from any financial services executive. The execution of Afterpay in delivering on those plans will go down in history.

I spoke to the team at Alliance Aviation (AQZ). They seemed ambitious but relatively grounded for high flyers (you’ll have to forgive me on that one). They new what they were doing with those Austrian Fokkers!

The guys at Austal (ASB) I was genuinely in awe of. To go from nothing to producing a ship that gets the attention of the US Navy, to producing a fleet of them is a tribute to Australia’s engineering skills.

I laughed when US born Richard Graham, founder and then CEO of Infomedia (IFM) compared his company’s exploits to Johannes Gutenberg’s invention of the printing press. I didn’t buy that, but was impressed with his chutzpa and I bought the stock and haven’t looked back.

There have been plenty that I’ve been impressed with that haven’t been as successful as I thought they should have been. But they gave it a go, which is what ASX Small Caps is all about.

I used to carry this quote from Theodore Roosevelt around with me at school and I now remember the start of it by heart (up to the dust bit):

“It is not the critic who counts; not the man who points out how the strong man stumbles, or where the doer of deeds could have done them better. The credit belongs to the man who is actually in the arena, whose face is marred by dust and sweat and blood; who strives valiantly; who errs, who comes short again and again, because there is no effort without error and shortcoming; but who does actually strive to do the deeds; who knows great enthusiasms, the great devotions; who spends himself in a worthy cause; who at the best knows in the end the triumph of high achievement, and who at the worst, if he fails, at least fails while daring greatly, so that his place shall never be with those cold and timid souls who neither know victory nor defeat.”

How have the companies we picked performed?

We started Under the Radar Report 10 years ago with Issue 1 on 22 September 2011.

Our first Small Cap Report

We knew a lot about share market investing and we were driven to bring quality, independent research on growth ASX Small Caps to Australian Investors. There was no independent analysis and stock picking on true growth stocks.

On the front cover we ran with “Volatility, Volatility, Volatility" Markets have rarely looked scarier, gyrating up and down as pieces of economic data collide with one another. What to do when this happens?”

It could be the headline we run with today, so not much really has changed but then a lot has.

But Small Caps still hold the answer to ASX investors generating wealth.

Under the Radar Report continues to be your secret weapon.

In the last 10 years:

  • 91% average return

  • 121% average return on our Best Buys is 121%

  • 270  individual small cap stocks that we have picked, analysed and recommended.

  • 1 in 5 of the companies we picked have been taken over

  • Our Small Cap Portfolio exemplifies how you can reduce your risk, be conservative by holding generous amounts of cash and still outperform the S&P/ASX All Ordinaries Index by a wide margin.

7 of our top stocks are 10 baggers

Going through 10 of the biggest winners Under the Radar Report has generated in the past 10 years highlights how often initially those stocks didn’t perform. But over time, our initial thesis played out and in 7 out of 10 occasions that delivered a 10 bagger for the subscribers who took our advice.

In 2017 for example, we didn’t know Afterpay or Zip Money as it was then known would be as big as they turned out to be. What we did know was that shadow banking was getting bigger because the major banks were stepping back from higher risk lending to focus on the gold mine that is mortgages for them. In the end they got disrupted.

Similarly we saw the battery revolution taking off and a great deal of hype in lithium. We still hopped on board when it emerged that lithium supply was outweighing initial demand due to a reduction in China’s subsidies to its battery manufacturers. Many fund managers backed off after this, but we maintained the faith and bided our time. Then last year when sentiment was at a low ebb we refocused on the sector, which much success.

The power of Small Caps and the power of the Retail investor

Our key insight 10 years ago, was our belief in the power of Small Caps and the power of the retail investor. We also knew that picking future themes is a key to success.

Disruption is a key to investing in Small Caps, which involves investing in the future.

It also takes a leap of faith and it takes patience. These are the two qualities that retail investors have, but institutions like fund managers struggle with. Yes, like us they are thinking 2 steps ahead. But unlike us, they can’t tolerance any risk. They have to report every three months to their unitholders!

10 years ago we understood how much FUN it is to invest.
This hasn’t changed. It never will.

These days all investors have unparalleled access to company information. All investors have access to cheap trading.

And through Under the Radar Report, our subscribers have access to independent, carefully consdiered research on growth Small Cap stocks that otherwise are rarely in the news, until later they are!

Stock picking is the key to long term success. That’s why Under the Radar Report’s subscribers keep renewing their subscriptions!

It's our 10th Birthday and we've got a present for you.

Save 10% now and get investing!

About the Author

Richard Hemming

Richard Hemming (r.hemming@undertheradarreport.com.au) is an independent analyst who edits www.undertheradarreport.com.au, which provides investment opportunities in Small Caps that you won’t get anywhere else.

Under the Radar Report is licensed to give general financial advice only (AFSL: 409518). The author does not own shares in any of the stocks mentioned.

Under the Radar Report is licensed to give general financial advice only (ASFL: 409518). The author does not own shares in any of the stocks mentioned.

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