{"id":62435,"date":"2014-10-24T02:27:33","date_gmt":"2014-10-24T06:27:33","guid":{"rendered":"http:\/\/countingpips.com\/?p=62435"},"modified":"2014-10-24T02:27:33","modified_gmt":"2014-10-24T06:27:33","slug":"why-patience-pays-off-with-small-caps","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2014\/10\/why-patience-pays-off-with-small-caps\/","title":{"rendered":"Why Patience Pays Off With Small-Caps"},"content":{"rendered":"
October 24, 2014<\/div>
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By MoneyMorning.com.au<\/u><\/a><\/p>\n

Australia has one of the world\u2019s most lopsided stock markets<\/a>.<\/p>\n

Eight stocks tie up almost half of its $1.5 trillion value.<\/p>\n

You know their names.<\/p>\n

You can\u2019t open a newspaper without being subjected to a story about one of the big four banks, two supermarket retailers, the big miner and the dominant telco.<\/p>\n

But just because stocks like National Australia Bank Ltd [ASX:NAB], Commonwealth Bank of Australia [ASX:CBA], Westpac Banking Corp [ASX:WBC], Australia and New Zealand Banking Group ltd [ASX:ANZ], Wesfarmers Ltd [ASX:WES], Woolworths Ltd [ASX:WOW], BHP Billiton Ltd [ASX:BHP] <\/strong>and Telstra Corporation Ltd [ASX:TLS] <\/strong>are big, doesn\u2019t mean these companies are a reliable source of capital growth.<\/p>

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In fact, the larger most companies grow, the harder it becomes for their share prices to keep rising.<\/p>\n

What\u2019s more, these eight stocks are pored over by so many analysts, investors and commentators, that it\u2019s nigh-on impossible for any punter to find an edge.<\/p>\n

But if you look to the other end of the market \u2014 away from the herd \u2014 exciting growth stocks abound<\/a>.<\/p>\n

That\u2019s why this week, your editor attended the Australian Microcap Investment Conference in Melbourne\u2019s CBD.<\/p>\n

The conference reminded me how much is going on beneath the surface of Australia\u2019s financial sector.<\/p>\n

You just have to look past the big four banks to gain exposure to some great trends.<\/p>\n

Two stocks in particular \u2014 one fancy, one simple \u2014 jumped out at us\u2026<\/p>\n

A fascinating alternative<\/h2>\n

We caught up with Mark Sowerby on Wednesday morning. Mark is the managing director of Blue Sky Alternative Investments Ltd [ASX:BLA]<\/strong>.<\/p>\n

We\u2019ve followed Blue Sky for some time now, and Mark presented to the throng of conference delegates on Tuesday. So we knew the company\u2019s story was intact. But it\u2019s always worth digging a little deeper into an interesting stock.<\/p>\n

You might be unfamiliar with Blue Sky. It\u2019s Australia\u2019s only listed diversified alternative asset manager. Blue Sky invests in real estate, private equity, real assets and hedge funds.<\/p>\n

35 floors above the Paris end of Melbourne\u2019s Collins Street seemed as good a place as any to learn about a fast-growing asset management firm.<\/p>\n

So, over a coffee with a knockout view of the Yarra River, Mark brought us up to speed.<\/p>\n

Blue Sky\u2019s business is fascinating \u2014 not that you\u2019ll hear much about it in the mainstream press.<\/p>\n

Because Blue Sky invests across four alternative asset classes, it can take you a while to get your head around the intrinsic value of the business.<\/p>\n

But having four arms cushions Blue Sky if any one segment\u2019s performance slows down.<\/p>\n

Mark is proud of the prosperity his company\u2019s expansion capital can bring to investee companies.<\/p>\n

One of these \u2014 Viking Rentals \u2014 is a great example.<\/p>\n

Viking is a fast-growing Brisbane-based portaloo hire company.<\/p>\n

When Blue Sky invested a couple of million dollars in early 2007, Viking operated just 150 toilets.<\/p>\n

That figure has since grown to more than 4,000.<\/p>\n

When the time comes to exit, Blue Sky should realise millions of dollars in profit on this investment.<\/p>\n

This stock provides a level of growth and exposure to alternative assets that you can\u2019t find anywhere else in the Aussie stock market<\/a> \u2014 particularly not among the big four banks.<\/p>\n

Of course, that growth and exposure come with risk.<\/p>\n

Just as there are no free lunches in life, you can\u2019t reap healthy rewards from the share market without accepting the risk that your stake will decline if things don\u2019t go right.<\/p>\n

Educating Aussies about the opportunities in alternative assets will take time.<\/p>\n

Mark and his team understand that.<\/p>\n

Investing<\/a> in small financial stocks takes patience…but the rewards can be ample.<\/p>\n

The strong Queenslander<\/h2>\n

Not all small financial stocks are as complex as Blue Sky.<\/p>\n

In fact, sometimes the simplest business models can be among the most compelling.<\/p>\n

That\u2019s what struck me when the managing director of Wide Bay Australia Ltd [ASX:WBB]<\/strong>, Martin Barrett, presented to us on Wednesday.<\/p>\n

Wide Bay is Australia\u2019s fourth-largest building society. It manages a $2.6 billion loan book from Bundaberg, Queensland.<\/p>\n

With a history stretching back half a century, Wide Bay enjoys a strong customer base and solid links to the capital markets. Funding is not an issue.<\/p>\n

New management has improved the company\u2019s relationship with home loan brokers. That has underpinned pleasing growth in loan approvals. Meanwhile, the business banking arm is winning big pieces of work from the major banks.<\/p>\n

A key obstacle to investing in Wide Bay \u2014 as is so often the case with small-caps<\/strong> \u2014 is the limited liquidity in the market for its shares.<\/p>\n

Placing an order to buy a small-cap stock<\/a> is not as easy as buying a blue-chip bank or supermarket. You can\u2019t just tick the \u2018at market price\u2019 box on your order screen and click \u2018buy\u2019.<\/p>\n

On certain days, it would be hard for you to buy a decent-sized parcel of Wide Bay for yourself without moving the stock price \u2014 let alone the volume that even a small institutional investor would consider buying.<\/p>\n

That means you have to be tactical when considering a purchase in stocks like these.<\/p>\n

You shouldn\u2019t let a lack of liquidity suck you into paying too much for a stock.<\/p>\n

In time, people tend to cotton on that a small-cap growth story is worth their investment.<\/p>\n

When that happens, long-term shareholders see bidders willing to pay a good price for their stock, and some become sellers.<\/p>\n

That\u2019s when a trickle of liquidity can turn to heavy flow.<\/p>\n

When you see that happening, you can take it as an opportunity to buy that great little growth stock that you\u2019ve had your eye on.<\/p>\n

Until that flow comes, small-cap companies do what they can to boost their profile and drum up liquidity.<\/p>\n

Presenting at events like this week\u2019s microcap conference is one of the most effective ways these companies can do that.<\/p>\n

And if you can buy into the right small-cap story just before the liquidity and interest in its shares picks up \u2014 you could bag returns far greater than what you find among large-caps.<\/p>\n

Cheers,<\/strong><\/p>\n

Tim Dohrmann
\nEditor, Money Morning<\/em><\/strong><\/p>\n

The post Why Patience Pays Off With Small-Caps<\/a> appeared first on Stock Market News, Finance and Investments | Money Morning Australia<\/a>.<\/p>\n

\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n


\nBy MoneyMorning.com.au<\/u><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au Australia has one of the world\u2019s most lopsided stock markets. Eight stocks tie up almost half of its $1.5 trillion value. You know their names. You can\u2019t open a newspaper without being subjected to a story about one of the big four banks, two supermarket retailers, the big miner and the dominant telco. […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-62435","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62435","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=62435"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/62435\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=62435"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=62435"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=62435"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}