FOCUS 2026: Uncovering potential with micro-caps – Salim Hart
Salim Hart highlights promising areas of the micro-cap universe and the attributes he looks for in compelling businesses.
Transcript
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Subtitles are AI Generated
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That was a rousing applause. That was nice.
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Appreciate that.
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Salim, good to be up here with you. A number of you have
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seen Salim speak before since
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Global Micro-Cap was launched but what you might not know
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is that he grew up between here and Chattanooga,
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Tennessee.
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What was the town?
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I did. I apologise for my raspy voice a little
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bit. I've been having a little too much fun in Nashville.
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Last night I talked a lot at dinner and we
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did Honky Tonk over on Broadway.
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You actually joined us for part of that.
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Then I've sampling a lot of George Dickel whiskey
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since I've being here.
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Shannon might need to put me on the first day for the next
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conference.
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I actually grew up in Tullahoma where George Dickel is
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based and I hadn't been back in 20 years so I flew in early
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on Sunday. I rented a car, drove by my old house
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and my elementary school, did a
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George Dickel tour because I was under 21 when I lived
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there.
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It's a little sad it's been bought by Diageo because it
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used to be this little micro-cap
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kind of distillery out in rural Tennessee.
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Jack Daniels was a little bit of the same way.
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It's been bought by Brown and Forman.
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Micro-caps that are good, they get bought, Glen.
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Well, we're going to talk about that.
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Funny, because I asked him that ...
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he was going on about this bourbon yesterday and I said is
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it a micro-cap stock?
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He said, no, it was bought by Diageo. I kind of felt like a
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fundamental analyst for a couple of minutes there.
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I won't send my resumé in, don't don't worry about that.
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It brings us to the point
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of this is about global micro-caps which sounds scary
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on first blush. What's fascinating
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to me is that the companies that are in the space that you
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analyze have products represented all around,
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and we're going to explore that today.
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It's pretty exciting.
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Yesterday we talked a lot about fundamental analysis, we
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talked about quantitative analysis.
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Fidelity, of course, having the fundamental, quantitative
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and technical.
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You represent a portfolio manager who looks at insights
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from fundamental and quantitative so it's a great – I'm
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glad that you're speaking today after we heard about so
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many of the resources yesterday.
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Why don't we start with you
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defining micro-cap because I'm sure it does make
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some people feel a little bit nervous.
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Just from a cap perspective, I
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tend to have a pretty broad range as I define micro-caps.
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If you look at the middle of the fund, the weighted median
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market cap, it's about a billion USD so about half the
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portfolio is smaller than that.
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I've owned a company as small as 18 million.
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Right now the biggest stock is about 9 or 9 billion, not
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because I bought it at that price but it's appreciated
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significantly so I don't have to sell it.
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I'd say the billion figure is a good middle number
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for the fund for people to go on.
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I tend to initiate positions in the bottom half of the MSCI
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World small-cap all the way down into the smallest of
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micro-caps.
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On the risk question, if there's one takeaway I would like
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people to home with is that micro-caps can
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be risky but they do not have to be risky.
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I'm trying to invest in them in a way
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that invests in high quality micro-caps.
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The dividend yield on the fund is
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actually 3.4% which many people are surprised
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at. It's doubled out of the S&P 500.
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I tend to invest in cheap micro-caps,
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high quality, low leverage, not speculative,
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a very consistent track record of profitability.
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I think if people know a neighbour or friend or
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even a client that has a small business they probably
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run it pretty conservatively.
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They don't lever up. They might have good years and bad
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years but they're probably
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making a lot of money and doing it pretty consistently over
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time. That's how I think about micro-cap investing.
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These are companies that are specialty companies and
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they're a little niche. They're not trying to be global
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necessarily or all over the world in many cases
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or try to do everything. They do a really good job at what
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they do and many actually have good management teams.
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That's kind of the first part of micro-cap
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investing.
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When we were out on the West coast, Glen, you had talked
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about the old Vancouver stock exchange which I hadn't
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heard of. The reason people think of micro-caps
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as risky is many of them are.
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The companies that listed there I think were often very
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speculative. Maybe they listed in Canada and were based in
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the Caymans and had mining operations in Chile and
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didn't have any revenues but if their gold deposits
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proved that they could get them out of the ground it would
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be a 10X.
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The problem is most of those companies go to zero and
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that's not the type of companies I invest in.
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The other key to micro-caps is diversification.
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Individually one micro-cap company can
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be very volatile.
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They're niche companies.
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I would not put a significant part of client's money in one
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micro-cap stock.
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But if you diversify over several hundred micro
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caps you kind of take out all that stock specific
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risk and are left with, if you buy good companies, a pretty
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high quality portfolio. So the MSCI World Micro-Cap Index,
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my benchmark, actually has a lower volatility than
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that of the MSC World mid and large-caps.
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Lower volatility profile, doesn't
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have to involve undue risk.
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You've just made everybody feel a lot better o that's good.
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I hope so. We have our three-year number in May
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coming up.
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I think we're rated medium right now.
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I don't really understand the Canadian risk system but they
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tell me if the vol's low enough maybe it can go down to a
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low risk rating which I think would be kind of cool.
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I don't know what it means but it sounds cool.
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Perhaps your wish will come true.
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Your performance, because as you suggested
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you'll be three years next May, I think when you launched
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we were in Beverly Hills
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when you launched at a due diligence
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What do you attribute the success to?
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I think it's really just about finding little niche
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companies that are off people's radar and that they're
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ignoring, whether they're too boring or they're not
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covered by brokers or they're just too illiquid for people
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to bother with.
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You've heard the old adage turning over every stone.
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I'm out in the woods far, far away turning over stones and
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companies that nobody else is looking at.
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I think that provides the key advantage.
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I think being able to
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go globally, invest in these kind of niche good
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companies and identify them is a big help in
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terms of generating alpha in areas other people aren't
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looking to. It's kind of easy to generate
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good returns in an up-market when everything is going up.
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I do encourage people not only to understand the
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profile and the risk of it but look at the actual return.
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I think seeing a Sharpe ratio of the fund is really
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helpful, that it actually has protected quite a bit on
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the downside.
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While the NASDAQ 100 might have been up
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20 or 30% some quarters or down 10% some
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quarters since launch.
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I think that kind of speaks to its overall
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ability to be an uncorrelated asset.
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It is actually very diversifying
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to areas that people are often very crowded in,
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large-cap, growth, US.
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The correlation to the NASDAQ, I think, is kind of low
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double-digits, like teens.
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It's a very good alpha producing strategy
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without undue risk and also uncorrelated to
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many of the other areas people are invested in.
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You talked about global diversity, that's in the name with
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Global Micro-Cap. Where are you finding opportunities
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today?
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I brought a slide with me.
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If I have to press the button we'll do that.
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It shows the geographic diversification.
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Not that one, the next one, please.
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I think this is a takeaway that people really should focus
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on. The really big
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bar you see that stands out there is the MSCI World
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Small-Cap Index. It's over 60% US.
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If you look at MSCI World, so
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global large-caps, it's over 70% US.
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The micro-cap benchmark, which is in green, is
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only about 30% US and my fund is
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about 20% US.
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I'm underweight the US by about a thousand basis points
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right now, one of the largest it's been,
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but also the key takeaway is that this is true global
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diversification. It's not just a global fund that has
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almost everything in the
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US.
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Kind of going from left to right Japan is the biggest
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weight in the fund.
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It was actually about a third of the fund about a year ago.
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It's come in a little bit but I still continue to like
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Japan quite a bit.
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It's the cheapest stocks in the developed world, still some
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of the easiest monetary policy in the developed world.
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Companies, some of which have half their market cap in cash
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on the balance sheet.
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The problem historically with Japan has been corporate
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governance and the management teams not really caring about
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shareholder returns. That is starting to change slowly
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but surely in Japan.
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They created a high ROE index.
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The government's gotten behind companies being more
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shareholder-friendly and you're actually seeing a lot more
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takeovers, private equity offers, activists in Japan.
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I think going from really terrible
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to okay corporate governance can really unlock
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a lot of value in Japan. That's an area I'm excited about.
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Then Europe, it looks like I'm about equal
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to Europe but this is the first time I've been neutral to
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overweight. If you take Europe and the UK together that's
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another roughly, I guess, quarter of the fund or so.
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That's kind of where I'm finding the most opportunities
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today.
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Japan is a great place to invest but it's
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had a good run. Europe, actually, year-over-year is about
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flat whereas most major geographies are up
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double-digits.
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Stocks have gotten cheaper and I think the issues are
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that they are affected by higher energy prices.
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They tend to kind of have more industrial economies.
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While the
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US, and then Asia recently, has been caught up in
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some of the AI tech trades, especially Asia with
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the hardware stocks, Europe just doesn't have as many
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kind of tech AI-related companies.
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A rising tide lifts all boats and Europe's been left behind
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a little bit. I'm finding a lot of opportunities there from
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a value perspective, from a contrarian perspective
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which is kind of something I like to do, basically
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buy fear or apathy and sell greed.
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When you do your filtration process on
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the 7,000 stocks or so that you're monitoring
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are you looking at it ... are you biassing geographically
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because you've talked very glowingly about a few of these
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markets, or are you
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selecting certain companies that tend to aggregate in
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those economies?
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It's all a bottoms-up process.
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I'm picking stocks and then when we come on stage and meet
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I have to say why is my Europe weight increasing
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so much?
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That's when I try to figure out why.
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It's not me going and saying, oh, suddenly Europe looks
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attractive. It's actually because I've been happening to
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find a lot more opportunities there and then I figure out a
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way to explain it. It's a bottoms-up stock picking process.
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Thank you for clarifying.
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Earlier in the year you talked about buying AI disruptors.
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Let's explore your thoughts on AI right now.
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That's the next slide I have that they put up and took down
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so they want to go back to that.
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This is actually fascinating.
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I've never shown the slide before because it's
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kind of a new thing. If you remember back in
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February, March, end of the first quarter there was a huge
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AI disruption sell-off in the market.
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This slide isn't just generically showing that.
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The green line is my benchmark, the MSCI World
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Micro-Cap, the blue line is actually a basket of 20 stocks
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that I bought in Global Micro-Cap at the end of the first
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quarter. This wasn't just software stocks
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which got sold off a lot, many of which were software
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stocks, it was also trucking logistics,
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insurance brokers, real estate brokers, really anything
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that dealt with data and logistics that suddenly the
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market said AI was gonna replace all these businesses,
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which I and my analysts
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that work with me all thought this is kind of strange
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because ultimately many of these companies
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are actually the ones who could benefit the most.
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Yes, it might disrupt them, some of them, but actually
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a trucking logistics company that has all the data actually
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could use AI a lot more effectively than a generic
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company that's kind of starting up and trying to use AI.
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We actually felt like the risks were at worst neutral
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and maybe actually beneficial to this
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kind of basket of stocks that was being sold off.
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what you actually saw is the market ...
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maybe it was the situational awareness hedge fund that blew
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up, maybe it with shorting baskets and baskets of
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these and ultimately had to cover, but
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kind of through, I guess this is the end of August, this
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basket of AI losers has rebounded
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and is kind of a market performer year-to-date now.
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The key is to be opportunistic, which is what
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I like to do, and buy the stocks when there's fear,
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when there's this kind of massive
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trade that's encompassing lots of different
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companies, that's maybe fundamental based
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but a lot more hype than reality.
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I try to be opportunistic in these instances
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and take the other side of that.
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A great example
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in this that I like to highlight was Simulations Plus.
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It's a company that was at the epicentre of this trade.
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It dealt with healthcare, data, clinical trials,
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drug discovery. They made software for doing those types of
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things. It was software and data and
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healthcare and clinical trials.
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Ultimately it rebounded and got bought by private equity.
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These are real businesses, they actually do really good
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things and they're actually possibly beneficiaries
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of AI and not losers.
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You are a very quantitatively minded person.
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How do you explore that 7,000
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universe stock pool and
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make decisions on what goes into the portfolio?
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It's a complicated process.
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I try to use every tool in the toolbox.
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That includes fundamental analysis, quantitative
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models that I've built, some of which I built when I worked
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with Joel Tillinghast managing Global Intrinsic Value and
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Low Price Stock Fund, and then trading very carefully to
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try to get very low trading costs.
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On the fundamental side our analysts actually
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write thousands of notes every month
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on companies all the way from large-caps down to
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micro-caps.
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Sometimes they'll go to a conference and meet with 30 or 40
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companies, put a note in the system with a paragraph
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or two on each company.
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What I built in 2023 was actually an agentic AI process
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to wake up three times a day and read all these notes.
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Joel famously would go with his stack of research notes
15:11.343 --> 15:13.646
often to broker events.
15:13.646 --> 15:16.315
There's a story he went to a rock concert and he was in the
15:16.315 --> 15:19.118
front row with his research notes reading the research
15:19.118 --> 15:21.120
notes. I no longer have to do that.
15:21.120 --> 15:23.622
I have a much more efficient way to kind of consume all
15:23.622 --> 15:25.491
those thousands of research notes.
15:26.558 --> 15:28.861
What I like to do is the fundamental analysts are really
15:28.861 --> 15:31.463
good at being forward looking, analyzing the industry
15:31.463 --> 15:34.333
structure, meeting with management teams, saying if they're
15:34.333 --> 15:37.836
good or bad or not, understanding the competitive dynamics.
15:39.605 --> 15:41.240
They can identify good companies.
15:41.240 --> 15:42.675
So that's kind of the base case.
15:42.675 --> 15:45.577
Then I feed their sentiment, which I get from the large
15:45.577 --> 15:48.180
language models reading their research notes, and combine
15:48.180 --> 15:50.716
that with my quantitative process, which is really good at
15:50.716 --> 15:54.086
identifying the right times to buy and sell,
15:54.086 --> 15:56.822
keeping guardrails on the portfolio to have a value,
15:56.822 --> 15:59.091
quality, discipline, companies that are returning to
15:59.091 --> 16:01.327
capital shareholders. All those kind of statistical
16:01.327 --> 16:04.563
measures are easy to capture from financial data.
16:04.563 --> 16:07.700
I also use many other short interest data insider buying.
16:07.700 --> 16:10.169
We have a corporate events model that has companies that
16:10.169 --> 16:13.906
are filing late. There's probably about 100 different
16:13.906 --> 16:17.109
data points that I'm calculating across
16:17.109 --> 16:19.578
7,000+ stocks twice a day.
16:19.578 --> 16:21.814
That's a million and a half data points I'm looking at
16:21.847 --> 16:25.884
every day, in addition to feeding in the fundamental views.
16:25.884 --> 16:28.554
That gives me the timing to say, hey, these trucking
16:28.554 --> 16:31.357
companies and these insurance brokers and these software,
16:31.357 --> 16:32.858
they're all blowing up.
16:32.858 --> 16:35.561
Suddenl,y the valuation has come in significantly, a lot of
16:35.561 --> 16:38.163
these, on good companies that our analysts like.
16:38.163 --> 16:39.965
Combining those two things I think is
16:41.667 --> 16:44.670
really beneficial because our financials analyst who covers
16:44.670 --> 16:47.806
banks in Norway has a really
16:47.806 --> 16:50.476
difficult time. He knows his companies really well but can
16:50.476 --> 16:53.112
he really compare it to an auto parts company in Japan and
16:53.112 --> 16:55.280
say which should you buy today?
16:55.280 --> 16:57.516
That's kind of my job as the portfolio manager.
16:57.516 --> 17:00.285
Through implementation with our trading desk
17:01.587 --> 17:03.889
every day I put in three to four times the number of orders
17:03.889 --> 17:05.791
I actually expect to get executed.
17:05.791 --> 17:07.926
I'm using tight limit orders.
17:07.926 --> 17:10.062
Every now and then we have some opportunities to actually
17:10.062 --> 17:11.897
buy with a negative transaction cost.
17:12.965 --> 17:15.768
A week and a half ago there were actually three companies I
17:15.768 --> 17:17.703
owned where brokers came to us.
17:17.703 --> 17:19.872
We're often the first call they make when they have a large
17:19.872 --> 17:22.374
block that they need to trade and we can often buy at a
17:22.374 --> 17:25.477
discount. There was a company I already owned, I was
17:25.477 --> 17:28.647
looking to add more. I doubled the position at a 9%
17:28.647 --> 17:31.183
discount because Fidelity stepped up and bought a large
17:31.216 --> 17:33.852
block of stock, me and some other portfolio managers at the
17:33.852 --> 17:34.853
firm.
17:35.054 --> 17:38.190
A negative trading cost day is a very happy day for me
17:38.190 --> 17:39.825
and for our shareholders.
17:39.825 --> 17:42.261
I try to combine all those things with all the moving
17:42.261 --> 17:44.730
pieces across 7,000 stocks.
17:44.730 --> 17:47.766
Most portfolio managers of Fidelity consider themselves
17:47.766 --> 17:49.268
stock pickers.
17:49.268 --> 17:51.503
I like to think of myself more like air traffic control.
17:51.503 --> 17:54.606
There's a lot of planes in the air wanting to land and
17:54.606 --> 17:57.276
take off, there's the ground equipment and the passengers
17:57.276 --> 17:59.945
and the weather and the wind, there's just a lot moving
17:59.945 --> 18:02.414
pieces. I'm trying to kind of do everything and keep
18:02.414 --> 18:05.050
everything moving without too many casualties.
18:05.050 --> 18:08.053
The list of signals that you look for, it makes me think of
18:08.053 --> 18:11.423
Gil Haddad yesterday from QRI, one of your colleagues,
18:11.423 --> 18:14.059
talking about the myriad of signals.
18:14.059 --> 18:16.628
That's gonna keep adding up as well.
18:16.628 --> 18:19.865
You utilize that, you utilize the fundamental analysts
18:19.865 --> 18:22.201
for all of their research reports, as you said.
18:22.201 --> 18:24.770
You process that through your models.
18:24.770 --> 18:27.940
You travel the world but what I was interested that
18:27.940 --> 18:30.175
you told me once was you don't travel the world to go and
18:30.175 --> 18:32.611
visit companies because you rely on the army of people to
18:32.611 --> 18:33.946
do that.
18:33.946 --> 18:35.447
You visit the traders.
18:35.447 --> 18:36.748
That's a very important part of your process.
18:36.748 --> 18:39.051
Absolutely. I've been to our London, our Tokyo, our Hong
18:39.051 --> 18:41.954
Kong offices and I spend about half the time sitting down
18:41.954 --> 18:44.389
with the analysts and kind of combing through their
18:44.389 --> 18:47.226
micro-cap ideas, things they've published on as well as
18:47.226 --> 18:49.728
things they haven't, and then half the time sitting with
18:49.728 --> 18:52.264
our traders and trying to find liquidity strategies to be
18:52.264 --> 18:54.500
able to source liquidity cheaply.
18:54.500 --> 18:57.069
Ultimately, in the micro-cap space you don't want to
18:57.069 --> 19:00.105
destroy the alpha that you're earning by
19:00.105 --> 19:02.641
trading. You do have to be very careful.
19:02.641 --> 19:05.611
That's probably what I spend a third
19:05.611 --> 19:08.347
of my time doing day-to-day is just kind of managing that
19:08.347 --> 19:11.049
order flow and kind of figuring out what to buy and at what
19:11.049 --> 19:13.418
prices and how to trade them and work with our trading desk
19:13.418 --> 19:14.853
to do that.
19:14.853 --> 19:17.856
You also like to look for boring companies, ones that
19:17.856 --> 19:19.725
are off people's radar. Give us a few examples.
19:23.562 --> 19:26.632
If you were to put up the top 10 I feel like a lot of
19:26.632 --> 19:27.633
these are really boring.
19:28.534 --> 19:30.169
The first one, Sabre Insurance, it's a quite
19:32.871 --> 19:36.108
small auto insurance company
19:36.108 --> 19:37.109
in the UK.
19:39.344 --> 19:42.381
They're one of the smallest in the industry so they
19:42.381 --> 19:44.616
do kind of have a niche in their little space.
19:46.285 --> 19:49.354
Post-COVID a lot of car insurance companies,
19:49.354 --> 19:51.423
auto insurance went through a tough time because there was
19:51.456 --> 19:54.626
a lot inflation and they had written premiums
19:54.626 --> 19:56.828
at lower prices. As kind of pretty
19:58.697 --> 20:01.700
high inflation happened they had trouble paying off
20:01.700 --> 20:04.169
all the claims because it was a lot more expensive to
20:04.169 --> 20:07.206
repair cars. A lot of auto insurance companies went
20:07.206 --> 20:10.275
through a really poor cycle
20:10.275 --> 20:11.543
for about two to three years.
20:12.578 --> 20:14.179
Now they're starting to come out of that.
20:14.179 --> 20:15.647
They've priced their policies well.
20:15.647 --> 20:17.816
Competition in the market has dropped off.
20:17.816 --> 20:20.953
When I bought it the stock was yielding 8% to 9%, it's
20:20.953 --> 20:23.956
gone up a bit and now it's yielding about 7% but is
20:23.956 --> 20:26.091
still trading at a 10 times P/E which is reccently
20:27.793 --> 20:29.728
cheaper than some of their competitors.
20:29.728 --> 20:33.332
Beazley recently got bought out at a 30% premium to that
20:33.332 --> 20:35.834
so there's some buyout potential here but that's not
20:35.834 --> 20:39.004
necessarily how I'm investing
20:40.239 --> 20:43.041
in the stock to kind of predict the buyouts.
20:43.041 --> 20:45.777
I'm just investing in Sabre, a good company with a good
20:45.777 --> 20:47.813
pricing cycle coming up and profits should come.
20:47.813 --> 20:50.482
They've been releasing a lot of reserves and paying out a
20:50.482 --> 20:53.318
lot their capital. Jst a great boring stock that I think
20:53.318 --> 20:54.853
can compound over time.
20:54.853 --> 20:57.990
Do you want to talk as far as disclosed companies
20:57.990 --> 21:00.592
areas that you've got pretty high conviction in?
21:00.592 --> 21:02.127
Yeah, a lot of the stocks on this list ...
21:02.127 --> 21:05.564
I tend to run a pretty flat portfolio so
21:05.564 --> 21:08.300
a lot them kind of end up in the top 10 because they've
21:08.300 --> 21:11.136
gone up a lot. They tend to be the more liquid, some of the
21:11.136 --> 21:12.571
larger market cap stocks.
21:14.106 --> 21:15.641
I just have a question for you, Glen.
21:15.641 --> 21:18.410
Do you like airline food and do you look forward to your
21:18.410 --> 21:20.679
flight today or tomorrow so you can eat the food?
21:20.679 --> 21:22.381
No, not at all.
21:22.381 --> 21:24.349
It's good to know. That's actually the first time ...
21:24.349 --> 21:26.418
every time I get up here I ask you a question and you've
21:26.418 --> 21:28.487
never actually answered it except for today.
21:29.688 --> 21:31.657
You answered your first question for me today.
21:34.026 --> 21:37.062
One stock that I think is quite timely now,
21:37.062 --> 21:40.098
because it's been hit by high fuel
21:40.098 --> 21:43.135
costs and the travel industry and the airline stocks have
21:43.135 --> 21:46.738
been a bit hit, is a company called Do&Co.
21:46.738 --> 21:49.574
It's spelled D-O ampersand C-O.
21:50.842 --> 21:53.945
They're in the business of making premium,
21:53.945 --> 21:55.914
fresh, healthy food for airlines.
21:57.349 --> 22:00.419
It's not an oxymoron, it's actually true.
22:00.419 --> 22:02.754
I talked about this stock at some of the events in the
22:02.754 --> 22:05.991
spring when oil prices first spiked on the
22:05.991 --> 22:08.427
Iran war. Now they've spiked again so the stock has pulled
22:08.427 --> 22:11.396
back. It's one of those times when great
22:11.396 --> 22:14.499
company but the market's,
22:14.499 --> 22:17.669
probably rightly so, pricing in some short term headwinds
22:17.669 --> 22:19.137
to the travel industry and to airlines.
22:21.573 --> 22:24.009
Co&Co has a premium product. They've been growing
22:24.009 --> 22:27.112
double-digits for 10 or 20 years.
22:29.214 --> 22:30.549
Our analyst loves it.
22:30.549 --> 22:33.685
I actually brought a picture to
22:33.685 --> 22:35.821
share with you. Our analyst has done some great work on
22:35.821 --> 22:39.324
this. If you think of Gategroup and Sky Chef,
22:39.324 --> 22:40.959
they're some of the traditional companies. You might see
22:40.959 --> 22:43.795
their trucks servicing the planes but they're more like
22:43.795 --> 22:45.464
distribution companies.
22:45.464 --> 22:47.699
They don't actually make food, they just kind of deliver
22:47.699 --> 22:50.836
some calories to the plane to get you by.
22:50.836 --> 22:53.805
Do&Co is taking significant market share from these legacy
22:53.805 --> 22:57.175
players and they just keep winning contracts.
22:57.175 --> 23:00.178
I brought this picture I
23:00.178 --> 23:02.481
thought you'd like. I don't know if everybody can see it
23:02.481 --> 23:05.917
but it's basically a mouse in
23:05.917 --> 23:07.986
a bread basket, apparently.
23:07.986 --> 23:09.187
You can Google this.
23:09.187 --> 23:10.956
It says Air Canada at the bottom, I think.
23:10.956 --> 23:14.126
No, this is an American, apparently, out of Heathrow.
23:15.427 --> 23:19.264
This was not Do&Co but they benefited from this.
23:19.264 --> 23:21.166
You can Google it, this is public information.
23:21.166 --> 23:24.336
Our analyst has kind of done some sleuthing to figure
23:24.336 --> 23:27.406
out that Do&Co may have gotten some American
23:27.406 --> 23:30.208
Airlines work as they've tried to upgrade their food
23:30.208 --> 23:32.110
company. They may be getting the Chicago Hub.
23:32.110 --> 23:35.714
Do&Co does a lot of work for
23:35.714 --> 23:38.417
British Airways out of Heathrow already, Turkish Airlines.
23:39.718 --> 23:43.288
A year or two ago they got the Delta Hub in Boston.
23:43.288 --> 23:44.823
I'm usually a pretty frugal person.
23:44.823 --> 23:47.259
I don't like to spend a lot my own money or Fidelity's
23:47.259 --> 23:49.661
money so I don't often fly business class.
23:49.661 --> 23:53.064
But on a trip last spring out of Boston
23:53.064 --> 23:55.367
I was like, okay, I'm going to buy a business class seat so
23:55.367 --> 23:56.968
I can try the food from Do&Co.
23:59.304 --> 24:01.907
The fundamental work isn't something I do very often but it
24:01.907 --> 24:04.676
checked all the boxes from the analyst, from the quant
24:04.676 --> 24:07.078
models, very consistent, high quality company generating
24:07.078 --> 24:08.413
good free cashflow.
24:08.413 --> 24:10.916
Let me check it out. I flew Delta.
24:10.916 --> 24:13.919
I was going to Edmonton at the time to do a Fidelity
24:13.919 --> 24:14.920
Canada event.
24:16.421 --> 24:19.624
I got on for breakfast, I saw the Do& Co truck servicing
24:19.624 --> 24:22.227
my plane so I knew I was in the right place.
24:22.227 --> 24:23.495
The food was amazing.
24:23.495 --> 24:26.565
I had this smoked salmon bagel and a little
24:26.565 --> 24:29.301
lemon flavour to the smoked salmon and the cream cheese.
24:29.301 --> 24:32.037
You wouldn't think cream cheese makes a big difference but
24:32.037 --> 24:34.606
it was like the freshest, best tasting cream cheese I've
24:34.606 --> 24:36.608
ever had. It was just a wonderful breakfast.
24:36.608 --> 24:38.844
I got off the plane very happy.
24:38.844 --> 24:41.346
In Minneapolis-St. Paul, because there's no direct flights,
24:41.346 --> 24:42.347
I switched to WestJet.
24:44.449 --> 24:45.917
That was not a good experience.
24:47.452 --> 24:47.619
How was the cream cheese?
24:47.619 --> 24:50.021
My son can make better pasta than I had on WestJet.
24:51.289 --> 24:54.726
I do think Do&Co has a really good product.
24:54.726 --> 24:56.828
Not a whole lot of other people are doing this and the legacy
24:56.828 --> 24:59.498
players are just trapped in the old way.
24:59.498 --> 25:01.566
They haven't been able to evolve enough.
25:02.634 --> 25:05.237
The stock's a little bit more expensive than I like to buy.
25:05.237 --> 25:08.139
It's kind of a mid to high teens P/E ratio but they have
25:08.139 --> 25:11.076
the growth to substantiate that and a good product.
25:11.076 --> 25:13.211
I encourage everybody to fly out of Delta next time you're
25:13.211 --> 25:13.879
in Boston.
25:13.879 --> 25:15.981
And avoid this picture.
25:15.981 --> 25:17.048
That's right.
25:17.048 --> 25:19.985
When we look at that top 10, I'm sure everybody has heard
25:19.985 --> 25:20.986
of Watches of Switzerland.
25:22.153 --> 25:24.155
There's a couple of names, Crocs, that stand out.
25:24.155 --> 25:26.825
The other companies are more obscure to many of us, I'm
25:26.825 --> 25:29.794
sure. What happens when those companies become greater
25:29.794 --> 25:30.795
than a micro-cap?
25:31.730 --> 25:34.966
Is it in the prospectus that you have divest of them?
25:34.966 --> 25:37.269
That's why I mentioned some of the market caps you might
25:37.269 --> 25:39.738
see in the fund. I think the biggest is actually nine
25:39.771 --> 25:42.407
billion right now but it's just because it's gone up a lot
25:42.407 --> 25:43.575
and I don't have to sell it.
25:44.976 --> 25:48.146
Two years ago I bought a lot of cheap Japanese
25:48.146 --> 25:52.417
banks and they've all gone up singles,
25:52.417 --> 25:53.718
triples, things like that because
25:55.854 --> 25:58.690
interest rates have come up. Kind of buying cheap stocks
25:58.690 --> 26:02.093
you have that optionality. I think Joel, famously,
26:02.093 --> 26:05.230
bought Monster Beverage when it was Hansen Natural as a
26:05.230 --> 26:08.433
micro-cap and it went up 75,000%
26:08.433 --> 26:10.335
over 25 years until he retired.
26:11.937 --> 26:15.173
If we can ever have a 40 million
26:15.173 --> 26:18.209
micro-cap stock go to a 100 billion market cap in the
26:18.209 --> 26:21.313
fund that would be a great celebration for
26:21.313 --> 26:22.314
shareholders.
26:22.881 --> 26:24.282
Don't be afraid to see that.
26:24.282 --> 26:26.651
I'm not initiating positions in the larger ones but I will
26:26.651 --> 26:29.621
let them run if they're still good companies and still
26:29.621 --> 26:30.622
decently valued.
26:31.323 --> 26:33.658
Excuse the pun but I know you really value your time
26:33.692 --> 26:36.728
working with Joel Tillinghast as co-manager, and I know
26:36.728 --> 26:38.430
that you still are connected with him.
26:38.430 --> 26:40.165
What are some of the lessons that you learned from working
26:40.165 --> 26:41.166
with Joel?
26:42.200 --> 26:45.437
I think it's just to have a process, stick with
26:45.437 --> 26:48.373
it. I think we're both a little bit
26:48.373 --> 26:50.342
unemotional when it comes to investing.
26:50.342 --> 26:52.711
I think there's probably a diagnosis for that but we
26:52.711 --> 26:54.913
haven't officially been diagnosed.
26:54.913 --> 26:57.616
My wife complains that I'm a little too logical and too
26:57.616 --> 27:00.685
rational and too regimented but I think when you're a value
27:00.685 --> 27:03.321
investor, when you are in these kinds of stocks you really
27:03.321 --> 27:06.224
can't get sidetracked by stories.
27:06.224 --> 27:09.260
So it's really about, yes, it's great if it
27:09.260 --> 27:12.030
has a good story but really also investing on the numbers
27:12.030 --> 27:14.466
and not being influenced by emotion.
27:14.466 --> 27:16.368
I think that's a big fact.
27:16.368 --> 27:19.638
I also think being a value manager is a certain
27:19.638 --> 27:20.705
personality type.
27:21.873 --> 27:24.943
When I joined Fidelity there was the joke that
27:24.943 --> 27:27.979
the growth managers drive to work, or take cabs
27:27.979 --> 27:31.383
at the time before Uber, and the value managers
27:31.383 --> 27:34.452
walk to work or take public transportation.
27:34.452 --> 27:36.354
I was like, okay. I looked around, I was like, that's kind
27:36.354 --> 27:38.356
of right. Joel actually didn't own a car and walked to
27:38.356 --> 27:41.860
work. I have one 2015 Honda CR-V
27:41.860 --> 27:43.294
for my whole family.
27:45.063 --> 27:46.464
I tend to live very frugally.
27:46.464 --> 27:48.233
I love to find deals.
27:48.233 --> 27:50.301
One of my favourite things to do each week is to look at
27:50.301 --> 27:52.871
the grocery store ads and see what's on sale and plan our
27:52.871 --> 27:55.173
menu for the week because I'm finding a deal.
27:55.173 --> 27:57.575
I found out Joel used coupons. It's actually not worth our
27:57.575 --> 28:00.245
time but we really enjoy the hunt, right?
28:00.245 --> 28:02.113
So I'm hunting for micro-caps.
28:02.113 --> 28:03.615
I really like finding value.
28:06.651 --> 28:09.788
I like to find win-win situations, finding something
28:09.821 --> 28:12.891
that's cheap, might be high
28:12.891 --> 28:14.559
quality, might actually be better.
28:14.559 --> 28:16.194
That trip I took to Edmonton,
28:18.063 --> 28:20.398
everybody else was flying to Calgary the next day for an
28:20.398 --> 28:22.434
event we had to do. I took the Red Arrow bus
28:23.535 --> 28:25.336
because I did my research.
28:25.336 --> 28:28.206
I was like t's a little bit cheaper, not a lot, but I get
28:28.206 --> 28:31.076
my own big seat. I get free Wi-Fi.
28:31.076 --> 28:32.777
I don't have to take an Uber on each end.
28:32.777 --> 28:35.580
I just walked from the convention centre to the bus
28:35.580 --> 28:38.650
terminal and then to my hotel in downtown Calgary, downtown
28:38.650 --> 28:39.651
to downtown.
28:40.418 --> 28:43.421
The other folks that flew had turbulence, their flight was
28:43.421 --> 28:46.191
late, they have to go through security and I was just
28:46.191 --> 28:49.260
enjoying the countryside between Edmonton and
28:49.260 --> 28:52.464
Calgary sitting in style on
28:52.464 --> 28:55.433
the bus with free snacks in the back by
28:55.433 --> 28:56.067
the bathroom.
28:56.067 --> 28:57.068
Were they from Do&Co?
28:58.837 --> 29:01.239
No, it was not premium snacks.
29:01.239 --> 29:03.575
Free bottled water, it was nice.
29:03.575 --> 29:06.711
Very good. Let's talk about resiliency, or lack of, for
29:06.711 --> 29:09.681
micro-cap stocks when it comes to trade disruptions.
29:10.915 --> 29:12.717
The resiliency in terms of...
29:12.717 --> 29:14.252
Are they resilient or are they not?
29:14.252 --> 29:16.421
I mean, you consider what's happening between Canada and
29:16.421 --> 29:16.454
the United States or all around the world.
29:16.454 --> 29:19.324
I think we need big risk-off periods in the market.
29:19.324 --> 29:22.727
People are actually surprised that micro-caps don't
29:22.727 --> 29:26.664
often go down the most because what do people sell first
29:26.664 --> 29:28.066
when they need to raise cash?
29:28.066 --> 29:30.201
It's their largest, most liquid positions.
29:30.201 --> 29:33.138
They're not suddenly trying to sell their micro-cap stocks
29:33.138 --> 29:35.340
that is gonna take them weeks to sell.
29:35.340 --> 29:37.642
They're selling the things they can move in a few hours or
29:37.642 --> 29:38.777
a day, right?
29:40.545 --> 29:42.847
Kind of like private equity where they value it
29:42.847 --> 29:45.350
occasionally, micro-caps often trade by appointment
29:46.518 --> 29:49.687
and don't necessarily have as
29:49.687 --> 29:52.390
much volatility day-to-day as you might expect.
29:53.825 --> 29:56.895
Often we hear that even small-cap stocks are
29:56.895 --> 29:59.731
very vulnerable, very elastic relative to interest rates.
29:59.731 --> 30:03.334
Rates have really skyrocketed.
30:03.334 --> 30:06.271
How is the resiliency of the 7,000 stocks that you look
30:06.271 --> 30:07.939
at on the micro side?
30:07.939 --> 30:09.974
I think it's a little bit of a misnomer.
30:09.974 --> 30:13.211
I do think stocks trade more on earnings than they do on
30:13.211 --> 30:16.247
rates. The reason that they tend to trade down with rates
30:16.247 --> 30:18.850
isn't necessarily that there's a better alternative that
30:18.850 --> 30:20.718
people are gonna start buying bonds instead of stocks,
30:20.718 --> 30:22.487
which happens a little but at the margin.
30:22.487 --> 30:25.523
I think is more that higher rates tend to,
30:25.523 --> 30:28.126
on average, portend a slowdown in the economy and that's
30:28.126 --> 30:30.328
when all stocks get affected not just micro-caps.
30:30.328 --> 30:33.364
If you're buying companies
30:33.364 --> 30:35.767
with net cash balance sheets that don't have a lot of
30:35.767 --> 30:38.970
leverage like I am interest rates aren't necessarily a
30:38.970 --> 30:42.140
huge kind of day-to-day driver for those stocks.
30:42.140 --> 30:45.410
In theory, the Japan micro-cap that has 50%
30:45.410 --> 30:47.545
of their market cap in cash will actually benefit from
30:47.545 --> 30:50.315
higher rates because now suddenly they're earning interest
30:50.315 --> 30:51.249
on their balance.
30:51.249 --> 30:53.651
So that's probably the key, as you said, you look at the
30:53.651 --> 30:55.420
balance sheet and if there's high leverage that's going to
30:55.420 --> 30:58.523
be a concern but if you're screening for that it
30:58.523 --> 31:00.058
creates a better opportunity.
31:00.058 --> 31:02.627
Honestly, right now, Glen, you didn't ask but it's kind of
31:02.627 --> 31:04.529
related to that. I just thought of it, where am I finding
31:04.529 --> 31:06.231
opportunities now in the market?
31:06.231 --> 31:08.499
Where are you finding opportunities now in the market?
31:08.499 --> 31:09.968
It made me think of it because of interest rates.
31:09.968 --> 31:12.971
The markets have been very kind of
31:12.971 --> 31:14.472
risk-on recently
31:17.075 --> 31:20.178
despite higher rates, despite higher energy
31:20.178 --> 31:23.214
prices which tend to be a headwind for the global economy.
31:24.549 --> 31:26.084
As you just heard valuations are stretched.
31:26.084 --> 31:29.220
I think there's always places in the world
31:29.220 --> 31:32.423
to find opportunities to invest in,
31:32.423 --> 31:33.791
especially in the micro-cap space.
31:35.093 --> 31:38.129
I've been tending to tilt a
31:38.129 --> 31:40.431
little bit more defensively. I've been finding a lot more
31:40.431 --> 31:43.534
opportunities in consumer staple stocks, some consumer
31:43.534 --> 31:46.337
discretionary stocks, real estate.
31:46.337 --> 31:49.274
As rates have gone up a lot, especially in Europe, a lot of
31:49.274 --> 31:51.776
these REITs have sold off significantly and they have
31:51.776 --> 31:52.777
yields of 7, 8, 9%.
31:55.813 --> 31:57.749
While that's not a big bet in the fund it's where that
31:57.749 --> 32:00.919
marginal dollar of investment I'm finding.
32:00.919 --> 32:03.755
Actually, in Canada, I can't say the name because it's not
32:03.755 --> 32:06.891
in our disclosed list yet but there's
32:06.891 --> 32:09.193
a food and beverage company that's a micro-cap in Canada
32:09.193 --> 32:11.863
that I've actually bought a significant portion in.
32:11.863 --> 32:14.098
It's about 10 times earnings, couple per cent dividend
32:14.098 --> 32:15.433
yield.
32:15.433 --> 32:18.269
Next time we release our full holdings we'll see that in
32:18.269 --> 32:21.606
the fund. But definitely the more defensive areas.
32:21.606 --> 32:24.842
I do feel like that's what is
32:24.842 --> 32:27.278
being overlooked in the current risk-on rally.
32:27.278 --> 32:28.980
When there's any kind of mean reversion I think those
32:28.980 --> 32:30.915
companies should hold up a lot better.
32:30.915 --> 32:32.283
Very good. You mentioned
32:34.385 --> 32:37.488
earlier about companies will sometimes take out,
32:37.522 --> 32:41.092
like Diageo buying your favourite bourbon company.
32:41.092 --> 32:42.560
Does that concern you?
32:42.560 --> 32:45.163
Do you see more of that activity where private equity and
32:45.163 --> 32:47.966
other strategic buyers are picking out those micro-cap?
32:47.966 --> 32:49.233
It's reducing your universe.
32:49.233 --> 32:52.337
It's probably good for your performance if you
32:52.337 --> 32:55.073
own those companies but are you concerned about any of
32:55.073 --> 32:56.074
that?
32:56.074 --> 32:58.109
As many of you know we've had a lot of buyouts from the
32:58.109 --> 33:01.012
fund. I think we're up to 53 companies that have gotten
33:01.012 --> 33:03.815
buyout offers that have been owned in the fund since
33:03.815 --> 33:06.718
inception a little over two years ago.
33:06.718 --> 33:10.088
It's a fertile ground for
33:10.088 --> 33:13.157
strategic buyers, private
33:13.157 --> 33:14.158
equity buyers. Really, these
33:19.197 --> 33:22.166
high quality micro-caps fit really well with
33:22.166 --> 33:23.167
any of these companies.
33:24.168 --> 33:26.804
Truth be told, not all of them are run the most
33:26.804 --> 33:29.507
efficiently. That is a knock against micro-caps.
33:29.507 --> 33:33.011
When you have a private equity buyer who can come in,
33:33.011 --> 33:36.147
pay 30% premium, maybe increase the
33:36.147 --> 33:39.717
financial leverage, make it operationally more efficient,
33:39.717 --> 33:41.719
combine it for economies of scale with a bigger company,
33:41.719 --> 33:44.889
it's kind of a win-win where I get the 30%
33:44.889 --> 33:46.557
premium takeout. I think in the past ...
33:46.557 --> 33:49.560
when I worked with Joel he would always get really sad
33:49.560 --> 33:51.696
when his companies would get bought out because he had
33:51.696 --> 33:53.097
attachments to them.
33:53.097 --> 33:56.034
He wanted to own them for 10, 20, 50
33:56.034 --> 33:57.035
years.
33:57.869 --> 33:59.670
I don't have that same attachment.
33:59.670 --> 34:02.840
That's not a hang-up of mine, personally.
34:02.840 --> 34:05.810
Shen a company gets taken out there's
34:05.810 --> 34:08.780
another 6,999 companies to
34:08.780 --> 34:10.581
choose from. I'm okay with that.
34:10.581 --> 34:13.651
I think it's a cause for celebration
34:13.651 --> 34:16.020
and I think a reflection of the value that's in the
34:16.020 --> 34:19.090
micro-cap space right now with cheap high quality
34:19.090 --> 34:22.193
companies and being able to be taken out.
34:22.193 --> 34:24.695
One of the early takeouts was actually Parklawn.
34:24.695 --> 34:26.731
That was the first takeout we had. It was a funeral service
34:26.731 --> 34:29.434
company that was based in Toronto area.
34:30.568 --> 34:33.237
Then Western Canadian Bank was our second takeout I think
34:33.237 --> 34:36.441
that was one of biggest premiums for a
34:36.441 --> 34:37.642
bank that I've ever seen.
34:38.910 --> 34:40.878
Since then, we've had another, what, 51 takeouts.
34:42.180 --> 34:44.148
So cause for celebration for you.
34:44.148 --> 34:46.184
I think so. It's additive for returns
34:48.252 --> 34:50.788
and I think, more importantly, just a reflection of the
34:50.788 --> 34:52.590
value in these companies.
34:52.590 --> 34:55.560
What about the addition back to 7,000
34:55.560 --> 34:57.795
stocks? What are you seeing for IPO volume?
35:00.865 --> 35:03.901
In the US specifically IPOs are waiting longer
35:03.901 --> 35:08.039
and longer to come public.
35:08.039 --> 35:10.408
Somebody asked me last night if I own SpaceX.
35:12.977 --> 35:16.080
It's kind of come
35:16.080 --> 35:19.083
public and gone public at a mega-cap
35:20.184 --> 35:22.019
kind of market cap size.
35:22.019 --> 35:24.889
In the US I feel like there's actually a dearth of
35:24.889 --> 35:27.358
micro-caps to invest in. It tends to be a lot of
35:27.358 --> 35:30.228
unprofitable biotech companieswhich I think is one reason
35:30.228 --> 35:33.131
kind of looking across the globe is important.
35:34.699 --> 35:35.700
Other places in the world,
35:37.869 --> 35:40.838
that kind of pipeline to go in public at smaller valuations
35:40.838 --> 35:43.441
is still there. I think there's plenty of opportunities to
35:43.441 --> 35:46.477
come in. Also, stocks sometimes come down and
35:46.477 --> 35:48.279
have problems and there's opportunity.
35:48.279 --> 35:51.349
They come from being mid or large-caps down
35:51.349 --> 35:53.017
into the micro-cap space.
35:53.017 --> 35:55.253
There can sometimes be opportunities there, especially as a
35:55.253 --> 35:57.188
contrarian value investor.
35:57.188 --> 35:59.190
Around the world you're seeing more companies come to
35:59.190 --> 36:00.658
market, that's good.
36:00.658 --> 36:03.127
That's interesting, though, you have some that are actually
36:03.127 --> 36:05.463
reducing the market cap size.
36:05.463 --> 36:06.430
That must scare you, though.
36:06.430 --> 36:07.565
Hopefully before I buy them.
36:09.367 --> 36:12.470
Right, but then your screening must be
36:12.470 --> 36:14.906
even more stringent because you've gotta really figure out
36:14.906 --> 36:16.841
why did it reduce in size like that.
36:16.841 --> 36:19.477
Can you talk about, without naming names, but just an
36:19.477 --> 36:20.645
example, has that come to mind?
36:21.812 --> 36:24.248
I mean, a lot of issues I feel like are temporary.
36:25.316 --> 36:28.386
I mentioned Lancashire where it went through a
36:28.386 --> 36:31.355
really poor auto cycle and the stock came in
36:31.355 --> 36:32.557
quite a bit.
36:33.858 --> 36:36.961
Crocs is a decent size company now but I bought it
36:36.961 --> 36:40.164
when it was having problems with integrating the HeyDude
36:40.164 --> 36:41.699
acquisition.
36:41.699 --> 36:43.968
Maybe about three years ago they bought a company called
36:43.968 --> 36:45.670
HeyDude. It was a terrible acquisition.
36:45.670 --> 36:48.539
They had trouble integrating the company and it came down
36:48.539 --> 36:51.542
from more of a small mid-cap size down
36:51.542 --> 36:54.011
to a cap range that I could actually buy it.
36:54.011 --> 36:56.981
The stock was trading at almost a single digit P/E.
36:56.981 --> 36:58.816
I think it was just under 10 times.
37:00.351 --> 37:03.221
The company has kind of good staying power.
37:03.221 --> 37:06.390
In the US it's a bit saturated but internationally they're
37:06.390 --> 37:07.391
still growing.
37:08.259 --> 37:11.662
Once that kind of acquisition digestion happened
37:13.130 --> 37:16.167
comps got easier, we saw a lot of opportunities
37:16.167 --> 37:17.668
there and the stock was beaten up.
37:17.702 --> 37:19.704
That's, I think, a good example of a stock that kind of
37:19.704 --> 37:22.673
came in, I bought and it actually has rebounded
37:22.673 --> 37:23.374
quite a bit.
37:23.374 --> 37:27.178
That's one of the big flags that I look at is acquisitions.
37:27.178 --> 37:29.880
Often when companies acquire another company
37:31.249 --> 37:34.151
it's either for the wrong reasons, that they're just empire
37:34.151 --> 37:37.221
building, something's going wrong with their company
37:37.221 --> 37:40.024
so they have to kind of shift the focus to something else.
37:41.926 --> 37:44.762
Ultimately, there is a digestion period where companies
37:44.762 --> 37:47.698
actually have to integrate systems,
37:47.732 --> 37:49.867
have to ingrate people and there's this period of time
37:49.867 --> 37:52.970
where, on average, just going by the base rates
37:52.970 --> 37:55.239
and the statistics, companies underperform after large
37:55.239 --> 37:58.242
acquisitions. Part of my quantitative process is really
37:58.242 --> 38:02.179
to look at all these base rates on what Is
38:02.179 --> 38:05.449
driving stock returns and avoiding the things where
38:05.449 --> 38:08.286
the base rates are really low for stock returns and buying
38:08.286 --> 38:10.254
the companies where the base rates are higher and then
38:10.254 --> 38:12.757
combining it with the fundamental framework.
38:14.191 --> 38:16.260
That's actually phase two.
38:16.260 --> 38:19.430
This is a kind of insight into the future of my process but
38:19.430 --> 38:21.832
I'm using the large language models to read all the
38:21.832 --> 38:23.434
research notes right now.
38:23.434 --> 38:25.102
One of my goals is actually ...
38:25.102 --> 38:28.205
this is a lot more difficult and requires a lot of compute
38:28.205 --> 38:30.975
power and really good data scientists
38:32.310 --> 38:34.378
but to go back and read 20 years of Fidelity research
38:34.378 --> 38:35.379
notes.
38:36.247 --> 38:39.317
Then, basically, not only is the analyst positive but
38:39.317 --> 38:42.153
what are they actually saying and which of the things are
38:42.153 --> 38:45.089
they talking about lead to future stock price
38:45.089 --> 38:46.590
outperformance?
38:46.590 --> 38:49.860
An analyst might write about great acquisition, there's
38:49.860 --> 38:51.228
lots of synergies.
38:51.262 --> 38:54.098
I'm really excited about this acquisition.
38:54.098 --> 38:55.966
The company's going to double in size.
38:57.835 --> 39:00.805
That will come across as a positive sentiment that
39:00.805 --> 39:03.574
they think this is a good company to invest in, but maybe
39:03.574 --> 39:05.776
the large language model in AI can go in and actually
39:05.776 --> 39:08.913
figure out that when they say those kinds of things
39:08.913 --> 39:11.115
you should actually ignore that positive sentiment.
39:11.115 --> 39:13.718
That can not only help the fund managers of Fidelity it can
39:13.718 --> 39:16.854
also help the analysts become better analysts to know which
39:16.854 --> 39:19.857
things they might be talking about that might be
39:19.857 --> 39:20.391
backwards.
39:20.391 --> 39:23.461
Traditional fundamental, people often think high
39:23.461 --> 39:24.895
short interest is a good thing.
39:25.930 --> 39:27.598
Supply and demand.
39:27.631 --> 39:29.467
There's a highly shorted stock, there's a lot of shares
39:29.467 --> 39:31.736
borrowed, somebody's going to have to buy back those shares
39:31.736 --> 39:35.306
to cover their stock and it's going to send the stock price soaring.
39:35.306 --> 39:37.942
If you're shorting stocks you probably have some kind of
39:37.942 --> 39:39.844
information and you're probably a more sophisticated
39:39.844 --> 39:42.980
investor. Highly short stocks actually outperform
39:42.980 --> 39:46.484
pretty consistently except for various periodic
39:46.484 --> 39:49.253
short squeezes. We actually want to avoid highly shorted
39:49.253 --> 39:51.689
stocks. Those kinds of things I think you can learn from
39:51.689 --> 39:52.256
[crosstalk].
39:52.256 --> 39:54.592
We've got a time squeeze right now so we've got to wrap up.
39:54.592 --> 39:56.293
Thank you very much, Salim Hart, very interesting.
39:56.293 --> 39:57.294
Absolutely. Happy to be here.
40:01.065 --> 40:05.369
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40:05.369 --> 40:08.806
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40:38.035 --> 40:41.806
The views and opinions expressed on this podcast are those of the participants
40:41.806 --> 40:46.911
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40:46.911 --> 40:49.180
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40:49.180 --> 40:52.750
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40:52.750 --> 40:56.520
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