A stealthy small cap quietly building a market monopoly

Investment management can be a brutal business. When you're talking small caps, the brutality is amplified even further. 

Between March 20 and September 3 last year, the ASX Small Ordinaries Index sky-rocketed 44.38%. That's the kind of performance that will make a fund manager euphoric, but also nervous. After all, mean reversion is a thing. And eventually, you need to pay the piper for that kind of performance. 

Pay the piper the small cap sector most certainly did, in the form of a 25% downward correction. But just as what goes up must come down, what goes down will eventually go up. And we may have passed that inflection point, with the Small Ords Index up over 11% in the last month. 

In this episode of The Rules of Investing, Livewire's David Thornton sat down with Donny Buchanan, Co-Founder, CIO and Portfolio Manager for the Lakehouse Small Companies Fund. 

Donny's Fund has been swept up in the sell-off. But frankly, so has just about every fund. What's important is how they set themselves up for the recovery. You make money in times of market mayhem, after all.  

In this podcast, Donny discusses the problems associated with valuing tech and growth, the importance of believing in and sticking to your fund's mandate, and the lessons he's taken away from this latest sell-off. 

He also offers up a small-cap audio tech stock that is quietly forming a monopoly by creating its own ecosystem. 

Managed Fund

Lakehouse Small Companies Fund

Australian Shares

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Note: this episode was recorded on Friday August 5, 2022. 

Timestamps

• 1:30 - a tough year
  
• 3:30 - don't chase the market
  
• 6:30 - tech growth valuations
  
• 10:45 - will sky high P/E ratios return?
  
• 11:30 - portfolio changes
  
• 16:00 - blocking out noise
  
• 18:45 - macro should informing the bottom-up approach
  
• 24:30 - can mandates 'trap' investing?
  
• 26:00 - 'fascinations'
  
• 29:00 - 3 favourite questions

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