The great investor Jim Slater once coined the phrase that elephants don’t gallop but fleas can jump 200 times their body height when referring to companies. So in other words the share prices of smaller companies have the potential to grow far more in value than larger companies.
“Investment is essentially the arbitrage of ignorance. The successful investor believes he knows something that other investors do not fully appreciate. There is very little that is unknown about leading stocks. In contrast…most leading brokers cannot spare the time and money to research smaller stocks. You are therefore more likely to find a bargain (with some ignorance to arbitrage) in this relatively under-exploited area of the stock market“ Jim Slater.
The CCM Intelligent Wealth Fund is perfectly placed to take maximum advantage of investing in smaller companies. One of the reasons why is because it is still a relatively small fund valued at just over £17 million. This means that we can invest in smaller companies such as Juvenescence and Agronomics, our two largest holdings, and potentially make large gains.
At one stage our investment in Agronomics shares, the clean meat company, were up more than 500%. It has eased recently to just under 400% due to a large private placement in the shares resulting in a dilution on the value of the shares. So the price fall has been more of a technical correction than a market fall as such.
We invested $1 million in the pre-IPO longevity company Juvenescence about two years ago in a private placement. Its public flotation on the New York Stock Exchange is expected later this year. We have since topped it up with an investment in a convertible bond offering again in a private placement. The IPO was delayed by more than 12 months because of the Coronavirus pandemic. We are expecting Juvenescence to float at a higher price than we paid for the shares in an earlier funding round.
Two further investments of ours in Wey Education and Augean have led to bids from larger companies at a premium to the share price. Wey Education has already been taken over by Inspired Education Online Limited. Morgan Stanley Infrastructure has confirmed it is in the preliminary stages of considering making an approach for the acquisition of Augean’s entire issued shared capital again at a premium to the share price.
So here are just four examples of how we have been able to buy the shares of four smaller, niche companies which have either already increased substantially in value or have the potential to do so. It is proof positive that small is beautiful. You know it makes sense*.
*The value of investments and the income derived from them may fall as well as rise. You may not get back what you invest. This communication is for general information only and is not intended to be individual advice. You are recommended to seek competent professional advice before taking any action. All statements concerning the tax treatment of products and their benefits are based on our understanding of current tax law and HM Revenue and Customs practice. Levels and bases of tax relief are subject to change.
