Robert Maltbie, CFA is the Chief Investment Officer as well as the Portfolio Manager at Millennium Asset Management. He is also the founder of Singular Research; an enterprise that looks to exploit companies that lack coverage and thus trade at a discount. Maltbie was also the keynote speaker at Equities.com Small-Cap Stars Spring Conference of 2015. To view his entire speech, click here. Below are some of his key points from the speech.
- We live right now in a winner-take-all economy where big corporations rule the market, operating as oligopolies. Since the 1980’s, medium-sized companies have merged to create these huge corporations. Mergers lead to layoffs, lower production costs, and larger market shares for new corporations. The incentive to take risk has been whittled down because these companies are already so powerful. Lower leverage balance sheets confirm their resistance to take risk.
- This winner-take-all environment has been the source of the deflationary environment in the market right now. Cash is the safest asset in a deflationary environment.
- There may be some positive news for micro-cap stocks though. Average weekly wages have also increased 2%. This is good for small caps. Microcap investors want bond prices to go down and the fed to hike interest rates. They want a reflation market. Microcap index has been up 9% in the last year, and the Treasury bond index has been down 9%.
Two investment recommendations:
- Long on Noah Holdings: wealth management firm in China that had a 64% YOY increase in revenue. China is one of the fasted growing economies in the world and their market is undervalued because it trades at a 50% discount to its GDP. High-income investors are being created very quickly in China.
- Short on Charles Schwab ($SCHW): wealth management firm in the United States. They are trading at 34 times earnings, far too high. They are spending too aggressively, cutting internal costs to buy up assets. Market share gains are harder to attain for them because they are fighting against places like Fidelity and Vanguard.
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