Bottom Line is a sort of cool "a bit of this and a bit of that" newsletter that covers personal topics from finance to nutrition and scholarship sources. I contribute occasionally. The schtick is that they assess reader interest in various topics and one of the writers reaches out to talk with me. We talk. I share thoughts and data. He filters it through his sense of what would engage readers, drafts an article and the editor sends it back with a "is this about right?" query. Nominally I'm the author. It's unpaid (which is fine) though I do get five copies of the newsletter to share with friends.
The most recent exchange was on
microcap funds. You get some idea of the constraints under which the writer works when you realize that the entire article is
exactly 250 words, only slightly shorter than the greeting on my voicemail.
The premise is that microcaps are profoundly undervalued relative to a bunch of measures and tend to perform exceptionally well when interest rates begin to fall, since that often signals a period of economic acceleration. I think my screen identified 10 (?) options and Mark picked up on three.
I wish he'd included
Pinnacle Value (PVFIX) which is a five-star fund. Shallow observers will say "he's been in the bottom 10% of his peer group four times in the last 10 years." Those who look closer might note that his market cap is one-twentieth of his peer group's and he's posted double-digit absolute returns in three of those four years. 2017 is the only actually bad year. Since inception is Sharpe is 50% above the group's and standard deviation is half of the group's. But John's down to $34 million in assets; as a one-man show he will soldier on, but he deserves more serious attention.
He just shared his latest annual report. He's a laconic guy, so I don't expect it will take long to finish. If there's something cool, I'll post it separately.
Comments
This is akin to Ed Studzinski's "what if the manager gets hit by a bus?" query. Ummm ... then you reassess and either keep the fund or sell it. The response is "yes, but what about the taxes on selling it?" My thought has always been, "you're only paying taxes at sale if the manager has been making money all along and has been doing so in a tax-efficient way. In which case, it sounds like you've have a good ride, eh?"
It looks like PVFIX has put up better results since I sold it ( of course!) and gained 24% last year while 50% in cash. Not bad
Thanks.
Not to digress but i do not have comprehension of what "Absolute Return" means, though i have seen that term used in fund name and otherwise used in the context of investing.
"They know The Right Way to invest despite being subject to years of ridicule and redemption." I think you meant "They [think] they know . . ." Fund managers are in the business of providing a service that they feel good about and presume there is a demand for. Gathering or inability to gather AUM does not say anything about the managers' abilities within the mandates of a fund. But I know life is finite.
David's Article identified OMCIX which is also mentioned in my linked article (3 of the 6 funds mentioned are Micro Caps funds): 6-top-performing-small-growth-funds
Paradigm Micro-Cap, PVIVX, seems worth checking out as well.
Their mantras:
- "return of principal is more important than return on principal"
- "the best way to make money is not to lose money"
- "stocks are worth owning only when stocks are worth owning"
In consequence they tend to have stick absolute value standards (if their calculation of the internal rate of return does not exceed 15%, say, they won't buy where relative value guys will happily snap up "the best of a bad lot"), often strict portfolio weight rules, and would rather hold cash or cash-like bonds rather than stocks that are irrationally valued.In general, you hope that they'll do great in market crashes and great in the first phase of the recovery, knowing that they will more-or-less quickly hit valuation concerns and begin selling down (or selling off) overvalued stocks. The problem for these guys is that the market can remain irrationally frothy for much longer than the average investor can remain patient, so after a couple years of making 15% when everybody else is making 115%, investors abandon them.
Large firms cannot abide by the thought of money leaving, so almost all absolute return investors work on their own or in boutiques. For lists of such lonely souls, search "dry powder gang" in the main MFO search box. That is, not on the search that looks at the discussion board.
Does that help?
Grateful for the time and effort you took to indulge me.
The mantras you laid out match my expectations and is consistent with the PVCMX objectives i remember reading in their fund literature, though i never owned it. I know some Absolute Return funds which do not strictly follow the mantra and with losing years. PVFIX and PVCMX seem to ty to strictly follow the mantra and I hope they succeed. I think it is important for us that funds follow their stated objectives, whatever they are.
I do not pay attention to investor's ridicule. I see myself investing in Absolute Return mandates, and that is the reason why I remember PVCMX. Not PSPTX!
Thanks, @Old_Joe. Now I know and hopefully I will remember why my search results are always limited.
I used to own Pinnacle Value Fund, but I sold it a couple of years back as well.
They sell when the market cap exceeds $900 million- this never made sense to me. Why would you sell a winner, unless it hit some predetermined % of your portfolio?
Anyway I pulled up their published track record, compared to the Vanguard Small Cap Index, and it certainly seems that most of their reported success was between 2004 and 2013
Their tiniest of stocks do best coming out of recessions. Their portfolio only beat the Index once since 2016.
That was a poor joke about GP! It shows that I should stick to investing and not dabble in comedy. I cautioned the forum about GP before they blew up - I have a very low tolerance for poor governance.
Here is a link that I found:
https://www.bottomlineinc.com/subscribe-to-bottom-line-personal
Thank you for the insights.
Any thoughts on PRCGX / PREOX ($215M / $100M mmc) vs PVFIX ($415M w.amc) / AVALX ($1,272M w.amc) / OBMCX (< $600M mc) / WAMVX ($1,170M amc)?
Perritt funds invest in the smallest of microcaps. They have not performed recently, but PRCGX has done well before during economic upturns after periods of uncertainty (as partially evidenced by the 15-y 11.65% AATR under the same manager per MStar).