Finding Opportunities in Small Cap
June 5, 2019
Alaina Anderson: I think that William Blair’s quality philosophy is unique because it is multi-pronged. We look at quality from a growth lens. Not only being able to protect the core today but also being able to reinvest, reinvent, and then grow for the long term. So we look at it both from a sustainability today but an ability to grow into tomorrow.
Jim Jones: In order to have conviction on growth margins, earnings and overall cash flow generation ability, we need to have a good understanding for what that market is going to look like into the future.
Yan Krasov: The short term can be noisy. There is a lot of factors going in and out companies favor that are completely out of their control.
Jim Jones: There are lots of things that we look for anytime we first start our due diligence on a company: long runway for growth, big, competitive mote, and high value proposition to the customer. On their own, none of those three things really work. But when you can get all three of them together, that’s where the magic happens.
Yan Krasov: I was closely following an industrial services provider for multiple years, and I had a chance to watch the management team through a period of euphoria and a significant upturn in its market followed by a period of significant downturn. They did not cut prices as their competitors did during the downturn, and they were willing to lose some market share to continue to maintain their service proposition. They also did not cut their employees’ wages, which helped create employee buy-in to generate more productivity for the company over the long run.
Alaina Anderson: We like management teams where we feel that the leaders have the right incentives. And usually those incentives are returns-based; so, not easily manipulated by short-term factors. It’s this dual-pronged approach to identifying durable business models and attention to offensive and defensive aspects of quality that should lead to better portfolio outcomes over time.
Filmed April 2019
The views and opinions expressed herein are those of the speakers as of the date of publication, are subject to change without notice as economic and market conditions dictate, and may not reflect the views and opinions of other investment teams within William Blair. Factual information has been obtained from sources we believe to be reliable, but its accuracy, completeness, or interpretation cannot be guaranteed. This material may include estimates, outlooks, projections, and other forward-looking statements. Due to a variety of factors, actual events may differ significantly from those presented.
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