On Tuesday March 3rd, 2020, almost 300 hungry, inquisitive investors gathered at Switzer Financial Groups ‘Small & Micro Cap Investor Day 2020’ at the Fullerton Hotel, Sydney.
Peter started off by addressing the elephant in the room, which was a question that everyone had on their minds: how worried should we be about impact of the coronavirus (COVID-19) on the economy?
To discuss this, Peter called upon industry experts Julia Lee from Burman Invest, Michael McCarthy from CMC Markets and finance analyst Rudi Filapek-Vandyck.
Chief Investment Officer of Burman Invest, Julia Lee, believes that it is possible to use the volatility of the market to your advantage. She says it’s important to understand that the market clusters, so it is always better to invest in the long-term, rather than pulling out stocks after a short period of buying in.
CMC Markets Chief Market Strategist, Michael McCarthy, confidently declared he is “not scared at all” of the potential threat of coronavirus. He too believes that pulling your stocks out because of a volatile market will not offer the return that sticking with your stocks long-term will. “Shares offer longer term rewards because they offer higher risk,” said Michael.
Meanwhile, opinionated finance journalist Rudi Filapek-Vandyck, who often contributes to Switzer Daily and the Switzer Report, assured that “the one thing you want in the future as an investor is future growth,” which will only be achieved in the long-term.
In regards to the threat of the coronavirus on the market, all our industry experts agreed that selling your stocks out of fear is not a smart move, and sticking them out through this period of volatility is the way to go.
The experts shared their experiences with small caps
The fact that all these industry professionals agreed on something speaks volumes, because in the next half of the conversation, their discussion about investing in small caps was not as smooth sailing.
Julia, Michael and Rudi shared their best small cap investment tips from their own experiences, while sharing their best purchases as well as their worst.
Julia’s tip was to “try not to buy into a story”, as her worst investment decision was one where she bought into a cancer research story, and the investment plummeted. She says her best buy was A2 milk, and she regrets getting out as early as she did, which is why she always encourages long-term investments and sticking it out through the periods of volatility.
Michael McCarthy said he invests in the ‘lazy way’, by checking volume and price surcharges, signals and trends. From Michael’s experience, he is not as keen on investing into small caps, because they are a high risk. But, he assured that even though they are a high risk, they are risks that can pay off really well if they work in your favour.
Rudi said he highly disagreed with Julia, as he thinks “stable dividends are bad investments” and that every stock should have a certain function or purpose in your portfolio. He said that successful stocks are ones with a range of characteristics that will last in a volatile market, and “could become the next CSL”.
We also heard from Tony Featherstone, a regular contributor to the Switzer Report and respected finance journalist.
Tony shared his ‘investment philosophy’ for small caps, assuring investors to be cautious of following trends that seem “sexy and seductive”, and believe “your eyes and ears are your best investment tool”. Being in tune with the world around you, things you see popping up or topics that are trending in conversation are often reflective of what will soar in the stock market.
An example of this that Tony shared with our audience was when he was working as a university lecturer and saw the campus transform year after year with an influx of international students. Tony decided to buy into a company called IDP Education Student Services Australia, which supported international students through their studies, and he considers it one of his best buys. Though, Tony’s biggest rule, which most of our experts also shared as their best piece of advice, is to invest long-term. Tony learnt this the hard way by selling his stocks in a small cap early, which would have been worth over $1 million if he held onto them. “If you get it right, you’ve got to let your profits run”, he insisted.
When assessing the longevity of a small cap, Tony recommended that everyone keep their eyes and ears open during reporting season. “The best information is what the company publishes and nobody reads,” said Tony. “The amount of information small and micro caps are publishing you think why isn’t anyone talking about this…it’s because they aren’t looking!” In regards to a stock portfolio, Tony says, “as a rough rule of thumb I wouldn’t put more than 2% of my portfolio in small caps”.
Tony also had some things to say about the dreaded coronavirus impacts, which he agrees is mostly a snowball effect triggered by panic. During periods of panic like the coronavirus and the GFC, there will be losses, but judging by history we always come back up again. “Buy into the volatility. Be prepared that it might go down, but it will come back up again,” said Tony.
Small caps that stand out
After our industry professionals shared their hot tips for investing in small caps, it was time for a number of small cap businesses to pitch to our audience why their business was one to invest in. Our audience heard from 8 companies: Rafaella Resources Ltd (ASX:RFR), Auswide Bank Ltd (ASX:ABA), Bailador Technology Investments Ltd (ASX:BTI), EMVision Medical Devices Ltd (ASX:EMV), Imagion Biosystems Ltd (ASX:IBX), High Peak Royalties Ltd (ASX:HPR), Hazer Group Ltd (ASX:HZR) and Recce Pharmaceuticals Ltd (ASX:RCE).
Rafaella Resources Ltd (ASX:RFR)
Our audience heard from global minerals explorer and developer Rafaella Resources CEO, Steven Turner. Steven informed the audience about the Santa Comba mine the company has purchased and their fast developments that have been implemented since they acquired it in August, 2019.
Steven explained to the audience how this was a rare, “low risk opportunity to get into mining through a small cap”.
Auswide Bank Ltd (ASX:ABA)
Auswide’s Chief Customer Officer, Damian Hearne mastered the difficult task of marketing a Queensland bank that sponsors the QLD Maroons to an audience of blues supporters, but after explaining the history of this small but mature bank that has been around since 1966. Auswide Bank explained how it has maintained impressive figures for a number of years, being listed on the ASX since 1994, while having the perks of a small bank that is able to respond to the everyday needs of its customers.
Damian shared to the audience that an increase in digital banking has meant a number of customers are not getting the same banking experience they started with, and Auswide Bank’s commitment to provide this service to every day Australians has gained consumer trust, particularly in loan book and deposit growth.
Bailador Technology Investments Ltd (ASX:BTI)
Bailador Technoloy Investments Co-Founder and Chairman, David Kirk, explained the downfalls of the ASX in the tech industry. Through this understanding, Bailador was able to develop its business model to allow Australian investors to be exposed to high growth tech companies at a reasonable price.
Bailador takes establishes businesses with quality business models under its wing, as they enter their expansion process and before they go public. Over 65% of Bailador’s revenue is generated from markets outside Australia, which allows Australian investors to dip into global market expansion at the early stages.
EMVision Medical Devices Ltd (ASX:EMV)
EMVision Medical Devices Ltd was presented by its CEO, Dr Ron Weinberger. EMVision shared its incredible work that aims to revolutionise the imaging of strokes and traumatic brain injuries.
EMVision’s brain scanner is a commercial product at a manageable price that will allow for quick, efficient and scalable brain scanning, as soon as possible. The machine will even be feasible during the pre-hospital triage stage, which opens up doors for earlier treatment choices. EMVision believes the power of the cure to a stroke will be in the hands of paramedics after their product becomes readily available, by administering clot busting agents in the ambulance. The product aims to cost the same as an ultrasound.
The technology is currently in the clinical trial stage, and has a number of supporters including a $2.6 million grant from the Australian Government and a $50 million Medical Research Future Fund Grant pledged under the Australian Stroke Alliance.’
From an investors perspective, Dr Weinberger assured the product is well funded, and has a great deal of support from high authorities in Australia, making it a sure-fire success for growth in the future.
Imagion Biosystems Ltd (ASX:IBX)
Imagion Biosystems Ltd CEO and President, Robert Proulx, captured the room introducing a new medical imaging technology that uses magnetic nanoparticles to identify cancer early. Imagion operates out of San Diego in the United States, with an office in Melbourne, which allows them to combine the resources of the US with the studies of Australia, and list on the ASX as well.
Imagion aims to revolutionise imaging technology, as there have been no new approaches to medical imaging in 50 years. Despite technical advances in many areas that have changed the treatment of cancer and increased survival rates, the innovations in detection and imaging have been quite stagnant. This is what Imagion aims to change by replacing MRIs and ultrasounds that cannot determine whether cancel cells are present through imaging. Through nanoparticle technology, Imagion technology is able to test the specific type of cancer cell before diagnosis in a non-invasive way. The nanoparticle is delivered to the cell, and the process can be used for diagnosis as well as treatment.
From an investors perspective, Robert marketed Imagion as a buy for a small cap that is set to take off, and will not be recreated elsewhere due to their patent laws. They have a $2 billion market focus, no debt, and have already accelerated from 2 cents to 7 cents after gaining FDA approval. After gaining this approval, the FDA put Imagion technology in the “breakthrough device” category, which Robert shared to our audience as basically a green card to invest.
High Peak Royalties Ltd (ASX:HPR)
High Peak Royalties listed on the ASX 5 years ago, and since then, the small cap has boasted a share price incline due to the service of delivering investments into the energy sector without the Capex and Opex risks. Chairman Andy Carroll explained to Switzer’s audience how they run a very small, but very strong and experienced team, which means they have little overhead or operating costs.
Their business model allows investors to reap the rewards of investing in the energy sector, without having to analyse the risk themselves.
Hazer Group Ltd (ASX:HZR)
Hazer’s CEO, Geoff Ward, proposed the very attractive, ‘way of the future’ through investing in low emission hydrogen and synthetic graphite production technology. Hazer sees hydrogen as the way of the future for transport, heat, electricity and more.
Hazer have a clear commercial development strategy which start off with their technology, and will lead into plant developments, commercial opportunities in early growth markets in Asia, and a collaboration with mineral resources.
Recce Pharmaceuticals Ltd (ASX:RCE)
Lastly, Recce Pharmaceuticals Executive Director, James Graham, spoke to Switzer’s audience about a new form of antibiotic that “killed all”. It has particularly proved to be a leader in the treatment of sepsis, which is one of the most expensive conditions to treat and there are currently no drug therapies specifically for the treatment of sepsis.