3 ingredients for small cap success

The multi-bagger is the “holy grail” for most small cap investors. Whether you like tech, resources, industrials, or all the above, there’s nothing quite like the satisfaction of watching your stock go up three, five, or even 10 times.

Dean Fergie from Cyan Investment Management has had a few of these stocks in his nearly-25-year career in Aussie small caps. He has noted a few similarities among them – though he freely admits its “obvious stuff”.

1. The company’s product or service must be scalable.
2. People love what the company is selling. These types of companies tend to generate ‘buzz’ – think Afterpay in the early days, or for those that remember, Sanity stores when they were being rolled out in the 90s.
3. People are forced to use it, regardless of whether they like it. He points to Transurban (it was a small cap once!) as a good example.

In this episode of The Rules of Investing podcast, Dean explains how to handle it when markets aren’t going your way, we discuss a handful of Aussie small caps – some well-known, some not so – and he tells us why he thinks it’s time to start putting cash to work after the recent sell off. 

Topics discussed:

• 2:23 - Why Dean loves small caps
• 4:10 - Is it easier to find alpha in small caps? 
• 5:18 - What to do when the markets moving against you
• 7:38 - Is now a good time to buy small caps? 
• 11:34 - The IPO market is all dried up
• 14:19 - A (somewhat) recent listing with a compelling investment case
• 17:54 - The attributes of a multi-bagger
• 21:00 - Can beer and spirits make for a good investment? 
• 24:37 - A software stock that's been unfairly sold down
• 27:11 - Dean answers our three favourite questions. 

Reading recommendations:

• Extraordinary Popular Delusions and the Madness of Crowd, by Charles Mackay. Available at Booktopia and Amazon. 
• One Up On Wall Street: How To Use What You Already Know To Make Money In The Market, by Peter Lynch with John Rothchild.  Available at Amazon and Booktopia. 

Transcript

Patrick Poke:

Hi, Dean. Welcome to the show.

Dean Fergie:

Thanks, Patrick. Really good to be here.

Patrick Poke:

It's good to have you. It's been far too long. Filling a few of the gaps left in my library of content of people who I've been promising to come on the show for years, so I'm glad that I've finally been able to fulfil that promise for you.

Dean Fergie:

Well, look, it's certainly good to be here in person.

Patrick Poke:

For sure.

Dean Fergie:

I thought this day may never come, but it's really good to be sitting here in a vibrant sort of a day having a chat. It's fantastic.

Patrick Poke:

It is. Last time we were recording here, we did have a little bit of an interruption from one of the dogs in the offices nearby. So hopefully, we can avoid that this time. I don't think there are any dogs in the office today. So...

Dean Fergie:

Perfect coworking space.

Patrick Poke:

Exactly. Well, let's start at the beginning of your career at least, I guess. You've been in Small Caps, I'm not sure if for all or just for the vast majority of your career. I can say at least back as far as '97. Sorry to date you a little bit there. What is it about Small Caps that has kept you interested and engaged for all those years?

Dean Fergie:

Yeah, I mean, it's been a long time now. We're coming up on kind of a quarter of a decade (ed's note: Dean meant to say "century") and really most of my working life. I think what I enjoy about it is just the diversity and the amount of knowledge you can gain, the opportunity in terms of getting the Small Caps right. There's clearly risk involved as well. But I think when I started, I worked at NAB and I started doing big caps and a lot of it was retail and it was like, "Do you want to buy Coles Myer or Woolworths? Do you want to buy BHP or Rio when it was back then or NAB versus Westpac. It just seemed a little bit mundane and then I started working with Adrian Dimattina in the Small Caps, which is pretty exciting.

We went through the dot com boom of the late 90s, which was incredibly exciting and then incredibly humbling in terms of when it all crashed. But there was just always so much going on and you would've seen it in the last year or two. The number of new IPOs coming to the market, the number of placements, the number of businesses being acquired and divested and some going broke and some flying, it's just a really exciting place to invest. Not for the faint hearted obviously, but I mean, it just keeps me so motivated all the time. It's just constantly a challenge and I've learnt as much in the last two years investing as I would've in the last 20 as well. It's just always changing, so it's great. I love it.

Patrick Poke:

Do you think that the smaller end of the market as a professional money manager, is it easier to find alpha there than it is at the big end, do you reckon?

Dean Fergie:

Yes, it is. It's also easier to lose alpha at the smaller end as well. I mean, that's the thing. With any investment there's pros and cons. The fact is if you are looking for genuine alpha at the smaller end, it's way easier to find. The market's a lot less efficient. There's less people covering it, there's less liquidity, there's more of a, what they call that grey edge where you can find out something that other people don't. The fact is, if you are trying to analyse, like I said, Woolworths or Wesfarmers, that is a comprehensive body of knowledge that you could spend a year trying to get your mind around and you still might not know any better than anyone else. Whereas Small Caps it's often a single business model and the like, and so you can get a little bit of an edge and get some upside. The downside is, you've got liquidity issues in that small end and that alpha can evaporate very, very quickly in a poor market, which is like we've been seeing in the last sort of three to four months.

Patrick Poke:

Yeah. You've had some pretty impressive runs over the last few years, some good boom times. More recently though, things have been a little bit tougher for you. What do you do or what do you tell yourself when things aren't going your way? When you have a bad month, what's your process for dealing with that?

Dean Fergie:

Yeah. Look, it's a really good question and I think that's one of the hard things about investing, is how you deal with things going badly. It's really easy to be on a bunch of winners and high fiving your mates, and just checking your portfolio every day and seeing how much it's going up. A couple of things I think I've got I guess a historical advantage from, I've been through these cycles a number of occasions. I've enjoyed the thrill of making a lot of money, sometimes in a very short period of time. I've gone through the soul searching that you go through when things don't go well, and you dust a lot of money you very quickly. So, that's one thing you just know it's a part of the cycle of investing, and so you cope with it. 

I'd say it's almost like a brain surgeon. People say, what happens if it goes wrong and you lose a patient on the floor. Those guys go, "It's just part of my job. It's not enjoyable, but I know that it will happen over the course of a career." So, investing is a little bit like that. 

Probably more importantly, is we know our businesses pretty well. We've got direct contact with the managing directors, and the CFOs, and people in the business. So, when a stock's falling, you can go to the people that own the business saying, "How's it going?" And they will genuinely tell you, "Look, we're going well." We've invested in a company called Alcidion and then the stock's been under pressure. They're just saying, "Look, we've had trouble selling you to the hospital network because they've been distracted by COVID and like. But everything else is going pretty well." And so, you can go back to that I suppose anchor of, what am I really investing in? Yes, it's a real business. It's not just a code. It's not a cryptocurrency. It's not something esoteric that I don't really understand. I understand what I'm investing in, I understand the valuation, and that can give you confidence to hold through periods where stock prices may not be trending the way you might otherwise think.

Patrick Poke:

Given the sell off that we've seen in Small Caps, in particular small industrials and tech, is it a good time now to be getting into those kind of stocks or are you kind of expecting a little bit more pain before we get to the bottom?

Dean Fergie:

Oh, gee. I don't want to be held to this question. Do we date this? 18th of March 2022?. Look, I genuinely do think it's a good time for people to start considering deploying capital in the market, a lot of stocks, particular the small end have been decimated. Some are 50, 60, 80% off their highs. So, if you want to cherry pick a few of those, I think it's a really good time to be investing. The fact is that it's easy to look back historically and go, "Oh, that was a really good time to invest just when, when COVID was starting two years ago." But do you think when we're about to go into lockdown in Australia, everyone went, "Now I'm going to throw a whole bunch of money to stock market."

Everyone was just shuttering all their investments. They didn't want to know about it, and it was a perfect time to invest. I think you've got to be increasingly contrary in this market. You've got to be thinking, what is everyone expecting me to do? I'll probably do the opposite. I think now, if you can't convince anyone to put money into the market, it's actually probably a pretty good time to put money into the market, absolutely. Interest rates aren't going to 12%. There'll be a period, it maybe in the next couple of months, where people look, "Well, I'm start to getting one or 2% in the market. I want to make a bit more alpha. I want to make it just a little bit more genuine return." And I think they'll start coming back to equities.

You see, when they start moving, and people start thinking they've missed the boat, then it accelerates. So, it may have already happened. We might have seen the lows earlier this week and it appears that way. So, yeah. Look, I think I'm never one to say, "Look, I'm going to pick the bottom. I'll ring the bell at the bottom." But look, people that have got capital out there, I'd definitely be thinking about deploying some into the market.

Patrick Poke:

Do you prefer to take a bit of a nibble as it's going down? You see it down another 5%, take a little bit more? Or do you prefer to go hard when you think you've hit the bottom?

Dean Fergie:

I'm probably more of a nibbler, if that makes sense. Look, one thing, I think private investors, they want to buy a whole bunch of stock at the bottom and they want to sell it all at the top. Now, that's great in theory. That's the perfect thing to do but it can't be done in theory. And so, the beauty of the stock market is, you can take a piecemeal approach. You can add a little bit to your holdings when it's going down, as they're going up, you can sell a little bit. It doesn't have to be an all or nothing. It's not like buying a house where you'll able to buy it or you can sell. And so, I think that's emotionally a better thing to do, and also financially a better thing to do as well. Don't try and be a hero. Like, I'm going to pick the bottom, I'm going to pick the top. But if you are seeing a little bit of value, you've got some cash around, deploy it.

If you've done really well, just take a few chips off the table. It seems to be sensible, but it's something that I don't think investors tend to do terribly well. Whether it's fear or greed or a number of those things, or just logistically. It's just, I can't be bothering out my broker and selling $1,200 worth of shares. But that's what we do as professional investors. We're looking at weightings every day, working at where they should be managed at a certain price, and making those adjustments. I say it's like sailing a boat. You don't just set your sail and go, "We're going over to that island over there," and it's not a set and forget. There are wind shifts, and tide shifts, and you might need to pull your all sails down when the storm's coming and put them back up and make adjustments to the right and all those sort of things. Investing should be like that. It should be, just you're always being a little bit trying to trim around the edges, which gets you to your destination faster and safer.

Patrick Poke:

Well, let's get into some stocks. I know you watch IPOs pretty closely. I'll be honest, it's not a market I watch too closely myself. As a retail investor, it's usually pretty hard to get an allocation in any of the good ones. But I thought you might have a bit of an idea what some of the good ones might be out there at the moment. Are there any recent IPOs that have stood out to you? Could you tell us a little bit about them?

Dean Fergie:

Well, the short answer is no. Really because the IPO market is just not open at the moment. Look, I saw one downstairs a couple of days ago, a company called Haemokinesis, which is a blood testing device which looks quite interesting. But broadly, the IPO market's been shut for most of this year and we've seen some really, really poor performances from ones that were listed late last year. You've seen things like the video technology company BirdDog, which is halved since it listed. BeforePay, they sort of paid their lender has been just a absolute mess. I think it's gone from $3.70 to 90 cents. So, I think most investors have looked at that market and said, "I don't want to know about it. Clearly the rest of the market's a mess." I think for the moment companies just saying, this is not a good market to target. We're not going to be able to tap the market for many funds at the moment. So unfortunately, it's pretty much closed.

The other thing I'd say about IPOs, which I think is an issue across the board is, if you put your hand up for an allocation into a company that's got very high demand, you often won't get many shares, and if it's going really poorly, you'll get everything you want. So, it's a bit like you're damned if you do and you're damned if you don't a little bit. So it is a little bit tricky to play. But again, I think it's a really good place to look for investments because you're at a point in time where it's just a fixed price, so you can decide. There's no market to be made. If you decide that you think it's good long term, then it's a really good time to invest and even if you don't get the shares at IPO, you can buy them when it first lists and you can get an edge.

There's been plenty of great business that have listed in the last few years. You look at Bellamy's and Afterpay and the like that have made their investors a lot of money early on. So, whilst the market's closed now, I expect certainly if we see a little bit more of a rebound in the market, that it will open up in the next couple of months and there should be a backlog of IPOs that come to market that I think are worth investors casting their eye cross because the valuations probably look pretty good.

Patrick Poke:

What about those ones you were talking about there that listed last year and have had a bit of a rough time since? Are any of those starting to look interesting to you now? Because I know with the IPO cycle, it seems like the end of the cycle is always where all the lower quality stuff ends up. So, is that what you were seeing at the end of last cycle?

Dean Fergie:

Yeah, look, I think you're exactly right that there was a bit of the doors shutting and so, just all the kids in the classroom were running out and it was the slowest ones were the last through the door. So there was an element of that I think. Look, the probably one I'd point out is, we put money into a company called, Zoom2u, which is basically a delivery service plus a software delivery solution. That's one that listed at 20 cents back in September, 2021. It went up to 75 or 80 cents and it's come back to about 22 cents. Their business we think is fantastic. It is the new age that you order something online, and you don't want to get it via Australia Post in the next week or two and I think...

Patrick Poke:

If you're lucky if it's Australia Post.

Dean Fergie:

Exactly. Amazon have set the benchmark, I don't know. I buy stuff from Amazon, and I think, should I do that? Jeff Bezos has got enough money. But I know that if I click that buy now Amazon button, my charger cable or packet of tennis balls, or a shirt or whatever I bought, will be in my letter box the next day and so, that's the benchmark. So, Zoom2u have got this courier network that is sending stuff across town within a couple of hours and it can all be tracked. They've also got a software solution. If you're running Patrick's T-shirt business, that you can get your drivers equipped with Locate2u, their product, and myself as a customer, can see where your driver is coming with a t-shirt. So it's a game changer and it's something that Aussie Post can't do because they're not going to be able to track their drivers because of unionisation and the fact like...

But that's going to be what I think is... I think one of the, it might have been the head of Woolworths was saying same day delivery is the new black. It's what people are going to expect. And if you can't ensure that through Aussie Post or whatever, then I think platforms like Zoom2u are going to thrive. So that's one recent IPO that's trading just a little bit above its IPO price that I really like. And I think it's got some really sort of compelling reasons behind it that people should like as an investment.

Patrick Poke:

So no more having to go to the post office when Australia Post reportedly tried to deliver a package for you?

Dean Fergie:

No. Well, it's interesting. I mean, another disastrous IPO recently has been Step One, this underwear brand which I think was a $1.60 float and went to, it might have been to.. It was $1.60 went to $2 or $3 and come crashing back. My initial research for that was, I'll buy a pair of underwear from them, which was a great experience until I was calling them two weeks later going, "Where are my jocks? And they're like, "Oh, they're coming. It wasn't supposed to have been really slow." It's just not on. You're not going to do that anymore. People's expectation have changed so-

Patrick Poke:

Absolutely.

Dean Fergie:

So that's sort of one that I like. Yeah.

Patrick Poke:

I was going to try and avoid making any reference to Afterpay in this interview because I figure you must be sick of speaking about it by now.

Dean Fergie:

Everyone's investing in Afterpay, haven't they? Well, maybe not anymore.

Patrick Poke:

Yeah. But I think you probably got a better entry price than most. But you're investing in the small part of the market, particularly in growth stocks and tech stocks, obviously, a few of the stocks you tend to hold end up being multiple times not just percentages that you're measuring your returns in. What are the attributes that you look for that indicate that you might be onto a stock like that? Something, I'm not going to say the next Afterpay I promise, but a stock that can produce returns of multiples if you're willing to hold it for the required period.

Dean Fergie:

Yeah. Look, it's a good question. It's kind of the holy grail. It's what everyone's looking for. And so, for me it is the, I think anecdotal evidence. It is the obvious scalability. It is if you are forced to use a product and you've got no choice or all those kind of... It's just really obvious stuff I think. So, let's take an example of Domino's Pizza. You can pick up your phone, order two or three Domino's pizzas on it that will cost you $7 each in some cases, and pick them up in 10 minutes from your local store. That's extraordinarily good service and that's very hard for your local called pizza shop to compete with. So, you've seen that's why the company's been successful.

Look at people complaining about airport parking. It's so expensive but I don't have a choice. Well, why do you think airports are going for so much money? I invested in Transurban years ago, back in the 90s when it first listed and if people remember. But the Tullamarine Freeway back in the days it was free. They widened it and started charging people and people are like, "How can they be charging for road that used to be free? This is ridiculous." And I said, "Well, it's not great. Buy shares in the road and look how it's going." Because people, they didn't have a choice in terms of how to do it. So, I think those kind of... It's kind of easy for people to understand.

Back in the mid 90s, one of my first really successful investments was, Brett Blundy's business, Brazin which owned bras and things and Sanity Records. This was a time where CDs were going crazy and Daniel Agostinelli who now runs Accent Brands, great retailers these guys, was just rolling out Sanity stores left right and centre. Really vibrant, really exciting, people just buying CDs and of course Sanity went up four or five times in a couple of years. So, it was as those evidences that you're seeing people use a product and enjoy a product and you can see the value yourself or you don't see the value but you haven't got a choice, are really good ways to look at investment. Circling back to Afterpay just briefly, when it started, you could tell that a lot of people were using the product. So, if you see that happening in society, I think that's a really good place to go. Maybe that's an investment I should start looking at.

Patrick Poke:

Well, I wanted to talk about a topic that I'm quite passionate about which is, craft beer. I know that you are invested in Mighty Craft, which in addition to craft beer of course also does spirits and I think they've got a gin brand and a whiskey brand and a few other things along those lines as well. Craft beer is a pretty competitive market I've got to say, there's a lot of people who start small breweries and often don't make a lot of money. What is it about Mighty Craft and the brands that they offer that appeals to you? As an investor of course.

Dean Fergie:

Yeah. Well, interesting I'm not a craft beer man. I'm a Carlton Draught, VB kind of guy. So, it's a little bit, it's not quite within my wheel house and so...

Patrick Poke:

So you're more of a Better Beer guy rather than Mismatch?

Dean Fergie:

Not even the Mismatch or the Ballistic or any of their brands. But they've got a really diversified brand portfolio. They've got Kangaroo Island gin, 78 Degrees whiskey. They own the Ballistic, Jetty Road, Mismatch Brewery, which is really big in Adelaide. Plus a number of venues including the Lot, the Jetty Road Breweries. A number of other... Kangaroo Island Distillery - cellar door stuff. So really diversified brand of products run by some really experienced guys like Mark Haysman who's ex-Lion Nathan ran the Port Adelaide Footy Club for a while, ex-CUB for seven years. Andrew Syme, their CFO, has been in fast moving consumer goods for years in including craft and the like. So, really high quality guys that are well connected. They've been through a really bad period. Obviously, with COVID all their venues were shut, which really decimated their revenues.

But importantly, craft beer is really competitive, but it's also very valuable. You've seen the acquisition of all these brands over time. The most recently being Stone and Wood, which I think the numbers are about $25 per litre annually. So if you sell a million litres of Stone and Wood, they'll pay about $25 million for that brand. Where Mighty Craft have really killed it, is they've got this new brand that they've done with a couple of influencers called, The Inspired Unemployed, who have got massive follow. They've got a low carb, low energy beer called Better Beer that's got really retro kind of packaging and it's just taken the market by storm.

Okay, so in terms of anecdotal evidence, my son works down at one of the bars in Sorento, the Ocean Beach Pavilion and he was saying, "Dad, everyone wants Better Beer. We've got it on tap. It's just selling like hot cakes." It's been sold out across the country in Dan Murphy's and the like. It's been ranged nationally. It got launched in November and they're going to do 4 million litres this year. So if you look at that annualised, it's about seven. They're releasing new products, so that alone is going to be worth potentially, let's say $50 million to Mighty Craft. About half their market cap in terms of what they own of Better Beer, which is 36%. So, it's just one of those ones that's got a really nice diversified range of products, but one kind of hero product that is almost underwriting the whole performance of the business. So, yeah. It's one that I think investors should also have a look at, will really like it.

Patrick Poke:

It sounds good. What about... I'll give you a bit of an open call for a stock, you tell me about one that you like. Something maybe that's sold off recently and where you kind of see a lot of that long term upside. Is there anything you'd want to single out?

Dean Fergie:

Oh, geez. A long list in terms of stuff that's been sold off recently.

Patrick Poke:

Plenty to choose from.

Dean Fergie:

Yeah. Look, I mean, the one that we've probably been surprised by the extent of the sell off is a software company called, Alcidion, the code's ALC. They provide hospital software, both in Australia and the UK. So patient management, clinical decision making, paging, all that sort of stuff. So, it's a really sticky client base once you're in, but it takes a long time to get in. It's kind of analogous to Pro Medicus, which do imaging, which is now I think a $4 or 5 billion stock. So, it's been a bit of a slow burn for Alcidion, but the last few years they've really got some traction and the shares went from sort of 4 cents up to about 45. As they got traction, they've come back to about 18 or 19 and made a couple of acquisitions in the UK. And again, with COVID, they've had trouble getting that software into the hospital system. They've had trouble getting in front of clients and making pitches and the like. But more recently, they've started winning some new contracts.

The share's about half what it was. They've got 18 million bucks in cash on the balance sheet, so they don't need to raise money. They're doing annualised revenues sort of 25 to 30 million bucks getting close profitability now. So, we see that business over time, just continuing to increase its scale. Every time you win a new contract, the revenue goes on the bottom line or start seeking the profitability. It's only capped. I say only, but it's about 230 million. So compared to other companies in that area that are operating on a global scale, we think it looks really, really good value. So that's probably the one I'd pick that I'm really surprised it's fallen so quickly. But again, they did a raising in December, so the timing wasn't great. A bit of indigestion, so that didn't help the stock price. But we think it's a great opportunity and one, again, investors should probably have a look at.

Patrick Poke:

Well, that brings us to the end of the main part of the interview. But as you may know, there are three favourite questions that I like to ask everyone of my guests.

Dean Fergie:

Yeah.

Patrick Poke:

So if you got another, probably five or 10 minutes, we'll get into that now.

Dean Fergie:

Sure, I can hang around, Patrick.

Patrick Poke:

Cool. All right. Could you tell me about a book that has been particularly influential on your investment philosophy?

Dean Fergie:

Yeah. Look, I'm engineer by qualification and I've got more of a mathematical brain than a psychological or a creative brain. And so, really, it was all about numbers and facts and figures for me when I started investing, but the market doesn't operate like that. So, there's a book that's I think was published a couple of hundred years ago called, Extraordinary Popular Delusions And The Madness Of Crowds, which talks about all those ridiculous manias that happen in the marketplace. And the main one that I got a lot from was the tulip mania of the 1600s where just people went crazy for tulip bulbs. They were going for an annual salary and then overnight they crashed. It didn't make any sense, but it happened.

I almost equate that now to cryptocurrencies. No one really understands it. No one gets it, but it's going up so we'll just invest in it because you could make a lot of money. And I don't know if I'm ultimately going to be right or wrong on this, but it just seems that there is this psychological madness that takes over of markets and it means that they move completely, I won't say irrationally, but not as anyone who's theoretical will always expect. It's like that stock's too expensive, that stock's too cheap. It doesn't matter. That's just what the market's paying for it so that's the way it is. So, that book made me think, wow, things can get really out of line for brief or even moderate periods of time before they come back.

So if you are that one going, "This stock's got too expensive, I'll short it and I'll short it again and I'll short it again," sometimes you've just got to sit back and go, "I don't understand this and I'm going to not try to bet with it or against it. I'm just going to stand back and watch the show as such." So that'd be the main book for me. I've read a couple of Peter Lynch books I've really liked as well. He's a - you mentioned him earlier - just really sensible guy. Again, talks about a lot of this anecdotal evidence with respect to investing. So, yeah. That'd probably be the two that I guide people towards in this current environment for sure.

Patrick Poke:

Yeah. Your comment about the way you like to research stocks reminded me a little bit of the Peter Lynch 'scuttlebutt' approach as well.

Dean Fergie:

Well, it's just sort of easy and logical. And I think again, talking about how you cope with being in investments that are going down, it's like if you can put your hand on the fact that I've bought your shares in this warehousing business or this logistics business or this retail business, and I can see people buying goods and money transacting and money being made, then that's a good way to anchor your investment and not sell out at prices that might be stupidly low.

Patrick Poke:

Could you tell us about your biggest gain or loss as an investor? What were the most valuable lessons that you took from the experience?

Dean Fergie:

Look, I mean, I think it's more instructive to talk about losses. Everyone talks about their gains. Everyone tells you about the race horses that they bet on and why, but no one really goes through the hundreds that they've lost.

Patrick Poke:

Lots of selection bias.

Dean Fergie:

Yes. But that's where you learn and it's a constantly a learning process. So, I mean to most recently, we got in early to Blue Sky Asset Management, and then lost sort of 50 to 60% of our investment overnight. But we sold out early enough that we didn't sustain the whole car crash. We sort of jumped out of the car as it was going over the cliff as such. And what that showed me is, in any of these sentiment based businesses, and we're sort of discussing offline about Magellan earlier is, these business where people lose confidence in, it can unravel really, really quickly. Like you've seen it happen with anyone that's got a Twitter account that says something inappropriate. Yeah, you can lose your career overnight, and these funds businesses are based on trust, and then when you lose people's trust, they unravel overnight. So don't underestimate how badly things can go quickly.

The other one that we had to write off completely was an equipment financing business called Axsesstoday. And there are a lot of these financing businesses out there that I say, you don't know they're going wrong until they go wrong. If I lent you a hundred bucks, I can still say you owe me and it's still a debt until you decide you just can't pay me back or you're not going to pay me back or you disappear overseas and I don't see you again. Or it's a bit like insuring your house. You don't know it's fully insured until the insurance company actually pay you back. So, those business that are involved in lending and especially some of those ones that are involved in lending to really, really low credit, we've seen a real... There's a whole cohort of businesses. Like, we are going to target the customers that the banks don't want. The banks don't want those customers probably for a certain reason.

Now, you can have a book of debts that you think are okay, but until you try and get all that money back, it could be a problem. And you've seen it also recently, with Zip Money. They're winding back their credit criteria for their customers. I mean, that's saying you might have a problem, I expect. So that's sort of another learning experience that makes me really wary about those debt book businesses and how they can go wrong sometimes really, really quickly. Yeah.

Patrick Poke:

I have one more question for you but before I ask this one, I always like to insert a little bit of a disclaimer. Don't try this at home. We're not actually suggesting that anybody goes out there, puts all of their money in a single stock, and forgets about it for five years. This is supposed to be a bit of an exercise in long term thinking and hopefully a little bit of fun. So, with that being said, if the markets were going to close for the next five years starting from tomorrow and you could only own shares in one stock, what would it be?

Dean Fergie:

Okay. Yeah, interesting question. I know I've got probably no chance of getting this right. But look, I've discussed this before through Livewire and I think it kind of blends in a lot of themes we've talked about in this podcast. So the company is Raiz Investments. So, I like it for a few reasons. It's very scalable. For those that don't know, a lot of your listeners may know about Raiz, it's a micro investing app. So, if you want to invest 500 bucks or 1,000 bucks, put in a Raiz account and you can decide between conservative, moderate, aggressive, socially responsible investment portfolios. It's all ETFs. It's all very, very diversified, very low fee. They charge sort of three bucks 50 a month for investment. You can round up your spending. So it's a really responsible way for people to invest and I can understand the merit behind it.

It's a very scalable platform because every time they just get a new customer through that system, it just drops through it. It's very usable. Again, I try and adopt the business model of anything that I'm looking to invest in. So I opened up a Raiz account. It went really well, I had few issues early on, customer service were great, fixed them up. Even recently, their main competitor at the moment is a company called Spaceship, which is invested in all the high tech US growth stocks and their portfolio has been decimated and my Raiz accounts gone down by kind of five to 7% in last few months. They're truly diversified. So, they're doing a really good job and I think people are going to continue to want to invest and save. There's still a distrust I think, of the financial planning network and we've seen what's happened with the AMPs and the like. It's expensive, it's hard, and I want to take control myself.

So I think Raiz gives customers that opportunity, and that control of their own finances. They can check them every day. It's reasonably priced, it's transparent, it's a good offering. So that's one that I could say this could grow significantly in Australia over the next five years. But also with their international arms in Malaysia and Indonesia, there's also a bit of optionality as well. So that's one that I would actually be pretty comfortable just sitting and forgetting until 2027.

Patrick Poke:

Great, Dean. Thanks for chatting to us today. Been great to hear your insights and hear a little bit about Aussie Small Caps.

Dean Fergie:

Awesome. Thanks so much for having me, Patrick.