Be sceptical when considering small cap stocks, says our expert
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Ten questions with Edwin Bulseco, founder of boutique corporate advisory Xcel Capital.
What is your job?
We raise capital for listed ASX companies and private companies to assist in their growth strategy. We also provide strategic advice on maximising value for shareholders.
What skills and personality traits make a good portfolio manager?
It’s a unique blend of being personable to ensure management is open on where the business really is; disciplined in sticking to your strengths (knowing when to ask for outside views) and being sceptical.
Which stock market trend are you following closely, and why?
I try and track which funds are performing well and the underlying investment theme they are following including industry focus. This gives me an indication of which areas investors are focusing on and which companies I should be potentially targeting.
What three things do you look for when investing in a company?
Strong board, strong management team and being in the right sector. Overall, it’s all about the people.
What’s an important lesson you’ve learned when investing in small companies?
A good management team can make most things work. Put more focus on getting to know the people in the company.
What small cap stock picks are you most proud of?
Liquified Natural Gas Ltd (LNG) was a decent pick in my previous life as an equity analyst. We had a few investors in at or below 30c and it ran to over $2 over time, although it has come back recently.
More recently a few of the energy metal-focused microcaps have done well.
What’s a common mistake among investors when investing in small cap stocks?
Not being sceptical enough when looking at a company’s strategy and if it’s doable. Small cap stocks are always very capital constrained so you need to sit back and assess if they can really achieve what they are saying.
Also, not paying enough attention or not doing research on management. As I’ve said it’s all about the people.
Small and micro-cap companies often lack an earning history or other conventional data. What are the other key financials to study when considering such stocks?
You need to look at the size of the potential market they are addressing which will give an indicator on future growth. Also do they have the balance or the ability to raise capital to achieve their goals.
Which book should everyone read, and why?
“The Big Short”. It teaches you that thinking independently and being sceptical is a valuable tool when investing.
Edwin Bulseco, is the founder and Director, Corporate Finance of Xcel Capital, a boutique corporate advisory specialising in growing and funding emerging companies
More information: www.xcelcapital.com.au.
Edwin has significant financial markets experience working with several leading boutique corporate advisories across Australia and had equity research experience before moving into corporate finance. He has experience working across a broad range of sectors, transactions and also has ASX board experience.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.