May 7, 2026 · 46 min · 13 segments
Dispersion, Discipline, and Downside Protection in an Overcrowded Market In a market dominated by mega-cap concentration and AI-driven narratives, this episode explores the overlooked opportunity set…
And I think it's a really important point, especially in times like now where these AI narratives have just gone rampant throughout many different sectors in the economy and in markets.
And we're kind of realizing that just because something is valued at a level we deem or the market deems as expensive or cheap, that doesn't actually make the business model insulated from these types of risks and, uh, new technologies.
So it's, I think really important that you on the team are doing that work and looking at what actually makes these businesses take a generate cashflow going forward.
And what do you see as the objective when you're managing the portfolio of the U S small mid cap fund?
I think the key objective, as most fund managers would say, is to outperform the market over long periods of time with the protection on the downside.
And one of the things, as I just said, was being aware of what the downside is for every position that we have in the portfolio.
which as I defined as companies with a sustainable competitive advantage that are able to earn a return on capital above their cost of capital.
But it also means we are investing in companies with a strong balance sheet, a growing and strong cash flow position.
So when things turn down, at least their business is not exposed to balance sheet stress.
So you could have a period where the business doesn't do that well, But as long as they have a strong balance sheet, you know that they will survive the downturn.
And that really is very important for long-term investors because you could do exceptionally well in one or two positions, but if even one or two of your holdings end up going bankrupt or losing a lot of money, you could spoil the returns for the investor.
So we are very aware of the downside and we try to manage that both through diversification in the portfolio, as well as making sure that we truly understand the downside for every stock in the portfolio.
And at the same time, by investing in growth businesses with capable management teams and which are able to earn a return above their cost of capital, I think we're able to compound earnings over time.
And a combination of those two, we believe over time will help us outperform the market and protect our capital on the downside.
And I think it's a really important point, especially in times like now where these AI narratives have just gone rampant throughout many different sectors in the economy and in markets.
And we're kind of realizing that just because something is valued at a level we deem or the market deems as expensive or cheap, that doesn't actually make the business model insulated from these types of risks and, uh, new technologies.
So it's, I think really important that you on the team are doing that work and looking at what actually makes these businesses take a generate cashflow going forward.
And what do you see as the objective when you're managing the portfolio of the U S small mid cap fund?
I think the key objective, as most fund managers would say, is to outperform the market over long periods of time with the protection on the downside.
And one of the things, as I just said, was being aware of what the downside is for every position that we have in the portfolio.
which as I defined as companies with a sustainable competitive advantage that are able to earn a return on capital above their cost of capital.
But it also means we are investing in companies with a strong balance sheet, a growing and strong cash flow position.
So when things turn down, at least their business is not exposed to balance sheet stress.
So you could have a period where the business doesn't do that well, But as long as they have a strong balance sheet, you know that they will survive the downturn.
And that really is very important for long-term investors because you could do exceptionally well in one or two positions, but if even one or two of your holdings end up going bankrupt or losing a lot of money, you could spoil the returns for the investor.
So we are very aware of the downside and we try to manage that both through diversification in the portfolio, as well as making sure that we truly understand the downside for every stock in the portfolio.
And at the same time, by investing in growth businesses with capable management teams and which are able to earn a return above their cost of capital, I think we're able to compound earnings over time.
And a combination of those two, we believe over time will help us outperform the market and protect our capital on the downside.
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