Mar 10, 2026 · 42 min · 13 segments
Valuation dispersion, software pessimism, and shifting capital flows may be setting the stage for a new cycle in small-cap investing. In this episode, Associate Client Portfolio Manager, Laura Baker…
Dave BarrGuestLaura BakerHostLooking back more recently, have there been specific cycles or markets that have shaped how you think about risk and opportunities and where we are today?
And at that point in time, we had businesses getting financed at ridiculous valuations and because they were going to grow forever.
And it was those companies that had real business models, were focused on driving profitability, or were already profitable, and were able to grow with the capital they already had on their balance sheet, as opposed to being reliant on the market.
For me, like the biggest risk we face is when you're looking at higher growth parts of the market, it's at existential risk of you might run out of money and you don't want to be reliant on a third party to provide it to you because when you need it, they are going to take a pound of flesh.
So between that time and I guess now, all the lessons you've learned that sort of guided the framework and how you've built the small cap opportunity strategy? Yeah.
Like for us, it's always trying to find that mispriced risk and get effectively free options.
So if you know a company has like insolvency risk is really low and you can buy it at 50 cents on the dollar today, but you have this wonderful growth option that you're getting for free.
You put 10 of those in the portfolio and two of them pay off and it's going to drive great returns.
Um, so that's really, you know, If we bat 500 in what we do, we're doing a really good job.
The key is get those two outliers on the upside and avoid the two going to zero on the downside.
And if you just do those two things really well, you're going to do quite well in the fund.
That's the fun part of active management, is doing slightly better than all your competition.
I think people that have heard you speak a lot have heard you say the phrase, the bringing a private equity approach into public markets.
In the private equity world, when you buy a company, you can't sell it for several years.
So you just have to get to a way higher level of understanding of the business and have a way higher level of conviction.
Looking back more recently, have there been specific cycles or markets that have shaped how you think about risk and opportunities and where we are today?
And at that point in time, we had businesses getting financed at ridiculous valuations and because they were going to grow forever.
And it was those companies that had real business models, were focused on driving profitability, or were already profitable, and were able to grow with the capital they already had on their balance sheet, as opposed to being reliant on the market.
For me, like the biggest risk we face is when you're looking at higher growth parts of the market, it's at existential risk of you might run out of money and you don't want to be reliant on a third party to provide it to you because when you need it, they are going to take a pound of flesh.
So between that time and I guess now, all the lessons you've learned that sort of guided the framework and how you've built the small cap opportunity strategy? Yeah.
Like for us, it's always trying to find that mispriced risk and get effectively free options.
So if you know a company has like insolvency risk is really low and you can buy it at 50 cents on the dollar today, but you have this wonderful growth option that you're getting for free.
You put 10 of those in the portfolio and two of them pay off and it's going to drive great returns.
Um, so that's really, you know, If we bat 500 in what we do, we're doing a really good job.
The key is get those two outliers on the upside and avoid the two going to zero on the downside.
And if you just do those two things really well, you're going to do quite well in the fund.
That's the fun part of active management, is doing slightly better than all your competition.
I think people that have heard you speak a lot have heard you say the phrase, the bringing a private equity approach into public markets.
In the private equity world, when you buy a company, you can't sell it for several years.
So you just have to get to a way higher level of understanding of the business and have a way higher level of conviction.
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