Blueprint Capital Management launched in October of 2012. Together, with my partner Jason Revland, we have over 30 years of experience across the capital markets spectrum in trading, research, derivatives, portfolio management and client service. Our mutual investment passion led us to form Blueprint Capital as a way to exploit the many inefficiencies, advantages, and asymmetric risk/reward common to MicroCaps. Following years of collaboration and personal success in the space, we launched a formal vehicle so we could devote 100% of our time delivering our strategy to clients, who are mainly individuals and family offices. Managing a concentrated, 12-15 position, long-only portfolio is the best way we can deliver meaningful, stock-specific returns that reward our disciplined due diligence efforts. We focus most of our attention on Technology and Consumer related companies, and avoid themes where our research edge would be compromised or negated by forces outside our control, such as commodity prices and regulatory or political decisions. We manage a small pool of capital, and intend to stay small (sub $50M AUM), as our size is a distinct competitive advantage, which allows us to operate where other pools of smart capital are unable. In fact, we are typically selling our winners to our larger sized competitors.
This article focuses on the ways we find these winners, and reinforces our namesake, that one must have a plan and a well-defined process, or a blueprint in order to expect repeatable success. We are often asked “how do you find new companies?” The answer is a blend of art and science.
The science part is easy to understand. Almost anyone can access free or cheap quant screening tools that help sort through databases containing financial data on thousands of companies. Anyone can apply logic to these databases to sort and filter their idiosyncratic preferences. Free online tools have become pretty robust. We almost never use quant screens to find new names however, on the belief that by the time promising companies screen well, they have already appreciated in value, and we have missed the opportunity for outsized returns. Financial statements are backward looking, and as such, quant screens are looking into the past. These statements are critical to analyze, but even more importantly, we try and identify how a company will look in the future.
The art is more nuanced. We want to buy companies that will screen more favorably in 12-18 months, and show an acceleration in revenue, EBITDA, earnings, cash, or other objective measures. We find that quant screens rarely reveal the fundamental growth catalyst, which is a subjective and less obvious variable that must be identified, or discovered, through direct interaction with a company’s management team. Growth catalysts can be quite varied: New product launch, strategic acquisition, strategy pivot, change in management or Board of Directors, asset sale, recapitalization or debt refinance, balance sheet infusion, exchange uplist, etc. This discovery process is hands-on, dynamic and multi-faceted, and cannot be easily collated and condensed with a computer alone. This is how we derive our primary investment edge, which is identifying new, un-digested market information by interacting with management. Our primary methods of sourcing are further discussed below.
Leveraging our extensive peer (buyside) network – We have built many valuable relationships over the years with other buyside investors, both big and small, institutional and individual alike. The interesting thing about MicroCaps is that literally anyone has a shot at finding the next multi-bagger. There are many exceptional people making their living in MicroCaps, and we seek out those who compliment our philosophy and process. We also enjoy the camaraderie of sharing ideas with other investors, and we get to leverage their diverse backgrounds, rolodexes and geography. We are very transparent about what we own, because we are open to peer scrutiny and constructive criticism, and often learn new things by sharing our positions and our rationale for owning them. This is much more than “talking your book,” although getting other people to buy in size after you are fully positioned can certainly help.
Attending MicroCap conferences – We try and attend several major MicroCap events throughout the year, and there are 3-4 in particular that are really worth the effort and expense to attend. Some are independent, and others are sell-side sponsored. They are a highly productive and cost-effective method for sourcing new companies. Nothing can replace meeting management face to face, and we try to achieve this with every investment we make. There are certain red flags that we look for, which have been learned through experience and losing money. There are many great ideas, but fewer great management teams. It is the intersection of the two where the probability of winning increases. We are especially alert for companies that have never presented at conferences before, as this may signal an emerging story.
Communicating frequently with investor relations (IR) firms – There are dozens of such firms, some good, some bad. In having relationships with as many of the good ones out there, we see steady information flow on their new clients, and introductions to management teams. Also, good IR firms will be proactive in setting expectations, and communicating frequently. They will also offer valuable insight into share price dynamics, as they are in a position to take a more frequent investor base pulse. These are valuable partnerships that we cultivate and respect, as these firms often work very hard for their clients, and have strong alignment of interests in making sure their client’s stories are properly told. We have also introduced new clients to them, a valuable source of referrals that reinforces loyalty and respect that we are in fact partners.
Leveraging our sellside/banking network – The sellside/banking relationships we maintain are well versed in their client stories, whether a research analyst or a banker is involved. These firms are a wealth of information, and can offer insights on both fundamentals and trading dynamics. Facilitating management introductions, whether via phone or non-deal road-shows, has become a way for sellside firms to get paid, and we are eager to take meetings, and very much appreciate such offers. Our sellside contacts often ask us what we like, as a source of future research coverage and possible investment banking deals, as they know that we are on the front lines of sourcing and screening hundreds of companies each year. Many of our companies are under-followed and lack research coverage, which is often the source of valuable inefficiency for us. When a very small, undiscovered company gains formal research coverage, it is often a pathway to greater market efficiency, and a higher institutional shareholder base. We very much enjoy seeing a respectable sellside firm launch positive research coverage on one of our holdings, as it is a win for all parties.
Blueprint Capital Management, LLC is a privately owned investment management firm focused on global Small and Micro Cap equities. The firm offers risk controlled active equity portfolio management across style and sector segments of the sub $500 million market capitalization universe. Blueprint offers real-time performance, position transparency and balance information through a relationship with Interactive Brokers. For more information, please visit www.blueprintcm.com.
Neil has 14+ years of relevant Wall Street industry experience across equities, options, alternatives, and Family Office wealth management. He began his career on the floor of the Philadelphia Stock Exchange where he worked for both TFM Investment Group and Goldman Sachs. He then worked as a derivatives strategist at Susquehanna International Group, generating stock and option trading ideas, mainly within the Consumer sector. Just prior to Blueprint, Neil worked for a private Family Office, whose assets under management exceeded $250 million. Neil managed a range of investments for the family, including actively managed equity and fixed income portfolios, as well as the oversight and management of a large portfolio of hedge funds.
© 2017 Stock News Now
Supported by Superior Web Solutions