VIDEO 2020 Virtual Fall Summit: Risks and Rewards of Illiquidity

Investor Summit 2020 Fall Virtual Summit: Day 1 November 16, 2020 

Panel: Risks and Rewards of Illiquidity

Moderator: Ian Hunter from Hunter Value Capital


Keith Smith, Bonhoeffer Capital Management

Andrew Shapiro from Lawndale Capital Management

David Waters, Alluvial Capital

Paul Andreola from Small Cap Discoveries


[00:01:18] The firm concentrates in growth areas. And obviously health care is a big part of that, whether it’s life sciences or whatever. So I’m just going to give you a little help to start the session so, you know, we’re not supposed to touch your face. So this little tip of the day is the best way to not touch your face is to have a glass of wine in each hand. So before I get started. There we go, that, I guess the the the message that was supposed to be expanded about this is how this supposed a change in administration will affect the markets. And I think it’s very difficult to say with any certainty of that. What I believe in and what we believe in Emerald is we have a 10 step research process and we do our homework. And I don’t think that changes. As a matter of fact, I can break it down to three things. And I think you can do this with all investing and I think you can do it with all of life. Essentially, I believe the three PS if you have the right process and the right people, you can get performance. So as you’re looking at your companies and as you’re looking at different sectors of the market, you need to find out for yourself if they have the right processes in today’s environment. Now, that may change coming up in the next year, but I don’t think dramatically given the condition of the pandemic and whatnot. So I think you’re going to have to look for four names that will do well, given the that’s and the process. You have to see what the process really is and to see if it’s flexible enough and then the people or the people are vitally important. As a small cap growth manager, we believe that real estate is location, location, location. But investing in companies is all about management, management, management, and that’s extremely important. And we’ve seen that over the last nine months. The companies that have been able to navigate through this difficult time to figure out what to do with their people, how to communicate street, how to get money if money is to be needed, whether they hit the market or keep all these things are vitally important. Performance will come, I believe, to when you do that type work. Plus you have to have the other PS. One of them is persistent. Now, coming up, if and when our current president leaves and is asked to leave, I think the buying administration will, most importantly, in my view, elicit a change in Congress that gives a stimulus package that I think will be very, very large and much larger than what has been spoken to. And even if it’s not, we need a stimulus package right now for lots of reasons. And that will have a big impact on the markets, I believe so. I think the markets in general are OK for a year or so. It’s when we have to pay the piper for all of the stimulus at some point and how that will be done. So where is the biggest change? I believe it will be regulatory and I believe that starting kind of with Obama and then much more so the pen and not the legislature will have a lot to do. Executive orders and whatnot will be the day. And because of that, I think you’re going to see a regulatory environment that will change in some areas very rapidly. I believe, as you may or may not know, we run general banking and finance and small cap and smaller community banks could very well do better than one would think with increased cost in the regulatory environment, because that may force them to enter into a marriage with a mid-cap or large cap banks. So we see the small cap banking area as being ripe for consolidation. The larger banks will be under much higher regulatory scrutiny, especially if Elizabeth Warren and some of that group have anything to do with it. So I would tend to stay away from some of those. I think if you’re going to look into financials, obviously. Regulation when it comes to technology, I think will go more towards the larger companies, even though it seems to be, there are as many Republicans that wanted to break some of these big technology companies versus the smaller I would give one. Constant piece of advice that I have for years and I will make anybody a large wage is that we will not in our lifetime or your children’s lifetime, ever spend less money year one year after another, after another on cybersecurity than we did the year before? It’ll never happen. It’s almost endless. And the more we go for the bad guys, the more the bad guys. So it’s a constant spiraling up. And I think from a regulatory environment, the penalties for not being cyber compliant will be much larger and much more punitive, therefore, and they go directly at the management of those companies. So I believe a blank check will be there. And I think the companies that are in the technology that keep us safe in cyber security will have a very, very generous time or a good time and generous to them. And I also believe the larger companies will know that, and I believe that will be how we consolidate that as well. And lastly, I think that. I really, really want people to know this is a microcap type conference, I believe is going to be tremendous winners in the life sciences area, and I believe that some of them. We’ll be winners for the same reason, either the large format and the other bigger biotechs are so busy doing what they’re doing, a lot of these life sciences companies dropped everything to focus on coal. And I think there’s a great opportunity for many of these other companies to come behind these companies that took on their domestic duty and their worldly duty to some extent, to work on therapies and vaccines to cure that, opening the door for some other companies, either using the type of technology that was used for the vaccines and the therapies and not having to focus on that or whatever. So I think there’s some displacement here. And I think a great area for long term investment is the life sciences in the health care industry. So I’ve given you basically three now. My friend Joe Wilhelm is over here beside me and he’s been screaming about renewable energy and that type of alternative energy. And I think that would be good. And I think it will be rewarded from the government. I think the government will support that. I just don’t happen to like businesses that you’re counting on them to be supported by government money, because at some point they’ll take that away or if they don’t. So the areas that I would like to see people concentrate and I think the ball in the new administration is going to move to where companies are going to benefit from this regulation and ultimately, I think, benefit from a little bit higher. I don’t know that the rates go significantly higher because there’s so much that going to be for that. So I think the Fed will be very conscious of that, try to keep prices down. But I don’t think they’re going to be entirely successful. And I think that they I think that you’ll see marginally higher rates. I think we’re going to have a good two thousand twenty one on multiple fronts. I do not believe the at home trade is good as going the way I think people have changed here. We all are speaking to each other and drinking our double fists of wine to keep our hands off our face. And I’m very, very hopeful. That that these vaccines are everything they claim to be, I know the therapies are, and I think that sometimes mother said it, Senator, not by April, May or June, we’ll get back to some normalcy. I hope that’s the case. We’re going to go through a little bit of a rough patch here. So stay safe, keep doing remote captures. And by this time next year, we’ll be able to have glasses of wine together together, not overdo video. So I’ll gladly accept any purchases of a glass of wine or a beer for me. And that’s about all I have since questions are how we want to go.

[00:10:34] That’s great, thank you, Joe.

[00:10:38] All right, so with that, we really appreciate that. Let’s turn it over to the next panel. Coming up here, risks and rewards of illiquidity.

[00:10:49] So Ian, Paul, David, Keith and Andrew, you guys all want to go ahead and turn your cameras on and on, mute yourselves.

[00:11:01] Let’s go ahead and I’ll let all that you take it over for.

[00:11:03] Mary Kay and Joe, thank you for the spirited introduction, no pun intended. You had a couple of healthy port. So thank you all for for being here at this panel today. We’re talking about illiquidity and we have some terrific speakers on the topic. We’ve got Andrew Shapiro from Lawndale Capital Management, Keith Smith Bonhoeffer Capital Management. Hours from a hotel and Paul Androulla from Ivory’s, so for the audience members, any questions that you have? Feel free to type them into the chat, start getting to those within about it. And so with that gentleman today, we’re talking about illiquidity. And this seems to be an environment that some people would characterize as high liquidity. Does this feature of today’s market, is this causing any of you to behave differently in the way you invest? Dave, can we start with can we start with you and tell us what your what if your approach has changed at all, given the amount of liquidity?

[00:12:31] Sure, I wouldn’t say that my approach has changed terribly, but I would say that the way the market looks is it is radically different than even a few years ago. I’ve noticed a big divergence between the valuation of securities that are affected by the generally loose liquidity conditions and the valuation anything liquid gets and the valuation that the market chooses to give, anything that is illiquid. The attention paid to components of large ETFs indexes seems higher than ever, while the attention paid to anything outside of the index or. A pastor to church is perhaps more likely that I’ve seen in some time, and so I approached my best thing with that knowledge. But for those of us who’ve made a career and a habit of looking at these these small names in these let’s look at stocks. It’s not much of a difference, but only that we’re maybe less popular than we’ve been in a long, long time.

[00:13:39] Anyone else has has has the amount of liquidity changed the way you’re thinking about this market?

[00:13:47] I mean, I think for me, as David said, it’s pretty much the same. I mean, if you’re investing in our favorite sectors, I think there’s a big difference in liquidity depending upon the sectors you’re looking at. So if you’re investing in, let’s say, a really hot sector now, let’s say some of the technologies and stuff like that, there’s tons of liquidity. There is a lot of people looking at those names. And so I think this is very similar to the time frame of the lows in ninety nine where you had certain sectors of the market have super liquidity and prices just going up like crazy people IPO in these businesses, basically bringing them out into the public. And then you are another group of companies, traditional sort of value, high cash flow businesses that were just being ignored by the market. I I see this time is very similar that I really started getting into investing. I sort of fell into it. Oh, and so I my framework and initial ideas were more and more shifted towards that. And I think with a value approach it worked out well. It’s a good time to start. I think we’re in a similar time now where the liquidity seems to really be driven, I think, more by sectors. And I think what you’re seeing, even some of the models that people talk about with bubbles, liquidity, really just sort of varies over time. And a lot of it has to do with, you know, even even with all the stimulus, you still have sectors that don’t have a whole lot of liquidity, things like oil and gas and other places that are really sort of out of favor. So I think it really depends upon the sector. And for me, those are the kind of areas, the neglected areas that I sort of focus on. So I think especially I do a lot of stuff in emerging markets and some of those have recovered. Some of them haven’t. So I think there’s a real opportunity there to take advantage of the liquidity that’s out there in the market.

[00:15:38] So I can type in you know, we’re activists, but we’re I’m sure we’re we’re long biased, though.

[00:15:46] We do short sales. So the excess liquidity that’s in the market. Has certainly caused us to look at and to try to be more careful with the short selling that we do just because so much capital is flowing into so many names. And those names already were inherently overvalued and there’s no limit to overvaluation that one can go, especially with all the money flowing there. And on the long side, as activists are to be an effective activist, it generally involves highly concentrated in a few names. And when you’re highly concentrated in a few names and you want to be effective as an activist, you’re already taking a large ownership position in those names. The position itself is inherently illiquid, no matter how liquid the company was. But since we specialize in small and micro-cap, we’re talking about doubling down on the illiquidity issue. But in in the large positions that we have, we don’t you know, we these aren’t really positions that we trade in and out of. We’re in there for the long haul. So I don’t really think that it is altered the way we approach it on the long side and our projects, I think it creates a bunch of opportunity. The mark to market is extraordinarily painful and the relative underperformance, given that of course, my shorts are running against us and these small and micro-cap longs that are illiquid are getting they have a relative underperformance. And some of them, in light of the particular industries, we already were in a movie exhibition. They’ve been crushed. And it’s it’s been a painful approach, but it’s it’s not one that we really make a change to the approach. We’re in our third decade almost. And so we’ve seen it and we’ve gone through these liquidity. I mean, the financial recession of 08 was really a liquidity driven recession. It was the first liquidity driven recession since one of the earlier recessions in my career, the recession of 1990 91. Those two were really liquidity driven recessions.

[00:18:17] This current recession is not liquidity driven like a weight loss, but in the small and micro-cap, you know, and they all say there’s a flight to quality.

[00:18:31] It’s not a flight to quality, it’s a flight to liquidity. There’s plenty of high quality, very undervalued, very strong balance sheet. Micro-Cap and small cap companies whose stocks have greatly underperformed may still be down and out and certainly are not up like the indexes. I think the Dow today hit a record in this environment, which is pretty amazing. Talk about forward looking.

[00:19:01] Yeah, well, I did want to pick on you, Andrew and you, Paul, because I know you’re on this panel, the two longest running investors. I know. Paul, you’ve been at these nineties as well, right? At least, yeah, yeah, I’ve lost track of how long it’s been, but Andrew mentioned that since he’s been at it since the early 90s, nineteen eighty-one, there’s been various regimes of liquidity. In your case, how has how I know that you don’t tend to focus on cash in your in your portfolio. You’ve mentioned before that you’re you’re just focused on finding good businesses. But when you have a situation like today where liquidity is probably driving a lot of valuation, where you where you positioning yourself in anticipation of perhaps less liquidity in the future.

[00:20:00] So so what I’m recognizing is that the liquidity right now is really, I think, driven a lot more by sort of institutional style money that’s coming down market. So it is sending us into it, sending us actually deeper, deeper down into smaller and smaller companies, much like some of the other speakers here where we stick to our criteria. And if that criteria isn’t working, then we’re just not we’re not deploying capital. So if we’ve got a position and like you said, we typically don’t have much cash to begin with, we’re almost always fully invested.

[00:20:40] So what what drives us to move into something or where we get our cash from is by selling something else that we feel is is richly priced and buying something that’s less richly priced.

[00:20:53] So the sort of the increase in liquidity coming down market, it’s kind of driving us either to cash or is driving or something.

[00:21:04] Like I said, it’s a smaller position. So we’re just not changing what we’re doing. We’re just getting a little bit more selective. And like I said, going down markets where where we’re not seeing the competition that we traditionally do.

[00:21:15] So it does the market environment right now make it harder for you to find those stocks that are less liquid? It sounds like if you’re being driven down into the taxes that in search of illiquidity.

[00:21:32] Yeah, definitely, it’s weird how everybody seems to run away from a liquidity we run to it, we’ve got a bit of a saying that we the old buy when there’s blood in the streets, we like to buy when there’s no one in the streets. So we’re we’re constantly looking for things that are not being discussed, not not seeing any form of real liquidity.

[00:21:57] But it’s it just it moves us into obscure areas. We don’t we’re not sector guys. We’re bottom up.

[00:22:06] So we we chase things that we think give us the opportunity. And it’s all driven by price. Liquidity ultimately doesn’t matter if the price is is the price is too high.

[00:22:18] We want something that just shows the right kind of price and we’re not competing in someone else’s bidding for it. So so we just we just keep looking.

[00:22:26] We’re finding opportunities. There’s no shortage of them.

[00:22:29] If you really want to look hard, we just double down on our work and try to find something that continues to meet our criteria.

[00:22:38] So there is one area that that I really got more towards. Maybe some other people through is basically gone more towards some international is there seems to be more opportunities in what’s considered probably the mid or large cap of those markets, which in other markets are probably small mid-cap companies. But I think going overseas is another another way to sort of deal with the flood of liquidity into large, large US names as another way to sort of deal with that. Or it comes with additional risks. But it’s just another sort of approach to deal with sort of the the issues of the large amount of liquidity that a large capital.

[00:23:22] So you’re saying you’re looking for larger caps in in the foreign markets?

[00:23:28] Well well, it really depends where you go to a market like Korea in large cap in the there’s no there’s no such thing as a large-cap company except for maybe one Samsung in the whole country that we consider a large-cap in the US, a large-cap who is like a mid-cap in the US in the mid-cap.

[00:23:48] Well, you see that in a lot of countries, too. So that’s where the U.S. has the largest companies with the largest amount of market cap that I’ve sort of been then moving towards.

[00:24:01] I have found some opportunities in the US recently, also in specific areas, but it’s not quite as numerous as there may be in some foreign markets also.

[00:24:13] So there are a lot of historical studies that show that the greater the illiquidity of the stock, the greater their performance. So it shows microcaps, doing a lot better historically, but that’s that doesn’t imply a free lunch. So if we could go to you, when is it most difficult for you to stomach the illiquidity of some of these smaller companies? Like can you paint some scenarios that that have made it difficult for you to navigate the illiquidity in the past, if that’s if that’s ever been the case? And and maybe how do you plan for situations like that in the future?

[00:24:55] Sure, so in my answers, probably like some other people, in that the toughest time to be holding something illiquid is when you decide you were wrong and you want to sell it. And then all of a sudden you’re in a little bit because you’re lucky to get prices that you want and it’s tough to get out. And so the number one thing, of course, to do is to be very selective about what you buy, because if you don’t do your homework and you don’t have the conviction that you might end up selling into a very disadvantageous market. Also, I’d like to say about the studies that, yes, we’ve all seen the studies and in the liquidity premium is real, but it takes place over years and decades. There are times in there where we go years on air with the less liquid sector of the market not performing well, especially compared to indexes and the more high fliers. And it all comes back around. But if you say you want to take advantage of that illiquidity premium, you collect that over time. You really do have to have a long term investment outlook. There’s no hoping to buy something and get a first rate frustrated a year later if it’s still sitting around the same price. Despite the progress, the underlying business making market will come around eventually. But it doesn’t come around what we wanted to, and that can be very, very frustrating. So more than once and this is the I had to learn the hard way. I bought something and it’s been more or less satisfied with the progression of my thesis and the outcome of the underlying business, that the market just does not seem to care. And more than once I’ve lost patience and started selling it, I can almost guarantee you that that’s exactly when the market will finally come around within six months, that you’re three times higher than what you sold your last share for. And that’s, of course, very, very frustrating. So it’s hard to know. Every investor has to figure out how to be patient or am I just wrong? Am I not taking my lumps? Here am denial. But when you look at securities, a lot of the time it’s just the market’s attention is elsewhere and you just have to wait for it to come back.

[00:27:07] And there’s a lot of instances where you buy it at 50 cents in the dollar and it goes to twenty five cents on the dollar before you see your dollar. And that’s a down 50 where you get your, you know, your double and quadruple from the bottom. We all like to say that we we all say, oh, I bought it at the bottom.

[00:27:26] You know, you’ve got one hundred shares at the bottom. Right.

[00:27:30] We get only one hundred shares printed at the bottom. It’s only printed at the top.

[00:27:38] Yeah, well well, I think what happens to it is that when stock looks cheap, a lot of times it’s illiquid and you get into it and it makes it less liquid. But then as the as the company’s stock prices go up, all of a sudden liquidity showed up. And so, in essence, I think that’s another aspect of it. As value investors, we have a tendency to buy things that will go down for a while. So you have to be ready for continued liquidity or even more liquidity until one thing.

[00:28:07] It’s incredible when things start to go up, how the liquidity just comes out of that, all of a sudden, here’s what we’re what we’re just so this happens is another one of the things that we’ve done or that I’ve done over the last almost 30 years annually, especially if I have money, which I hope to have is the Russell 2000 Rickon, the Russell 2000 rickon present in a very, very nice opportunity. And it used to do it even more so because of the compressed window that the Russell Rickon, which is a very objective in and out kind of activity that occurs, is that on the Russell Rickon is to plan on buying companies that come out. And to sell companies that go in because the Russell 2000 is a really decent indicator of the expansion of buyside and the expansion of sell side coverage or the alternative if it’s coming out. And so if we argue that illiquidity breeds undervaluation opportunities, I go searching for the names that we think are coming out. And not touch them until, of course, they do come out and the ones that we think are going in, we might want to load in ahead of time and then use that. And so there’s nothing better than to sell to a robot driven blackbox index.

[00:29:48] Nothing. It’s the best kind of buyer you want to sell to.

[00:29:55] You know, I’m going to add something else here. I find there’s only two times really where illiquidity becomes an issue and it’s usually when you buy and then when you sell.

[00:30:05] Other than that, it doesn’t really matter.

[00:30:08] And I think if there was a margin call. Paul. Well, you Hochuli, I don’t think that that doesn’t occur.

[00:30:17] But I think mentally, if if you’re to take the approach that you’re buying a private company with private sort of market valuations, it takes away the issue of the liquidity.

[00:30:31] If you’re going to buy something, it’s going to have to be something that that the fundamentals and the reason to own it are going to sustain itself through whatever kind of market gyrations you’re going to get.

[00:30:40] Rather nervous liquidity or no liquidity if you’re buying the wrong company. It’s not a matter of buy buy. Right. And then liquidity start takes care of itself.

[00:30:48] I mean, one interesting thing I think I’ve seen is indexes have really affected the liquidity. Incredibly, as an example, you can see there’s a company out there called Great Television that is voting. And non-voting shares would expect the voting shares to sell at a premium to the non-voting shares. But that’s not the case at all. Has it been that way for two or three or four years? And the reason is the non-voting share. The voting shares have no liquidity. They’re not in the index. The voting shares is in harmony with that sort of liquidity index itself is actually creating this differential. And you see that in a lot of situations where the economics is the same when you have these liquidity driven differentials between company share classes and colleagues that economically are equivalent. But in essence, as an investor, you can take advantage of that. But as everyone say, it takes a long time. We don’t expect anything. The convergence happened really quick, but over. If you hold the thing for five to 10 years, eventually you’re going to want to gain from the economics of that.

[00:31:53] So so if we follow that train of thought, then in an environment like today’s, where there is almost, you know, not unprecedented liquidity, but but a very high degree is there is is anyone else having trouble having to kind of move down market cap to find the less liquid stocks that you’d like to see?

[00:32:24] The reason I mention that is if if you look at some of the research from Roger Ibbitson, he says that liquidity is not synonymous with size. One example is that if you look at the microcap history, the low liquidity ones had long term returns of 17 percent per year over the time period.

[00:32:44] He looked at but the high liquidity micro-cap returns were seven percent, which is actually lower than the high liquidity, large cap stocks. So it seems that that you really need to pick and choose your areas if you’re trying to capitalize on low liquidity.

[00:33:03] Anybody have.

[00:33:05] Well, the other thing you have to you have to be aware of, too, is the individual studies. I think a lot of them are. There’s a large bid ask spreads and really small companies. And the assumptions you make in that bid ask them to make a huge difference in the returns. And so one technique that I think about where people do, too, is when you’re dealing with these businesses and you’re trying to get them, you have to put in a limit order and just wait for something to hit as opposed to just putting in a market order because the stuff is just so much. And and so, I mean, that’s that’s one of the issues I have. I agree with them that illiquidity has a price, but I think it changes over time and it is much more difficult to capture because they have a theoretical database and they’re picking a number between the bid and the ask. But I don’t know if you ever could actually get those numbers or not. That’s but but I think you clearly can get it. It’s just it’s an additive factor to other things that you that you can that you can gain on. So usually what will happen is if a company is going up in price because the fundamentals are changing, liquidity is coming greater. So there’s usually there’s some kind of a multiplicative sort of effect here of these various things just happening at the same time. And if you can get them so approves everything happening, that’s when you can get some really nice returns.

[00:34:24] I guess another thing that we look for now that I’m thinking about what others here in the panel are saying is that as we move into or as we go call it, down to less liquidity, the importance of a strong balance sheet and strong cash flow generation is in is increased and enhanced.

[00:34:47] And the reason is I like because I’m looking at capital allocation of the management and the companies as an activist. Companies to be generating positive cash flow that could be used to buy back shares and for the company to be a liquidity enhancer. In while a creatively deploying its capital. Where whereby if you have a company, we have one PLF industries, it’s a microcap company symbol PFIM prior to the dramatic hit to the aerospace sector in the Boeing sobbing environment, which they are a decent supplier of tools into the aerospace sector, it’s not their sole sector, but it’s a mid to major sector. This company was generating gobs of free cash flow at trade. It traded then and declined to continue to trade below netnet working capital. So it’s at a huge discount to tangible book value and buybacks have been heavily accretive. So up until the time of the recent operating losses due to the hit from the covid economy, as well as their decision to take on, and they have a nice sized plan. During the long alone, while it may not be prohibited being even a public company, albeit small, and then buying back shares while you have a PPP loan, it’s kind of like rebote just you know, so they’re buyback is not around anymore, but they used to have one. And what we really wanted to liquid, you don’t want them to go out and cream the market and and bid up the price. That’s not the purpose that we like to see buybacks used for. We wanted to accretive use of capital, but these kinds of companies for them to adopt and put in place a Tenby pipeline. That is tied to volume and given how illiquid they are, it’s low volume, they can’t buy a lot of shares every day, but that’s not the point.

[00:37:05] The fact that they’re in there on the bid narrows the bid. Ask spread. It’s quite visible. The pumps did ask spreads since the buy the twenty five plan expired and wasn’t renewed during this period of the people on the bid ask spread despite the stock having dropped substantially. Maybe the wider discount, the bid spread is blown wide open from what it used to be when the Plan B five plan was in place and when the twenty five plan was in place, they would only be allowed to buy 400 to 600 700 shares a day was all they would be allowed to buy. But just that little amount narrowed.

[00:37:43] The bid ask spread in the narrow bedspread was removed a deterrent from others participating. You know, it didn’t appear as much as the Roach motel you can get in but can’t get out kind of situation that it does appear to be at present. Now we know that once the people own in this company’s forgiven, this low debt balance sheets are going to be debt free. And it’s going to be a huge one time benefit to the bottom line, albeit nonrecurring. It’s just going to make the discount even wider. But they can go back in and reestablish. There can be five plan and and for at least the time period, heavily and creatively buy back small amounts of shares daily.

[00:38:29] So, Andrea, I take it you’d be OK if we provided liquidity to send for you.

[00:38:37] Oh, I’d love it. I mean, you should know I have a 16 percent ownership position. I am not only a 13 D filer for years, I think I’m on amendment 10 or 12, but we are section 16 filers subject to short swing profit trading issues. So, yeah, I know you’re more than welcome to come in. You wouldn’t be in my way.

[00:38:56] I’d love to have a higher mark-to-market and a lower discount on on the name because I’m not really buying anymore, given that I already own 16 percent. And it’s their buyback, by the way, that moved me from around 12 percent to 16. They massively bought back shares heavily and highly accretive.

[00:39:19] So that’s what put me up to 16 from from around 11 or 12 just audience members that there are any questions you want to get out ahead of the the break in in a couple of minutes. Now’s a good time to do it. So just kind of continuing this this theme is how does the need for liquidity affect the holding periods and the sizing of positions? If you’re if you’re expecting a really wide bid and ask spread when you enter a stock, how long do you take to to build up a position? And are you are you hoping that are you requiring an expectation that it’s going to be a lot quicker to the point in the future?

[00:40:17] I think yes and yes, you know, we’re all buying low and trying to sell high, we’re buying low during an illiquid situation, we we all assume we’re going to be selling at a higher level and at a higher level. It should be more liquid as it goes to a higher level, whether it’s because of market cap, whether it’s because of indexation, you know, it moves into an index, whether it graduates into sell side coverage, which adds liquidity. The larger the company, the more media attention. All these things impact the marginal buyer and the marginal sellers to get the dancers to dance more often. And liquidity begets liquidity. So I think going with our exit point, we all are assuming at least that it’s going to be that way. And I think we’re all assuming we’re not going to make a mistake and that it’s going to be higher rather than lower. But in terms of getting in for me, Russell Index, Rickon is always a great time again for for liquidity. A one time liquidity event to provide that earnings event are liquidity events in the small and micro-cap area. Other than that, it’s kind of like news. You know, there’s nothing else we can generally count on to create liquidity. Frankly, these virtual conferences has really enabled the microcap. I think there’s opportunities in micro-cap conferences now that never were economically efficient and the in-person conferences before. So perhaps surrounding non roadshow activity is another potential liquidity event upon which one could get into these names. I don’t know what the rest of my panel what, but there are some good points there, Andrew.

[00:42:20] I think the one theme I see in some of the comments that you’ve made is that what can create liquidity is growth, either being growth internally in the company or growth by the company buying back shares of. It’s not that stage of development of the company. And it all goes back to good corporate governance or good management going in the right direction, I think where you see a liquid positions that stay liquid for a long time and there’s large discounts discounter where the opposite of that happens, where you’ve got a management team that’s just not incentivized to do anything and they really don’t care. They’re running the business for some other purpose. I mean, I’m a I do value business as a private business appraiser. And that’s one of the big things that you see a lot of times. People, when they’ve got a private business, they’re not necessarily running the business to maximize the full value. They’re running the business because that’s what they want to do. It’s their babies. And so there’s a lot of factors that go into maximizing shareholder value when you get into the private business. But I think more illiquid public businesses are in the same kind of boat to a certain extent. You have some people that, you know, in some cases were management. That’s not their objective. You don’t have control. There’s nothing you can do. So until there’s a change event, it’s going to stay the way it is because there’s no you know, you’re not going to nothing’s going to change. So, I mean, I think that’s one way to look at it, is that one way to take advantage of it as a value investor is to try to say, OK, well, what can create this liquidity? Part of it is just the growth aspect, either by the company growing and or the company doing capital allocation decisions to make that the the actual per share value go up over time.

[00:44:01] You highlight something that our strategy also, I guess, add liquidity, we’re activists, right, so we’re the cattle. So we come into a situation and feel liquid, all those stale bad governance reasons. One of the catalysts is that that’s what at least that’s what we do as activists, is that we bring about Kathak to change. Maybe it’s not growth, but we bring about cathartic change in governance and management structures that we believe will return a company that has been stagnant back onto a path of sustainable growth.

[00:44:39] The other thing I’d add is one of the issues with liquidity.

[00:44:42] Liquidity is just the fact that a lot of these sort of smallish companies there, they’re toiling in obscurity like nobody knows that. Right. So part of it is somebody has to get out there and communicate what these companies are doing. And the value in a lot of times because they’re the management team are just busy running a business or don’t even have the right skill set to get out there and communicate.

[00:45:08] Usually what we do is once we get a sizable position and we have sort of a vested interest, we make sure people find out about it. People who are either influential or are looking for these type of investments, we get out there, we’re the catalyst. So there’s an opportunity there, I think on the communication side that that a lot of people just misinterpret and don’t take advantage of.

[00:45:33] Well, guys, there’s a lot more to be said. And this has been terrific comments. We’ve reached the end of the panel time. But I want to thank you all for for participating in any last comments that somebody wanted to get in before I jumped in. OK, well, thank you guys again and look forward to the next one of these, and so we’ll move out into the audience and chat with the rest of the group.

[00:46:02] Do I applaud? Well, thanks, everybody.

[00:46:08] All right, so feel free to network at the other virtual tables for the next 20 minutes or so and we’ll get started on the next panel at six. Investing in the era of ultra low interest rates.