Interview #117 : Abby and Jim Zimmerman (Lowell Capital Value Management)
Small Cap Value.
For this issue we have the pleasure of interviewing Abby and Jim Zimmerman from Lowell Capital Value Management.
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Hi Abby and Jim, thanks so much for taking the time out to do this interview. Can you please tell readers about your background, and how you got involved in investing?
Jim is the founder and portfolio manager of Lowell Capital Value Management, LLC, successor to Lowell Capital Management LLC.
Jim managed Lowell Capital Management from 2003 to 2015 employing a proprietary strategy laser-focused on smaller and/or misunderstood companies with large, sustainable free cash flow yields and “Ft. Knox” balance sheets.
He generated a compound annual return significantly exceeding the HFRI Equity Hedge Index and the S&P 500 Total Return Index over this period, despite holding a significant net cash position (~30%) for most of this period and Lowell Capital Value Management has achieved similar results with the same strategy since its founding in 2017.
Jim has over 25 years of investment banking and investment management experience in a variety of industries and has been involved with several billion dollars of investments.
Jim graduated with a BA with high honors in economics from Princeton University in 1980 and an MBA from Stanford Business School in 1984. He worked at Drexel Burnham Lambert, Inc., 1984-1990, serving in the Corporate Finance Department and multiple other investment banks from 1990 to 2003.
Abby Zimmerman works alongside her father at Lowell Capital. She earned her B.A. in Business Administration from Loyola Marymount University and has worked with Jim for the past several years.
Abby plays a central role in the firm’s investment process — generating new investment ideas, leading deep fundamental research on small- and micro-cap companies, and shaping how the firm communicates its strategy and holdings with investors.
You launched Lowell Capital Value Management in the aftermath of one of the biggest bubbles ever seen. What led you to decide to launch your own investment business/fund?
After graduating Princeton, I wanted to get back to Los Angeles, so I wrote letters to Princeton alumni in the Los Angeles area and carved my own path into finance.
That led to early roles in corporate lending at Bank of America and then later Stanford Business School. After Business School, I joined Drexel Burnham in corporate finance during its early days with Mike Milken, which was an incredible experience — creative, intense, and some of the smartest people I’ve worked with.
I spent the next decade in boutique investment banking, helping smaller companies raise capital. But over time, I noticed that the best businesses weren’t the ones needing funding but they were the ones generating it.
That realization, along with influence from Buffett and Munger, led me to start Lowell Capital. I wanted to focus on overlooked, cash-generative businesses with strong balance sheets — companies that didn’t need the capital markets to survive.
We built a strategy that screens for businesses with high free cash flow yields, “Ft. Knox” balance sheets, high returns on capital, and simple, durable models.
We try to avoid complexity and story-driven investors —if the cash isn’t there today, we’re not betting on what might happen. We’re looking for businesses already working, with fewer moving parts and real staying power.
Over time, we’ve refined that into a deeply defensive, high-conviction process that works for us —and it’s different from most of what we see in the market.
What type of businesses or industries do you like to invest in?
We focus on small- and micro-cap companies with strong free cash flow generation, clean balance sheets, and high returns on invested capital.
We’re especially drawn to businesses that are overlooked or misunderstood, often in simple or underfollowed industries, where we can buy quality at a discount.
We avoid complex situations and favor capital-light, durable business models with long runways for growth and strong, aligned management teams.
Ultimately, we’re looking for asymmetric opportunities where the downside is limited and the upside will lead to long-term compounding over many years.
Once you find a company that interests you, what does your research process look like?
How long do you take researching a company before making the decision to buy?
Once we find a company that fits our core filters, which include typically small-cap or micro-cap, with strong free cash flow, high returns on capital, a “Ft. Knox” balance sheet, and a simple, durable business, we will do a “deep dive” in our research-intensive process.
We’ll go through several years of filings and earnings calls, build a basic model that looks out 1, 2, or 3 years that is primarily focused on cash generation and downside protection.
We also try to understand how the business has performed in difficult environments to help us assess the durability of the business model. We will have detailed calls with management teams to get a better understanding of the business model and its “competitive moat”. We look for simple, stable businesses that we can understand and feel comfortable owning through different cycles.
Typically, we’ll start with a small position and build it over time as our conviction grows. That timeline can vary, as some ideas can come together quickly and others take more time, but we remain patient.
We try to avoid making mistakes. A quote by Howard Marks that we often circle back to is…
“most investors results will be determined by how many losers they have, and how bad they are, than by the greatness of their winners.”
We are very focused on downside protection and avoiding making mistakes. We’re more interested in avoiding big mistakes than hitting home runs.
Our goal is to find high-quality businesses that we can hold for years – ones that generate significant cash and can reinvest at high returns and return capital to shareholders.
We come across thousands of companies each year, but we only need a handful of ideas to drive our results. We utilize our filtering process to focus our attention on just a few ideas that can compound capital over many years.
You like to invest in companies trading below their intrinsic value. One can ask two analysts to value the same business, and they can come up with different answers.
What valuation methodology do you employ to determine the true intrinsic value of a business?
For us, the key is focusing on businesses with “Fort Knox” balance sheets, a competitive moat, and strong, sustainable free cash flow.
We insist on companies that have a multi-year track record of consistent cash generation and minimal leverage—that foundation allows us to underwrite downside risk with more confidence.
When it comes to valuing a business, we primarily use a free cash flow yield approach. We’re not trying to arrive at a precise number for intrinsic value. Instead, we want to understand the range of outcomes and make sure we’re paying a lot less than we think the business is worth.
We don’t build five- or ten-year models—we think that introduces more false precision than insight. The world is just too uncertain, and most investors are overconfident in their ability to forecast that far ahead.
We keep it simple: we’ll model the next one to three years, focusing on cash flow growth, capital intensity, balance sheet health, and returns on capital.
If the business is trading at 5–6x cash flow or adjusted EBITDA and we believe it can grow and prove its quality, we might assume it rerates to 7–8x over the next couple of years—which still isn’t aggressive. That combination of multiple expansion and underlying growth is what creates the opportunity.
Ultimately, our goal is to find high-quality, cash-generative businesses that are misunderstood or underfollowed. We aim to buy “growth companies at value prices”.
If we can understand the business, underwrite the downside, and see a path to attractive long-term returns, we’ll take a small position and build it gradually as conviction grows.
We’re trying to identify the opportunity before the market does—and if we’re right, the results usually show up within a year or two. If not, we reassess and reallocate. It's a simple, conservative, and repeatable process.
With smaller companies the management plays a huge role in whether a company is a success or not. How do you access management - are there any characteristics or correct incentive structure you like to see?
We are very focused on the quality of the management team of the companies we invest in. We have regular calls with management to assess the quality and durability of the business and build a relationship with management over time.
We pay close attention to how they talk about the business. We like management teams that are consistent, grounded, and focused on driving shareholder value.
We avoid management teams that are promotional or chasing the next trend. We tend to focus on management teams that have a demonstrated track record of results and who tend to “under promise and overdeliver” in their strategy.
We think like long-term business owners of the companies we own, and as Buffett says, we want to work with people we like, admire, and trust. We view management teams as our business partners, so it is critical that we respect and admire how they think and operate.
We are drawn to those with an owner-operator mindset, or leaders who act like they own the business and think in decades, not in quarters. Ultimately, we want to partner with rational, grounded teams that we would be proud to partner with for many years.
Where in the world are you finding the best opportunities right now? And are there any parts of the world you would never invest in?
We’re finding most of our best opportunities in North America and select developed markets like the UK. We have the strongest understanding of these areas and feel we can truly understand the businesses and their competitive dynamics.