Interview #73 : Adam Wilk (Greystone CM)
Identifying mispriced small and microcap securities
For this issue we had the pleasure of interviewing Adam Wilk, Founder and Portolio Manager, of Greystone Capital Management.
Greystone Capital is a long only, equity focused Registered Investment Adviser located in West Chester, PA.
The firm utilizes a fundamental research process focused on identifying mispriced small and microcap securities in order to build a concentrated portfolio of high conviction investments.
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Hi Adam, thanks so much for taking the time to do this interview.
We last spoke on the Capital Employed podcast back in April 2021. A Lot has happened in the markets since then, has your approach to investing changed much in this period?
I think both the world and the market have changed a lot since that period. Both the economy and the market were still ripping during April 2021 on the back of stimulus fueled purchasing power and low rates, and that is certainly no longer the case.
Thankfully, my investment approach or process hasn’t changed much, nor will it vary from market cycle to market cycle. I still manage a long-only strategy centered around small companies.
I also try to keep things very simple with the goal of identifying and owning quality small companies, with strong fundamentals and good management, able to be purchased at value prices.
That approach won’t change, and I think investment opportunities exist in every type of market environment, with my job being to go out and find them.
How are you viewing the markets right now? And are you fully invested?
We are currently in a strange period for the market. If you ask 10 different people their take on where things stand, you might get 10 different answers. And there are a lot of assumptions that go into outlining why the market could be cheap or expensive at any given time.
Broad market returns are clearly being driven by some of the largest businesses in the world, which now make up an historically high percentage of the S&P 500. So who knows whether this current trajectory can continue. I’m not betting on it.
Luckily for me, I have the luxury of focusing on a specific area of the market and an even more specific subset of companies. And those subset of companies are cheap! Recently, small-cap stocks remain in an ongoing bear market, declining -25% from their most recent peak at the end of 2021.
Many individual stocks suffered even greater losses during that time. The average stock in the Russell 2000 was down -35% from its 52-week high as of the end of March. So there are opportunities.
There is also ample evidence that negative return periods for small caps have usually been followed by above average performance. In fact, the Russell 2000 enjoyed positive annualized five-year returns 100% of the time, that is, in every single one of the 81 five-year periods following negative performance.
Furthermore, the average returns following periods with annualized returns of 5% or less was 14.9%. So I am optimistic about returns for small companies in general.
Furthermore, there are significant structural forces as to why small caps remain cheap, as well as misperceptions about these types of businesses being riskier, which I believe is creating opportunities to purchase quality businesses at bargain prices.
The current opportunity set is incredibly attractive, and I believe market conditions are providing me with the opportunity to execute my strategy effectively.
As a result, we are close to fully invested, although to be fair, my strategy doesn’t tend to hold large amounts of cash.
We’ve had some portfolio sales recently so are sitting on a larger than normal cash pile, and given the opportunity set, I will continue deploying it through the balance of the next 1-2 quarters.