Ralph Wanger of the Acorn Fund
October 08, 2005
Market Wizards Index: +18.8%
Compound annual over 10 years
Fund or affiliation
Acorn Fund
Methodology
Aggressively seeking good small company stocks that will derive benefit from a trend.
Research Techniques Employed
Identify major trends, buy companies that will derive benefit from the trend.
Armies of analysts employed by large institutions neglect small companies. Wanger gives out annual awards, called Scarlet A’s, to regional and smaller brokerage houses.
Valuation Techniques Employed
Growth potential:
1. Growing market for product;
2. dominant market share;
3. outstanding management;
4. understand its business;
5. skilled in marketing;
6. dedicated to customers;
7. large enough stake in company.
Financial strength: Strong balance sheet.
Fundamental value: Price must be attractive. You can have a good company but a bad stock.
Philosophy and beliefs
To capitalize on the "small firm" phenomenon that U. of Chicago professor Rolf Banz documented in 1978.
"Individuals often sell small companies below their economic value and buy mature companies at full value, thus providing the other side for our trades."
In a transforming industry, the big money is made outside the core business.
Indexing creates Dow bubble.
History and other facts
Often you have businesses run by geniuses and don’t do very well. The competitors are also geniuses, so nobody gains an advantage.
Examples
Japanese Disney World - Sold when it quadrupled. "... the best single piece of property on earth, everyday there are 30,000 people lined up at 8 am waiting to come in... probabily be true whatever the entrance price was."
Performance Record
18.8% over 10 years: "... for the decade 1978 through 1988 Acorn grew at 18.8% compounded...".
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