Top 50 Microcap Investor List: Dave Lavigne
This week’s Top-50 feature is Dave Lavigne, a microcap and smallcap equity analyst and manager at Trickle Research LLC in Colorado. To provide some background, Dave was born and raised in North Idaho's “Silver Valley.” He attended the University of Idaho College of Business and proceeded to graduate in 1984 with a Bachelor's of Science in Institutional Finance. Over the following decade and a half, Dave would go on to work for a handful of small regional broker dealers where he “managed branches, built compliance protocols, developed asset allocation systems,” etc. It was not until 2002 when Dave founded his first firm, EdgeWater Research Partners, a subscription-based microcap research and conference company.
Read our Feature on Dave Lavigne
Investor Education
We have noticed that our newsletter following has grown recently beyond experienced investors and finance professionals. We will include a short lesson on investing or finance terms and explanations with that in mind. Our goal is to create a community of high-quality shareholders and investors. To complete our goal, understanding that some of our audience is newer to the investment game, we will attempt to help educate some people interested in learning more.
Read our overview on Return on Equity
LD Micro Invitational XII
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Wise and Unwise Crowds
“What separates delusional crowds from wise ones is the extent of their members’ interactions with each other.” —William J. Bernstein (“The Delusions Of Crowds”)
In 1906, Francis Galton performed an experiment where he surveyed about 800 people that bought tickets to participate in an ox-weighing contest, where prizes were awarded to the most accurate guesses. The median guess was 1,207 pounds, and the average estimate was 1,197 pounds. The correct answer was 1,198 pounds.
This is the classic example of the “wisdom of the crowd” phenomenon, where a large group of people are collectively smarter than individual experts.
This phenomenon is one of the reasons that stock markets are mostly—though far from always—efficient. A wide dispersion of investors buy and sell stocks. Some are bulls. Some are bears. Some just buy periodically and don’t have an opinion on price.
But sometimes, an overwhelming majority of the crowd interact with each other—either physically, digitally, or metaphorically by being influenced by the same news, which creates the same emotions of fear and greed and hope and despair that can influence financial decision-making in significant ways.
For example, a Christmas Eve article in the Los Angeles Times in 1999 stated the following:
Indeed, instead of cashing out of the riskiest stocks, investors have poured massive sums this month into already highly valued tech and telecommunications shares worldwide.
While long-standing investing discipline on Wall Street would argue that most of those stocks are dangerously overpriced, the concept of “momentum” investing--simply jumping aboard the fastest-moving shares, in the hope that they will continue to soar--has become a favorite strategy for large and small investors alike.
“In many cases people have just adopted the attitude that if you can’t beat them, join them,” said Richard McCabe, market analyst at Merrill Lynch & Co. in New York.
… The U.S. market’s performance has reminded some pros of the Japanese market’s hot streak in the late-1980s. That bull market ended almost exactly 10 years ago, when the Nikkei stock index peaked at 38,915.87 on the final trading day of 1989--after rising 80% just from the end of 1987.
What followed, of course, was a disastrous bear market that dragged the Nikkei down more than 60%. Even today, at 18,675.65, the index remains far below its 1989 peak.
As Warren Buffett once said, referring to past episodes of market euphoria, including the Internet mania that peaked in 1999 and early 2000: “Bubbles blown large enough inevitably pop. And then the old proverb is confirmed once again: ‘What the wise man does in the beginning, the fool does in the end.’”
From the lows in 2020 on into 2021, the rise of message boards and social media allowed unwise crowds to interact as if they had one mind, and drove the prices of many stocks beyond valuations reached at the peak two decades earlier. Like then, when the bubble started to pop, the high-fliers felt the pain first. And, like then, the downtrend so far has seen intermittent rallies followed by further eventual losses.
Whether the story of 2022-2024 plays out like the story of 2000-2002 we venture no guess and would be skeptical of anyone who shows any confidence that it will. But it’s a risk. It’s a possibility.
Examine your portfolio. Look for opinions outside of the people and places in which you normally interact. Stay as objective and open-minded as you can when trying to decide if your portfolio is positioned for the wide variety of outcomes that can happen in a volatile market, both good and bad.
“Risk means more things can happen than will happen.” —Elroy Dimson
"We have two kinds of forecasters, those who don't know and those who don't know they don't know." —John Kenneth Galbraith
Tweet of the Week
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