The big money is not in buying or selling, but in the waiting.

Charlie Munger

The above quotation from the late famed investor Mr. Munger lingers in our head as we reflect on his storied career given his recent passing, and on the performance of the Geneva Investment Strategy this year as investors eschewed small and mid-cap growth companies and crowded into 7 mega-cap stocks. More importantly, we view the Magnificent 7 Market Regime as providing an opportunity to acquire “splendid businesses selling at reasonable prices.” (…with deference to Mr. Munger). The Geneva Investment Strategy offers exposure to small and mid-cap innovation companies growing multiples faster than GDP, with attractively high margins, an included call- option of strategic M&A and PE take-outs while trading at sharp discounts to prior periods. 2023 welcomed more data points confirming the decade-old investment process of identifying strategic assets (57 portfolio companies acquired by strategic or private equity since inception1). Our investment team believes the mega-cap FOMO market has set the stage for a heightened period of M&A, and/or a powerful mean reversion trade into small cap as investors take profits and position for lower rates.

Our fundamental research suggests that underlying business trends at our companies remain robust and that these businesses will continue to compound over the next few years. Eventually, the market will re-rate these companies – we suspect as rates begin to decline – and investors begin to unwind the Mag 7 trade.

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