Leah Zell believes that small cap investing is not something you should do at home.
She should know – her nickname is the Queen of Small caps and she is one of the most successful women on Wall Street, carving out a stellar career in the male-dominated funds management business.
In her interview with The Constant Investor, Leah believes that while index investing is a wonderful way to protect you against underperformance in deep and liquid markets, the higher returns and corresponding higher risk of investing in companies with smaller market capitalization, warrants professional management.
Leah believes that keeping her ego in check, being patient and maintaining a team small enough to hold one single conversation at a dinner table, have been the keys to her success.
“Growing up on the cusp of opportunities opening for women was both an advantage and disadvantage” says Leah “You got to do things you didn’t think you’d get to do while growing up, but you were also the first woman”.
Leah’s natural tendency to analyse everything has been her key asset in making her mark in the male dominated arena of investing.
“A core interest of mine or personality characteristic, is that I analyse everything. I analyse my day, I analyse stocks, my friends. That’s the way in which my mind works. I was fortunate enough to find a variety of outlets for that”
“We don’t look at companies below a $500 million-dollar market cap, because that is more like venture capital and it’s hard to get in and out. Companies bigger than $3 billion dollars become better known with lots of other investment managers following them, so I’d say our sweet spot is in the middle there”.
“Our very best ideas are the ones where the company earns a high return on capital, has opportunities to put that capital to work in the business for a long period, such that the equity grows without need for additional investment. That’s the holy grail of investing”.
On finding and retaining best talent in the businesses, Leah sees value in leading a smaller team.
“I’m a great believer in what I call the dinner table metaphor. Having a small enough number of people around the table so you can have one conversation. I don’t believe having large numbers improves the quality of your output”.
What’s some of the best advice this pioneer of international small caps gives everyone, even her children?
“Establish a strategic frame work of what you want to accomplish and stay focused on it. You don’t want to check your portfolio every week, you don’t even want to look at it, frankly, more than twice a year because all it will do is get you stirred up about things you can’t control.” she advises.
“Take the emotions out of it. Put a rational structure on it and stay the course.