BIO: Kyle Mowery, founder and portfolio manager at GrizzlyRock Capital, has an 18-year career beginning at PAAMCO, where he honed his analytical skills. He later delved into high-yield corporate securities at T.H. Lee Senior Credit Strategies and expanded his expertise at BMO Capital Markets.
STORY: Kyle invested in a business that produced sandalwood trees. He believed they were about to sell at significantly higher prices to buyers across the globe. Unfortunately, some of the sales fell through, management resigned and didn’t report when they sold their shares, and then the whole thing imploded.
LEARNING: Invest in your circle of competence. Make sure the bet size is correct.
“In inflection investing, see the inflection. You’ll pay a higher price, but you’ll have a greater certainty.”
Kyle Mowery
Guest profile
Kyle Mowery, founder and portfolio manager at GrizzlyRock Capital, has an 18-year career beginning at PAAMCO, where he honed his analytical skills. He later delved into high-yield corporate securities at T.H. Lee Senior Credit Strategies and expanded his expertise at BMO Capital Markets. In 2012, he established GrizzlyRock, adopting a fundamental, value-oriented research approach in small-cap companies. Kyle’s method involves rigorous research, systematically identifying mispriced securities with high risk/reward potential. With unwavering discipline, he navigates market complexities, focusing on high-conviction investments amidst information overload. His adeptness in spotting substantial mispricing opportunities sets him apart in the crowded investment landscape.
Worst investment ever
Kyle wanted to grow his business in 2016, so he hired an additional analyst with a background in small-cap, Asian developed markets, and Asian equities. Kyle had also been following a business that produced sandalwood trees at the time. He researched the business and ultimately purchased shares, believing the company was on the cusp of significant free cash flow. The company was levered financially, and Kyle was well aware of that. Kyle invested based on the imminent free cash flow. His company would harvest this wonderful group of trees. Kyle put his team on the ground in Australia. They saw the trees, they were all very real.
Kyle was also impressed that a founding family owned between 20 and 25% of the business. He did his full diligence and believed they were about to sell at significantly higher prices to buyers across the globe.
Unfortunately, some of the sales fell through, management resigned and didn’t report when they sold their shares, and then the whole thing imploded. Kyle luckily sold before it hit zero, but it was a very nasty loss.
Lessons learned
- Invest in your circle of competence.
- Make sure the bet size is correct.
Andrew’s takeaways
- Making great investments can be very emotional, especially if you’re starting up or a small to mid-cap company.
Actionable advice
Practice intellectual honesty. The minute things don’t align with what you had underwritten, reassess. It’s okay that your original thesis was invalidated; just be intellectually honest.
Kyle’s recommendations
Kyle recommends reading Margin of Safety to understand risk versus return.
No.1 goal for the next 12 months
Kyle’s number one goal for the next 12 months is to build a portfolio that can manage political uncertainty and perform or not drawdown very far across a broad spectrum of economic outcomes.
Parting words
“Investing is a wonderful passion for many of us, and it’s a wonderful lifelong journey. You get some wrong and some right. The key is to just keep on size and keep it compounding.”
Kyle Mowery
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