Venture capital funds sucked up a lot more money than they spat
out for more than a decade, an underperformance still fed by
insecure investment managers who fear getting voted off the island
if they balk. Perhaps it's time to glorify some successes by the
outcasts, those individual stock pickers who never got invited to
the party in the first place.
The illuminating report on
fund performance
and the frat pledge mentality that fuels it comes from the Ewing
Marion Kauffman Foundation, an entrepreneurship promoter with about
$250 million in venture capital investments. In "We Have Met the
Enemy…And He is Us" published this month, Kauffman describes 20
years of disappointing experience with more than 100 venture
capital funds by 60 general partners. As a whole, Kauffman notes,
the venture capital fund industry hasn't returned the cash invested
since 1997.
Kauffman largely blames a counterproductive fee structure for
taking away their profits. According to the report, managers at
institutions, pension funds and other foundations don't complain
because they fear being shut out of the most lucrative funds in the
future. (Some, usually the smaller ones, did make money.) Venture
capital is apparently a clubby business in which the poorly
mannered still get blackballed.
Being an outsider never looked so lucrative. In honor of the
relative success of small cap equities investors, YCharts looked at
a couple of their best picks in recent years and considered whether
they're still worth buying. No, it is not venture capital
investing. But with that kind of record, who needs it anyway?
It should be noted that the small cap sector typically yields
lots of dogs and a few blowout gainers. To minimize risk, many
investors choose putting money into small cap funds over picking
individual stocks. Funds like those based on the Russell 2000
usually well-outperform venture capital funds. In the spirit of
schadenfreude, however, we offer a couple of stocks in which
individual stock pickers made out so much better than the
well-connected.
Cardtronics (
CATM
)
Cardtronics went public at the wrong moment, just in time for
the sudden recession to take down its market cap nearly 90% to $52
million in 2008. But those who believed in its ATM business could
hardly be happier now. The shares are up some 2,370% since then;
about 138% in the past two years alone.
CATM
data by
YCharts
As is the case with many small caps, considerable debt leads
YCharts Pro to give the company a mere average rating on
fundamentals. But the company recently surprised the market with
better than expected earnings and a ramped up forecast for the
year. Eight out of ten analysts who follow the company recommend
its shares now. Its income growth is seriously outstripping revenue
growth now.
CATM Revenues TTM
data by
YCharts
Cedar Fair (
FUN
)
Share price gains for Cedar Fair don't approach those of
Cardtronics, but few investors would complain about nearly tripling
their money in two years. Especially if they were used to those
venture capital returns.
FUN
data by
YCharts
Cedar Fair has run amusement parks for decades, which of course has
included the recent years that ran some of its competition into
bankruptcy. But its recovery is looking better now.
FUN Revenues TTM
data by
YCharts
It's also one of the few small caps that offers a
dividend
- and a big one, at that. The
dividend yield
now is around 5.5%. YCharts Pro gives the company average marks for
fundamentals and a good rating for share price value.
Dee Gill is an editor for the
YCharts Pro Investor Service
which includes professional
stock charts
,
stock ratings
and
portfolio strategies
.