Mispriced opportunities and diversification

Business Buyer and Builder,

We talk a lot about the lower middle market, profitable and cash flowing companies with an EBITDA range from $1-15M.

And today, I want you to read something different, which will add a greater “range of tools to your investing and decision-making toolbox”...

It should make you a better thinker, investor, capital allocator, and overall better entrepreneur.

Michael Mauboussin says in his research paper (page 290), “the more ways you have to solve a problem, the more successful you’re likely to be. And if you have the identical tools as everyone else—the same business school education, TV channels, Wall Street research - you are very unlikely to gain insight.”

Which leads to a philosophy that Oaktree co-founder, Howard Marks, holds deeply… he believes markets are relatively efficient; you have a lot of smart people making decisions and deciding on prices, and for the most part they’re pretty accurate.

You cannot outperform them if you hold the same views as them - since their views are baked into the price already - and since their views are made up of widely known information, you must either disagree with their conclusions, or have better information at your disposal…

Information, right? That is why you’re here.

Now, to give you more tools (read: information), there is an investment firm called East Rock Capital, co-founded by Adam Shapiro and Graham Duncan in 2006, focused on managing the wealth across a select group of families.

I want to divide this newsletter into two buckets: 1) some theory; 2) a lot of practical tips (which both require reading and listening).

1.A Brave Pep Talk Turns Fear Into Opportunity: An investor who made a difference and why founders and allocators need to know about (below is part of the letter, but I highly suggest you read the whole thing. Here is the link.)

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2.Private Markets Investing: An Alternative Model

(again, below is part of the letter, but I highly suggest you read the whole thing. Here is the link.)

Before the last practical letter to a friend… I have a question for you:

Are you an accredited investor and a portfolio builder?

The best investors I know are ruthlessly selective about what they own.

Deal-by-deal investing gives you that level of control. You evaluate each opportunity independently. You get to know operators. You construct your own portfolio based on your thesis, not someone else's deployment schedule.

The challenge has always been sourcing quality opportunities in the lower middle market. That's what CapitalPad solves. They curate searcher and independent sponsor acquisitions ($5M-$20M enterprise value), handle the vetting, and bring you opportunities starting at $25K per deal.

It's infrastructure for investors who want direct ownership in established businesses without needing institutional minimums. Accredited investors: Capitalpad.com

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3. A letter to a friend who may start a new investment platform (here you have two options: 1). you can read the original letter from Graham Duncan; 2) or you can go and listen to a solo podcast episode I did on this. By listening, you can work out, walk - multitask).

By the way… Is your spouse fully on board with what you’re building?

If you prefer to listen:

Here are the links to Apple podcast, Spotify and YouTube.

That’s all for today.

Thanks a lot for reading and I’ll talk to you again very soon.

Take care,

PrivateEquityGuy / Mike Markus