Idea Brunch with Avram Fisher of Long Cast Advisors

Welcome to Sunday’s Idea Brunch, your interview series with great off-the-beaten-path investors. We are very excited to interview Avram Fisher!

Avram is the founder, portfolio manager, and self-described “chief curiosity officer” of Long Cast Advisors, a small-cap-focused investment manager. Over its seven-year history through 1Q23, Long Cast has returned 166%, or 14% annualized. Prior to starting Long Cast, Avram worked as a sell-side equity analyst at BMO covering Business and Industrial Services and at CSFB covering Industrial Products. Before transitioning to the finance world, he had a background as a writer, reporter and private investigator. Avram is active on Twitter @longcastadviser and shares investor letters and other commentary on his website.

Avram, thanks for doing Sunday’s Idea Brunch! Can you please tell readers a little more about your background and why you decided to launch Long Cast Advisors?

Thank you for having me on and for a moment of your audience’s time.

I started Long Cast with savings my wife and I earned through work, less than $1M. I never worked at a hedge fund. I had no “seed capital” or family money, just our savings and a vision to invest it in order to grow wealth. My sister and a fraternity brother were my first clients. I now manage 25 accounts totaling $7.5M in assets, including 30% personal. It’s SMAs so the structure is very simple and transparent. Integrity is very important to me.

I do this because I love investing. I think it favors smart, quirky, or slightly obsessive minds, and attracts the kind of nerds and weirdos I like to hang out with. I definitely couldn’t do it as a business without my wife’s support.

Your background is much different than most hedge fund managers. How have your past experiences impacted you as an investor?

Prior to Long Cast Advisers, I worked for about a dozen years as a sell-side equity research analyst at BMO Capital covering Industrial Services and Business Services and before that at CSFB, as an associate, covering Industrial Products.

For an analyst with an inquisitive mind and supportive boss, the sell side is like an exploratorium. Picture a floor of 30 or so teams focused on tracking the ~15 largest companies in a variety of industries ranging from medical devices to grocery stores, proteins and toys. You can learn a lot. However, since regulations prohibit owning what you know, it’s less an investing job and more an academic job. My aim was always to transition to investment management but when I left the sell side I was on the wrong side of 40 and nobody hires a 40-year-old analyst with no portfolio management experience, so I had to blaze my own path.

I took a wayward route to finance. I graduated from Johns Hopkins with a degree in creative writing. My first few jobs out of college were at a weekly newspaper, a daily newspaper and a national magazine as a fact-checker.

Then E-trade happened and I caught the investment bug. I took an accounting class at NYU, read about technical trading and CANSLIM. I read Berkshire letters and Peter Lynch. I started to re-direct my career towards finance, which lead me to working at a private investigator that hired writers and reporters for management due diligence, which still very much informs what I do today.

Between stints at the investment banks, I went to Baruch for my MBA. It’s a CUNY school and inexpensive for city residents. It seemed a better choice to put my capital towards a down payment on an apartment in Brooklyn than pay private school tuition.

You have a pretty diverse portfolio — ranging from a next-generation battery company (ENVX) to a microcap payments processor (CCRD). How are you able to come up with off-the-beaten-path ideas in an industry with so much groupthink?

Every investment should be approached with a skeptical mind. In business school, I interned for a small deep value fund and the PM used to say “the first job is to say ‘no.’” I still say “no” a lot, and it’s especially easy when “everyone else” is piling in, for better or worse.

I like the strike zone analogy of investing, “waiting for your pitch.” Looking for and identifying the right opportunity isn’t about what anyone else is doing but one’s own discipline to their process. I can stand at the plate however long I like and step out and call time for as long as I like. It’s important to not let strikes go by but I find it’s even more important to swing and not miss.

The base rate in business is not “success” so for something to grow beyond micro- or small-cap size it needs to have some rare or unusual quality or a change that is otherwise unnoticed or unrecognized by the street. And when it’s unnoticed or unrecognized, you’re not going to get any positive feedback from owning it and every day may feel like another kick in the head. So getting the due diligence right is essential. Most good investments start when everyone else thinks you’re crazy but unfortunately, the inverse is not true; everyone else thinking you’re crazy will not ensure a good investment.

Many microcaps are known for terrible governance, self-dealing, and chronic underperformance. What are some of the common red flags that lead you to pass on a microcap? Are there any common positive signs that lead to heightened interest?

Everyone’s trying to sell something. I think the biggest red flag is when you come across a company where it’s clear that the investor is the only end customer. Other red flags that are easy to identify are excessive management pay, excessive board pay, excessive equity dilution, excessive complexity and excessive jargon.

I like things hiding in plain sight. If there’s value creation and something is changing, it interests me. Some of this can be anticipated through observations on the P&L but most often, you have to look at adjacencies.

Also, I’m not buying anything I don’t understand. The framework I use is “what problem does this company solve?” That question eventually regresses to the value of the problem, the importance of the solution and the customer’s alternatives. I build my cases around that.

Avram, what are some of the first things you do when researching a potential investment? What does that first hour of research look like for you? Do you do anything that few others do?

I recently wrote a blog post that included a section on how I decide what companies to meet with at an investor conference. That’s my “first pass filter” and I invite your readers to check that out (For the tl:dr crowd, I use book value per share).

For things that float my fancy, the accessible sources are Q’s and K’s, the news and earnings releases and the proxy. Ours is a forward-looking business, but history offers clues and context on how management operates so I go back to the earliest available information. One shouldn’t expect success where there hasn’t been before unless something is changing.

I realize reading these K’s and Q’s takes more than an hour but when you have your teeth in an idea time disappears. And finally, a much-overlooked and underrated aspect of research is sleep. As my 2013 Berkshire-meeting roomie said: “Cram it all in there and see what shakes out.” Sleep helps make sense of things in different contexts and often offers up new assumptions worth testing, in work as well as in life.

What are some interesting ideas on your radar now?

The company that interests me most right now is Matrix Services (NASDAQ: MTRX — $147 million). I own it for clients and there’s capacity to add more. MTRX is an industrial contractor. They design, build and “bend metal” for gas, liquid and cryogenic storage, for electrical Transmission and Distribution (T&D) and they do outsourced mining and industrial facility management.