Old-Fashioned Stock-Picking for Modern Markets

June 9, 2025

From the Editor: In Praise of Persistence

Welcome to the inaugural issue of *The Dinosaur*, a value-investing newsletter for those who believe that fundamentals still matter. The name isn’t self-deprecating—it’s earned. I’ve been in this business for decades, identifying growth companies trading at deep value discounts.

During a lecture to young investors a few years ago, one attendee confidently told me I needed to “get with the times” and called me, yes, a dinosaur. He and his peers were infatuated with meme stocks and moonshot narratives. Three years later, their picks were down 80%. 

But truthfully, it’s been a tough stretch for value investors. The market zeitgeist has favored AI buzz, speculative ETFs, and stocks with social media momentum. Anything under a $500 million market cap is ignored by the mainstream. Yet if scientists can revive the woolly mammoth, surely value stocks can stage a comeback too.

Market Context: What Got Us Here

Let’s begin with a brief economic history lesson.

Governments and central banks are charged with managing monetary policy to maintain economic stability. Some might argue that the modern approach leans toward printing as much money as possible without triggering hyperinflation—an approach that, not so long ago, was tested to its limits.

Back in 1980, interest rates hit 20% amid an oil crisis and a hawkish Fed. When I was finishing college in 1984, municipal bonds and money market funds yielded over 10%. Stocks were cheap because safe, high-yielding alternatives existed—why take equity risk?

That era ended with Reagan’s “Turn the Bull Loose” proclamation, which launched a multi-decade decline in interest rates and redefined investing. Mediocre brokers and real estate speculators were turned into heroes by a tide of falling rates. Few college finance programs teach that all streams of income—stocks, bonds, real estate—rise in value as rates fall.

The path wasn’t smooth. We had crashes in 2002 and 2008, corrections in 2011 and 2018, and several global shocks. But each time, global leaders coordinated to backstop markets through fiscal and monetary stimulus. Crisis was met with capital.

A Theory of Small-Cap Neglect

Let’s talk about the less-discussed drivers behind small-cap underperformance.

The 2008 Madoff scandal didn’t cause the crisis, but its aftermath triggered a loss of faith in boutique managers and opaque investment strategies. Investors began favoring ETFs and cryptocurrencies—not necessarily for performance, but for perceived safety and transparency.

We predicted this shift back in a 2010 letter, where we discussed the Rollerball Effect—a reference to the dystopian film where 24 corporations control the world and fear any figure (or stock) outside their control. Sound familiar?

As the FAANG names took over, we bet on the smaller players with novel products poised for acquisition. And while we’ve had our share of wins, we underestimated how long the mega-cap momentum trade would persist.

Fast forward to 2015: regulators allowed Citadel to build the world’s largest market-making operation. Goldman had previously absorbed Spear, Leeds & Kellogg, another step in centralizing power. Now, a few hedge funds command an outsized influence, posting returns reminiscent of Madoff’s—except this time, it’s legal.

This consolidation likely explains the historic dislocation in valuations between large- and small-cap stocks. Small-caps have been shaken out, suppressed, and overlooked—but they haven’t disappeared.

Where We Go From Here

So what does all this mean for you?

It means that if you believe the world will keep turning, there is a compelling opportunity in small-caps. The valuation gap between large- and small-cap equities is at a historical extreme. Whether you believe the system is manipulated or simply inefficient, it doesn’t matter. What matters is this: these stocks are cheap.

Yes, I’ve been sounding this horn for a while. But if recent political shifts trigger a “Trump Bump” akin to 2016–2018, small-cap equities may finally have their moment in the sun. Ideally, it lasts three years—not three months.

Watchlist: Four Dinosaur-Endorsed Picks

PLEASE NOTE: 

1. Any discussions or information shared in this conversation about stocks or potential trades are for informational purposes only and should not be construed as investment advice.
2. Before making investment decisions, individuals are responsible for their own research and consulting with a qualified financial advisor.
3. We, or our affiliates, may have positions in the stocks mentioned, potentially influencing our opinion.
4. You should not buy a equities unless you are prepared to sustain a total loss of the money you have invested plus any commission or other transaction charges.

DigitalOcean (DOCN)

A developer-focused cloud platform serving small- to mid-sized businesses. Solid recurring revenue, attractive margins, and reasonable valuation.

Lyft (LYFT)

Long overshadowed by Uber, Lyft trades at a fraction of its former valuation. Potential turnaround play with upside if the company executes.

Universal Electronics (UEIC)

This overlooked electronics firm holds a portfolio of valuable patents and IP in a changing consumer tech landscape.

Ilika plc (IKA.L)

A UK-based innovator in solid-state battery technology—still speculative, but interesting in the right allocation size.

In Closing

*The Dinosaur* doesn’t roar, it rumbles quietly, patiently, confidently. When the tide turns—as it always does—those who held to discipline, valuation, and patience will be well rewarded.

Until next time,

—The Editor