River Oaks Capital H2 2024 Letter

2025-02-09 03:10:00 ET

Summary

• The importance of the management team is inversely proportional to the size of the company.
• It is very infrequent that you will find a small, public company that has a true ‘economic moat’ similar to that of Coca-Cola and Apple.
• Our ultimate goal is to have our fund invested in 10-15 small, underfollowed wonderful businesses.

Our Companies

*renamed from Nicholas Financial

H2 2024 Letter

Here is the link to three previous letters: Past Letters

River Oaks Capital is open for new investors, if you or anyone you know is interested in learning more about our fund, please visit our website or e-mail me at [email protected]

Thank you to all who have expressed your interest in River Oak Capital’s letters. They tend to be long and in-depth, much like the research River Oaks does on a company before we buy ownership. To that end, I have started a table of contents , to make the letter more navigable

1. Investment Philosophy & Thoughts
2. Companies added in H2 2024 (Innovative Food Holdings)
3. Updates from H1 2024 Letter
4. Mistakes

I. Investment Philosophy & Overview

"Shares are not mere pieces of paper. They represent part-ownership of a business. So, when contemplating an investment, think like a prospective owner "- Warren Buffett

As I am writing this letter, River Oaks Capital has hit the five year milestone as a fund. What an incredible journey it has been so far with all of you alongside me as investors.

As I sat back and began to write my usual introduction to the investor letter, I started to reflect on the lessons I have learned over the past five years of investing in small, public companies – market capitalizations under $1 billion – and thought it would be fun to list out the ‘top 5 lessons learned over five years.’

Let me start this off with a quick story.

Lesson 1: Investing with a business owner, long-term mindset will set you apart in inefficient small, public companies.

I remember it like yesterday, in 2020 – as River Oaks Capital’s fund manager – I hopped on a plane for my first in person meeting with a small, public company’s management team.

I showed up to the meeting with a sports jacket on and a nice button down shirt and walked in with my notepad and list of questions – as we had always done in Private Equity when visiting management teams.

I walked into the company’s headquarters and could instantly tell the management team was confused and trying to assess the motive behind my visit. At first, I was unsure what was even going on.

I started to ask the first few questions on my notepad until eventually the CEO said something along the lines of “You are the first investor to visit us in person for many, many years.”

It immediately clicked that they didn’t even believe I would take the time to hop on a plane just to ask the management teams questions and get to know them.

I quelled their concerns by ensuring them the only reason I was visiting was because I planned on being a long-term owner of their company but would never buy ownership in a company without first getting to know the management team.

I felt that it was odd that no investors were visiting this management team – they were wonderful capital allocators – in person but I flew home that day just assuming most investors attended the shareholders’ meeting – which was in two month – instead of visiting the company in person.

After the visit, I started buying ownership in the company, so I made plans to attend the shareholders’ meeting – where I would get to meet their board and other investors.

This time I dressed in a full suit and tie because I figured this event would be well attended and I wanted to look as professional as possible.

I opened the door to the meeting and was immediately met by stares.

I was the only outside shareholder attending the meeting – aside from one other person who lived close by.

I vividly remember that awkward feeling of their confusion as to why again I got on a plane just to attend this meeting – they didn’t even have a chair ready for me to sit in.

Recall, when I started River Oaks Capital in the beginning of 2020, I had come from working in Private Equity where we would do extensive due diligence before buying a company.

This included spending a significant amount of in-person time with management teams, visiting the company’s facilities, attending multiple industry related conferences, talking to industry experts/competitors, etc.

We would spend months – if not years – getting to understand a company before buying significant ownership. This seemed appropriate because we would become a very large and long-term (10+ years) owner of the company.

As you can tell from my formal attire and preparedness for my first in person meetings, it was a shock to me that no one was doing the same due diligence in small, public companies.

Even though at River Oaks Capital, we were buying a much smaller percentage of a publicly traded company than at my Private Equity job, it was just in my DNA to treat each investment we made as though we were buying the entire company for many years.

In reality, what is the difference between buying 1% of a company versus 50+%?

If you bought 50% of a local restaurant, you would do rigorous due diligence, so why not do that same for any dollar amount you invest in a public company?...

Read the full article on Seeking Alpha

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