Meet the Manager: 2min with Liam Donohue
Q: What inspired you to co-found Lennox?
I think the greatest appeal of founding Lennox with my business partner (James Dougherty) is that we became business owners. We love analysing and understanding small companies and now we effectively are one! The ability to have an impact on the future direction of a business – to be the master of your own destiny – is a fantastic incentive to perform, and probably something that is difficult to truly replicate in larger businesses. We’ve certainly enjoyed building a business from the ground up and can’t recommend the small business journey highly enough.
Q: How has the small cap market evolved since you started your career?
Small caps have changed enormously throughout my career, but even over the past decade there’s been a lot of movement. The average small cap 10 years ago had a market cap of around $1bn whereas today that’s more than doubled to be comfortably over $2bn, so ‘small caps’ are now larger than they’ve ever been. The financials sector used to be much bigger, making up ~20% of the market versus 10% today – Bendigo Bank and Bank of Queensland were notable small caps back then. Media was still substantial, with names like Southern Cross Broadcasting and Austereo well-known. Interestingly the IT sector used to make up less than 5% of the benchmark, with Altium and MYOB two of the better-known software companies. One of the only constants with small caps is change, but within that the small cap market is definitely a happy hunting ground for companies that are on their way to becoming tomorrow’s leaders.
Q: What’s the most valuable lesson or advice you have received in your career?
Patience is the cheapest skill in markets, but the least used. This is a great piece of advice that we’ve probably all heard in various forms – a similar Buffett quote is that the share market is a device for transferring money from the impatient to the patient. Whoever you want to quote, the sentiment is consistent in that when you invest in equities you need to have an acceptable time-horizon for that investment…and that is usually best measured in years not days or months. Small caps are by their nature fast-moving and volatile so an appropriate investment timeframe and a stomach for perseverance are a pre-requisite if you want to survive.
Q: What is your most memorable stock purchase and why?
It’s a pretty topical one given the current state of play, but we had a great history with the skincare business BWX. We met the company a few times through 2015 when they were private and after some initial work decided to invest in them as a pre-IPO. They had a great strategy to capitalise on their position as a contract manufacturer, with their production insights giving them a pretty good read into which brands would make it and which wouldn’t (BWX acquired the ‘Sukin’ brand early on). From memory the pre-IPO was priced at around $1.00, then the IPO priced at $1.50 and we thought we’d done well. The stock doubled in the first few weeks after listing as the market got onboard with the company’s growth potential, and ultimately touched around $8.00 in late 2017. By that stage we’d closed out our position on valuation grounds and taken profits for our investors, but would never have expected it to wind up where it is now – trading at 20 cents and effectively up for sale. It goes to show that buying well is only half the job and you haven’t locked in profits until they’re sitting in the bank.
Q:What’s your favourite holiday destination?
I’m a sucker for a beach holiday so it’s hard to go past Fiji. It’s such a beautiful part of the world and the people are unbelievably warm and welcoming. Being able to spend time with the family while the kids are still young enough to want us around is a luxury, and one my wife and I are certainly happy to make the most of. Castaway Island is a favourite.