As readers will know, I'm an arch proponent of being very selective about investing in large caps and investing in smallcaps which combine: i) exceptional knowledge incorporated into applications which improve the productivity of direct and indirect customers, and ii) those rare management teams who have acquired their commercial skills within large caps and have demonstrated the ability to deploy those skills successfully in smallcaps - one of the difficulties with large caps can be pinpointing who was actually responsible for a particular piece of success! The latest piece of data supporting a very selective view of large caps came from the CEO of an attractive smallcap which had been acquired by a large cap. He likened the takeover to Ford Motor Company (NYSE:F) acquiring a Formula 1 team and then Ford telling the F1 team that it knew where to buy wheels and tyres more cheaply! The highly paid senior executives were found to have an inflexible approach to change. In the CEO's experience, whereas a well run smallcap aspires to achieve a very high rate of operational efficiency, it is very difficult for large caps to achieve high efficiency because of layers of expensive non value adding bureaucracy. A couple of years ago I was talking to a director of an AIM listed electronics company who had previously held a senior position at Tyco (the US conglomerate - NYSE:TYC). In response to my question as to why he had moved from Tyco, he replied that there had been four people above him (none of whom he respected) to second guess his decisions, he was only allowed to communicate with these people by email, not face to face, and the process was soul destroying. A key aspect which I focus on with companies is the team's approach to decision making. I seek to avoid companies with decision making processes along the lines referred to above. My experience is that very efficient decision making processes can be found within smallcaps falling within the profile referred to in the first paragraph. Against the background of these turbulent times, an interesting example of such a smallcap reporting last week was Delcam (LON:DLC) with its interim results, which showed a very solid team exhibiting confidence by raising the interim dividend 30% from 1.35p to 1.75p.
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