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1370 Don Mills Road, Suite 300,
Toronto, Ontario M3B 3N7 Canada - info@emjcapital.ltd
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EMJ Capital – Core Strategy
EMJ’s Core Strategy is to be invested in the best 25 growth companies at all times. Our portfolio typically consists of our 25 Best Long Ideas and 12 – 25 Worst Ideas for short positions. We want to invest each incremental dollar in our 25 best ideas and NOT our 83rd best idea.
Concentrated Portfolio
Only investing in our 25 best ideas means that, by definition, we are going to be concentrated.
Seek 100-Baggers
Before we commit to any new stock getting a place among the 25 Best Ideas in our portfolio, we typically have to believe it has the ability to appreciate 100x over the next 10 – 20 years.
Expect Fallow Periods
We know from our research that it’s quite common for some of our 25 Best Ideas to not appreciate for many quarters; we don’t give up on them.
Ride Out Inherent Volatility
We don’t run from volatility by over-trading or trying to market time; we embrace volatility as an innate aspect of this strategy of owning the 25 Best Ideas; we put our heads down during volatile periods and power through to all-time highs.
The Science Behind Our Strategy:
Betting on Public Market Moonshots
A 2019 study by Professor Hendrik Bessembinder of Arizona State found that 61% of non-US stocks underperformed Treasury bills between 1990-2018.
The most striking conclusion of the study, however, was that less than 1.3% of companies in the universe of stocks accounted for the entire $44.7 trillion of net wealth creation over the period.*
If you can buy and hold a handful of these 1.3% of companies, your portfolio can achieve super-charged returns. His data imply that “finding just one of these nascent stock market titans can more than compensate for losses elsewhere.” Discussing his findings, Bessembinder said: “I think I have provided some ammunition for the people who say it’s their business to chase moonshots. The skewness shows just how big the pay-offs can be if you’re good at this.”**
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3415739
** https://www.ft.com/content/55738213-de06-4575-8492-b5b366eb88dc
A Clear Track Record for Identifying Moonshots
EMJ has a 4 year track record of identifying public market moonshots with evidence its hit rate is increasing over time.
A new 2020 paper by Bessembinder suggests there is a deepening winner-takes-all dynamic favoring many companies.
He found that the concentration of stock market wealth creation has increased significantly since 2015 – consistent with EMJ research – and is now at an all-time high.
This suggests a concentrated buy-and-hold strategy of the 25 Best Growth Ideas is increasing in importance over time.*
“The biggest mistake you can make is not failing to sell something you should have sold, it’s selling something that you should have held on to.” – Tom Slater, Baillie Gifford
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3537838
Executing Our Core Strategy
Constantly Seeking New Ideas
We are constantly looking for new ideas of companies which should crack our portfolio. Usually – a few times a year – a handful of ideas will jump up on their hind legs and demand our attention. We will typically review 200 new ideas a year to assure ourselves we are still holding the 25 Best Ideas.
Data Science to Find and Keep Our Best Ideas
Our data science program is focused on our 25 Best Ideas strategy:
- What KPIs make a stock a good candidate to join the existing portfolio?
- What warning signs should we look for when an existing member of the portfolio should be dropped?
Volatility is a Feature, Not a Bug
We believe holding the 25 Best Growth Ideas for long durations means facing periods of portfolio volatility; it is a feature and not a bug of successfully following this particular strategy. Click to learn why.
Embracing Volatility & Drawdowns
The greatest growth stocks in the history of the stock market have all experienced 50 – 81% max drawdowns over the course of their histories as public companies.
- No great growth company has ever had a straight line up with their stock prices; they often go through prolonged periods of misunderstanding by the market.
- Volatility and drawdowns are the cost of doing business in following our particular strategy.
Maximum Drawdowns by Company source: Bloomberg
EMJ’s Core Strategy Is Not For All
- We are not the right manager for most investors who are glued to the minute-by-minute price changes in the stocks they own and discourage them from investing with us.
- We have a strategy which will endure transitory moments of large drawdowns. We believe these periods are temporary when measured quarters later.
- This strategy should reflect a small minority of your overall public equity portfolio. You should think of an EMJ investment as more akin to a venture or PE investment in terms of duration.
- We have a substantial portion of our own liquid net worth invested in our portfolio. We put our money where our mouth is and invest alongside our investors.
Generalist Approach
EMJ’s Generalist Approach favours inter-disciplinary, collaborative data scientists who manage for performance despite risks. Click to learn more about EMJ Capital and the Generalist Approach.What’s Different about EMJ?
Based in Toronto, outside the herd of hedge fund groupthink.
Proprietary data science program to help identify early trends which may be indicators of stocks that are about to break out.
Track record of identifying early growth winners.
Eric Jackson
Founder of EMJ Capital, Eric Jackson, Ph.D., did not sit in front of a screen on Wall Street for his entire career. He’s been an operator in a tech company, a consultant, an activist investor, and a scholar. He maintains a 20-year network of technology and venture capital executives who invest in public and private tech and media firms. Learn more about Eric Jackson.