And now for some good news.

Babies are being thrown out with the bath water, particularly amongst small caps. On his research list of outfits far from operational doom this investor follows several with free cash flow yields in or - on some harsh forecasts - about to be in the range 12% to 20%. And some of these have no debt.

Without indicating these as the only important criteria please accept the general comment that it takes a very special talent to bollocks up a company yielding discretionary cash at 12% with no debt. It can be done, but it is a challenge. The alternative is growth, or (on those kinds of multiples) share re-purchases or some other form of added economic value. And, in due course, the attentions of institutional money.

Now, this observer believes, in a view supported by experience, that there is a 100% correlation between what happens to company fundamentals and what happens to the corresponding share prices. And it is small firms that consistently deliver the most dramatic results (in both directions).

Unfortunately, the timing of the relationship is imperfect for reasons which the prevailing economic context explains rather well. Nonetheless, in some corners of the investment world it is difficult to not conclude that rare, choice prices and chances are emerging.

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  1. Jim Donovan // 3/19/2008 09:14:00 PM

    Paraphrasing Warren Buffett, when the market falls over a cliff, the best place to be is standing at the bottom with a bag full of cash.

    R, Might be able to see you in person in May. More later. J.

  2. RJH Adams // 3/19/2008 09:33:00 PM


    Fair to swallow pride and tell you may have to review BHP view too in view of recent communiques received from a much cleverer chap than me...


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