Our Magnificent Six

Actionable High Conviction Ideas from the Mr Mimetic Fox Fund

As a reminder: the Mr Mimetic Fox Fund is an experimental fund.

Mr Mimetic had the idea to create a collection of stocks that can compete with the 1% of the best stocks over a rolling 5-year period.

We were inspired by a report by the Alta Fox Capital, called: “The Makings of a Multibagger. An Analysis of the Best Performing Stocks over the Past 5 Years.” (You can find the report under the tab “Resources”).

Mr Mimetic created an extra rule to make the whole process a bit harder: once bought, a stock could never be sold.

So any mistake will be a drag on the performance of the fund, and shall have to be compensated by a string of great ideas.

Mistakes

And obviously, mistakes were made.

Optimism in certain stocks during and close after COVID, fooled Mr Mimetic in thinking some revenue jumps were here to stay forever, but they were mere temporary bumps.

That’s why you can find extremely disappointing stocks in the Fund like RCI Hospitality (serial strip club acquirer), or One Water and MarineMax (serial boating shop acquirers) that had a COVID-jump in revenues, but were then confronted with high post-covid acquisition prices, a slow-down in traffic (and thus revenue) and serious write-offs of old inventory.

Other stocks were impacted by AI, like the language learning stock RareJob that had the brilliant insight to use native Filipino English speakers to teach Japanese learners (scientifically the best way to learn), but has seen people flock to AI to learn English. RareJob is on its way to adapt to this new reality, by building their own AI-apps, but still: revenue took a big hit for now.

Affiliate Marketing shop Adtraction Group saw a slowdown in Fintech-revenue due to new regulation and the fact that Marketing Agencies can test and build online marketing campaigns with the speed of light now, with a much lower price point than before.

Omnicom and the likes have their own AI-agents now that act as Creative Directors, and can be used by any Account worldwide. Quite a gamechanger in the field of advertising.

Lessons

All in all, Mr Mimetic was too arrogant by committing to the “no sell”-rule. Even the very best of stock pickers have on average a success rate of 50%, according to research done by Lee Freeman-Shor:

And only the absolute best have like a 70% success rate.

A simple rule for superior returns is this: when you are wrong you have to act quickly by either selling everything or buying more.

The rules that Mr Mimetic had set up for himself work totally against this good practice: only when the news is good is it allowed to buy some more, and when the news is really bad, it’s not allowed to sell all before the decline gets even worse! (Hence a decline in Verde Agritech of 93%)

But hey, no complaints: a promise is a promise.

The whole idea is that by creating extra hurdles, Mr Mimetic becomes better and better stock-picker throughout the years. And thus better at recognizing stocks that will be part of the 1% best performing stocks. A fortuneteller of sorts.

The performance of the fund may suffer a bit in the short run, but the education value should be higher in the long run.

A New Rule

So, when the 2-year mark of the Mr Mimetic Fox Fund brought lacklustre results, Mr Mimetic dove into the numbers to see what mistakes could be avoided in the future.

Mr Mimetic concluded he had to research the end-user-market of the stocks he wanted to include a tad better. So, more hours of research.

But looking at the losers and winners in the fund, also this little particularity showed up:

When Mr Mimetic looked at the stocks in the fund that had a combined 5 year average “(after tax) OPERATING INCOME to NET OPERATING ASSETS” plus a 5 year average “(ebit) COMPOUNDING RATE” of 50% or more the results were dramatically better.

And thus the 11th rule for the Mr Mimetic Fox Fund was born: or own “Rule of 50”.(Mr Mimetic initially created a 10 item check list based on the Alta Fox Capital report)

As you can find out on our “Fund” tab:

The average CAGR of the “Rule of 50” stocks in our fund (so far) is 118%.

(You can look at the detailed numbers when you upgrade to a paid subscription.)

Obviously Mr Mimetic will no longer include stocks in the Fund that don’t meet this new requirement. This makes the universe of potential stocks that are legible for the Mr Mimetic Fox Fund dramatically smaller.

Until Mr Mimetic can find such a new stock, we are happy to share the existing “Rule of 50” batch with you all:

The Rule of 50 Stocks: Our Magnificent Six

THEON INTERNATIONAL

A defence contractor, who makes patented night goggles for the battle field. Revenue growth is highly likely due to the intention by NATO to equip every soldier with night vision and the current global situation.

Cash Flow is used for product development and acquisitions.

• First buy: 110 stocks à 9,09 on 30.10. 2024

• Return so far: 193%

• CAGR: 534%

• 5 year average OI/NOA: 56,9%

• 5 year average Ebit Compouding Rate: 33,6%

• Rule of 50: 91%

• NTM EV/EBITDA: 15,73

• Fwd 2 yr rev CAGR (TIKR): 35%

• Additional buys: 37 stocks at a price of 26,7 per share

TURK TUBORG

An exclusive booze importer and brewer in Turkey. Premium beers, but also the likes of Aperol and Campari.

Revenue growth follows the trend of secularisation in Turkey, and the younger demographic coming of age.

• First buy: 358 stocks à 80 on 15.11. 2023

• Return so far: 128%

• CAGR: 73%

• 5 year average OI/NOA: 27,7%

• 5 year average Ebit Compouding Rate: 41,4%

• Rule of 50: 69%

• LTM EV/EBITDA: 6,11

• Fwd 2 yr rev CAGR (TIKR): N.A. (but last quarter-over-quarter revenue growth was 24%)

• Additional buys: 213 stocks at 182,4 price per share.

FONET BILGI

A software and app builder who helps digitizing the operations of hospitals in countries with low digitalisation. Very sticky. Great value for the hospitals.

• First buy: 4342 shares at a price of 6,61 on 15.11.2023

• Return so far: 131%

• CAGR: 75%

• 5 year average OI/NOA: 18,3%

• 5 year average Ebit Compouding Rate: 35,5%

• Rule of 50: 54%

• LTM EV/EBITDA: 22,28

• Fwd 2 yr rev CAGR (TIKR): 45,9%

• Additional buys: 2716 stocks at a price of 182,4

NOMURA MICRO SCIENCE

Makes water filter systems for ultra-pure water that is needed to build high-tech equipment like chips, wafers, etc. Very high visibility on next years earnings through signed contracts/backlog.

Revenue will grow 31% in 2025 compared to 2024.

• First buy: 104 stocks at a price of 1450 on 11.10.2023

• Return so far: 67,45%

• CAGR: 38%

• 5 year average OI/NOA: 36,7%

• 5 year average Ebit Compouding Rate: 33,2%

• Rule of 50: 70%

• NTM EV/EBITDA: 9,8

• Fwd 2 yr rev CAGR (TIKR): 92,6%

• Additional buys: 60 stocks at a price of 2428

Nomura saw a temporary, exuberant rising of its stock price, making Mr Mimetic (also temporary) feeling like a B.O.S.S.:

CLINICA BAVIERA

A serial acquirer of eye-docter practices. Moat is in their academy to train young surgeons into a specialisation, and sharing specialisations with the network. For the doctors: joining them is a no-brainer.

Gives a dividend, where Mr Mimetic would rather see accelerated growth. (cf somewhat lower Compounding Rate due to lower Reinvestment of profit in the business)

Has the tendency to post better revenue growth than expected.

• First buy: 44 stocks at a price of 21,3 on 13.09.2023

• Return so far: 77,93%

• CAGR: 41%

• 5 year average OI/NOA: 38,6%

• 5 year average Ebit Compouding Rate: 17,8%

• Rule of 50: 56%

• LTM EV/EBITDA: 8,2

• Fwd 2 yr rev CAGR (TIKR): 6%

• Additional buys: 32 stocks at a price of 29 ; 26 stocks for 37,9.

DURATEC

Analyses concrete decay in buildings or infrastructure and repairs those. Long term contracts with government agencies like the military. Revenue growth should continue based on the trend of old (modern) concrete ageing terribly and opening up new verticals (like mining infrastructure).

However, latest quarters were disappointing.

• First buy: 1800 stocks at a price of 0,855 on 06.04.2023

• Return so far: 86%

• CAGR: 35%

• 5 year average OI/NOA: 73,2%

• 5 year average Ebit Compouding Rate: 11,4%

• Rule of 50: 85%

• NTM EV/EBITDA: 6,52

• Fwd 2 yr rev CAGR (TIKR): 10,1%

• Additional buys: no new buys due to lower revenue growth and a higher multiple before.

So, those are our Magnificent Six. Those are the best stocks in our fund, so far.

Happy Investing,

(but do your own research).

Kind regards,

Mr Mimetic

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