During the trading day Wednesday, I tweeted the following:
I'll have the research report for KCG up before the end of the month. As I mentioned on Twitter, this is a bit out of my normal market cap range. In fact, KCG represents only the fourth name I have profiled that has a market cap over $500 million. The 16 other reports I have written have all been sub-$500 million market cap companies. The average gain of the three $500 million+ market cap companies (PRGS, YELP, BWC) I have profiled over the past 2 years is 77% to date. With KCG I expect the pace of gains to continue.
If I could sum up the investment thesis in one sentence it would be that the global financial markets are facing a liquidity driven surge that will naturally benefit one of the leading liquidity providers in the world. It really is as simple as that. Of course, I could have gone the route of a company like ICE (now owns NYX) or CME. Too mature, however. These are both companies with market caps in excess of $10 billion. KCG has a market cap only slightly above $1 billion due to the fact it came to an inch of its corporate life due to a software upgrade error that started spitting out erroneous orders last year. It has since been restructured, recapitalized, merged and all the better for it.
I'll bottom line it one more time with this: Any global liquidity provider with a dominant position in the marketplace that is selling at less than 1/10th the value of its competition is a low-risk, high reward proposition. An asymmetric bet that will be carried by the markets as trading volumes increase and the surge in equities we are seeing continues. I expect tremendous upside here over the next several years. To give an idea of what I am expecting with KCG just remember that I don't consider positions that have upside of less than 300% over the long-term.
With that said, the portfolios are pretty much fully invested at 100% of capital. I'll have an update on each position as I usually do at the beginning of the month in my monthly report. If you would like to be added to the mailing list for the report, email me at mail@t11capital.com and I will be happy to add you.
