Hunting for Undervalued Compounders in Asia with Dan Rupp, Founder and CIO of Parkway Capital

Key takeaways

Dan Rupp's transition from Overlook to founding Parkway Capital reflects a commitment to explore less liquid investment opportunities.
The investment philosophy is grounded in focusing on earnings growth, emphasizing Compounders, Defensive stocks, and Deep Value as key categories.
Dan's team composition—diverse analysts covering various markets—enhances Parkway Capital’s ability to capture opportunities.
Contrary to prevalent opinions, Dan bullishly forecasts opportunities in the Chinese market, particularly among high-quality companies leading growth.
Haier is a case study that exemplifies Dan’s investment philosophy through its robust growth and strategic acquisitions.
Investment errors are an integral part of the journey; learning from missed opportunities shapes confidence in current strategies.
The overall outlook for Parkway Capital is one of steady growth, aiming for consistency in its investment approach over the coming years.

Summary

Introduction to Parkway Capital

In this episode of the Compounders Podcast, host Ben welcomes Dan Rupp, founder and CIO of Parkway Capital. Dan shares insights on his transition from a large investment firm, Overlook, to launching his own firm focused on underappreciated investment opportunities in Asia. As the first Asia-only investor featured on the podcast, Dan highlights the unique investment landscape he aims to address.

Investment Philosophy and Strategy

Dan elaborates on Parkway Capital's investment approach, which primarily focuses on smaller-cap, less liquid opportunities in the Asian markets. He explains their portfolio, which hinges on three types of investments: Compounders, Defensive stocks, and Deep Value stocks. Dan emphasizes the significance of earnings growth, identifying that 75% of returns historically stem from this metric.

Building the Parkway Team

Dan outlines how he structured his investment team at Parkway Capital, consisting of himself and four analysts, each specializing in different areas of the market. This diversity allows for a wide coverage of the Asian market while also honing in on specific opportunities. Dan stresses the importance of being able to manage a smaller capital base effectively, allowing for investment in less liquid stocks.

Focusing on Asia and the Chinese Market

The discussion turns to the current outlook for the Chinese market, which Dan finds particularly promising contrary to the widespread notion that China is ‘uninvestable’. He argues for the opportunities available in Asia, particularly in Hong Kong and Chinese companies presenting solid earnings growth potential.

Case Study: Haier

Dan provides a deep dive into the Chinese appliance manufacturer, Haier. He illustrates how the company's operations and strategic acquisitions position it uniquely within the market, explaining its significant growth and the favorable valuation compared to its peers. Haier serves as an example of Parkway Capital’s investment philosophy, perfectly depicting a Compounder, Defensive, and Deep Value stock.

Lessons from Investment Mistakes

Reflecting on his journey, Dan opens up about past investment mistakes, specifically involving a missed opportunity with Philippine 7-11. He explains the importance of liquidity consideration in smaller companies and how such errors of omission can teach valuable lessons while steering his current investment strategy.

Future Outlook for Parkway Capital

Looking ahead, Dan hopes to maintain Parkway Capital’s trajectory without style drift, sticking to its roots in Asia and maintaining a consistent investment strategy. He expresses optimism about the firm’s potential for growth over the next decade, driven by sound fundamentals and careful security selection.

Show notes

My guest on the show today is Dan Rupp, the Founder and CIO of Parkway Capital. After spending many years at a very well-known, Asia-focused investment firm called Overlook, Dan founded Parkway Capital to take advantage of some of the less liquid and smaller-cap opportunities he was consistently unearthing. Dan is the first Asia-only investor we have had on the podcast, and I was excited to speak with him about:

The types of opportunities he thought he could invest in with a smaller capital base;
How he is building his team and his asset base;
The Parkway portfolio, which consists of Compounders, Defensive companies and Deep Value stocks
Why he is so constructive on the Chinese market right now
The investment case for Chinese white goods manufacturer, Haier

Dan mentioned a handful of securities on this podcast. I don’t own any of them.

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