Dave Waters of Alluvial Capital / OTCAdventures on $PIOE

Episode Summary

Executive Summary: Andrew Walker interviews Dave Waters about his path from bored bank analyst to founder of OTC Adventures and Alluvial Capital, his focus on under-researched small/micro caps, and how writing online built his reputation. Waters explains his preference for illiquid, often foreign, quality businesses, shares trading tactics for thin markets, and discusses key holdings like P10 and rural telecoms, where he sees long-term value from fee streams and fiber broadband transitions.

Main Topics: Origins of OTC Adventures and Alluvial Capital (Priority: 5/5): Waters explains how boredom at a Pittsburgh trust bank, CFA study, and a love of treasure-hunt style investing led him to start writing online in 2012 and launch Alluvial in 2014. Using writing to build an investing career (Priority: 5/5): Both speakers emphasize that publishing research online sharpens thinking, creates accountability, and helps young investors build a track record and network. Investment style: small, illiquid, underfollowed securities (Priority: 5/5): Alluvial targets small caps, micro caps, controlled companies, and obscure foreign listings where larger funds face liquidity, size, or access barriers. International opportunity set and market structure (Priority: 4/5): Waters argues Europe and some frontier markets offer better opportunities for high-quality small companies because public-listing costs are lower and disclosure is often thinner but acceptable for patient investors. Trading and execution in illiquid names (Priority: 4/5): He discusses practical methods for buying and selling thinly traded stocks, including patience, willingness to pay slightly above ask or below bid, and avoiding signaling too much size. Case study: P10 and acquiring fee streams (Priority: 5/5): Waters details P10’s evolution from a bankrupt shell into an asset manager rolling up private equity fee streams, highlighting alignment, sticky revenues, and potential uplisting. RLECs and broadband/fiber transition (Priority: 5/5): He explains why rural telecoms such as LICT and Nuvera are attractive: government subsidies, fiber buildouts, scarce infrastructure assets, and potential takeover interest.

Key Arguments: Writing about investments publicly improves analysis because it forces the investor to answer hard questions and can change or refine the original thesis. Small and micro caps remain fertile ground because many securities are too illiquid, obscure, or unpopular for large funds to pursue. In the U.S., tiny public companies are often public for bad reasons; in parts of Europe, going public is cheaper and can support high-quality growth businesses. For illiquid stocks, investors should be willing to pay slightly above ask to get in and accept slightly below bid to get out if conviction is high. Quality and management matter more than merely cheap asset value late in a bull market; normalized cash flow and reinvestment runway are preferable. P10’s strategy of buying private-equity fee streams at low cash-flow multiples is compelling because fees are recurring, high-margin, and management-aligned. RLECs are not just declining landline businesses; those successfully transitioning to fiber and broadband can become valuable infrastructure assets. Foreign investing requires patience, local knowledge, and networked cross-checking because disclosure, language, and tax issues can be significant.

Data Points: OTC Adventures launch year: 2012 - Waters says he started the blog while working at a trust bank in Pittsburgh. Alluvial Capital launch year: 2014 - He says he launched the fund two years after starting the blog. Starting AUM at Alluvial: $2-3 million - Waters describes the fund’s initial assets under management in 2014. Current AUM at Alluvial: about $40 million - Waters gives the fund’s scale during the interview. Typical portfolio split: about one-third international / two-thirds domestic - Waters describes his usual research and allocation mix. Current research split: almost evenly between U.S. and overseas - He says current opportunities are roughly balanced, with more luck overseas. P10 ownership stake: nearly 2% - Waters says his fund and separate accounts own about 2% of P10. P10 valuation at initial purchase: 5-6x free cash flow - He says P10 traded at this multiple when he began buying. P10 preferred conversion price: $3.30 per share - Waters notes the newest round of preferred stock was struck at this price. P10 earlier conversion price: $3.00 per share - He references the earlier five points transaction and its preferred stock terms. RLEC valuation: about 5.5-6x EBITDA - He cites LICT’s trading level as part of the rural telecom thesis. Nuvera normalized free cash flow yield: double-digit - Waters describes Nuvera as very cheap on cash earnings. Nuvera debt: about 2 turns of EBITDA - He notes the company’s leverage is manageable. Foreign dividend withholding: 35% or more - He cites high tax drag on some foreign dividends. Italy IPO tax credit: 500,000 euro - Waters says some Italian companies receive a tax credit for going public. Polish microcap market cap example: under $2 million - He says some profitable companies on New Connect trade at extremely small U.S.-dollar market caps. RLEC business mix example: over 60% broadband and subsidy revenue - He says LICT has shifted from landline-heavy to broadband-heavy revenue. Federal broadband subsidy programs: Connect America Fund; Connect America Fund II - He explains how these programs support rural fiber deployment.

Pivotal Quotes: "if you publish My research somewhere, put it online, and it's good, and people like it. And on average, my ideas do well, the opportunities will come." — Dave Waters: Explaining why he started OTC Adventures and how publishing opened career opportunities. "I want to allow. Multiple of normalized cash flow with a big degree of ability to reinvest those cash flows and a defensible business model and smart motivated people in charge." — Dave Waters: Describing how his investment philosophy evolved from pure asset plays to higher-quality businesses. "why should we keep on subsidizing phone connections and long distance and things of that nature? What we should subsidize is broadband." — Dave Waters: Summarizing the policy shift driving the RLEC fiber transition thesis.

Implications: The conversation highlights a durable edge in obscure, illiquid markets: research, patience, and networks matter more than speed. Listeners should look for quality small-cap businesses, especially abroad, where structural inefficiencies and policy shifts can create long runways.