[REPLAY] Jeremy Raper Pt. 2: Activist Investing, Australian Small Caps, and Finding New Ideas

Episode Summary

Executive Summary: Jeremy Raper describes how his investing evolved after COVID: less aggressive shorting after painful squeezes, more focus on Asia/Australia, and a new “social activism” style of small- and mid-cap activism amplified via media and social networks. He explains his idea-generation process, his view on Japanese capitalism, commodity investing, and details his Alto Ingredients campaign.

Main Topics: Evolution of investing style after COVID (Priority: 5/5): Raper says his portfolio and process changed materially after traumatic short experiences (Tesla, NIO, SVB) made him reduce position size on the short side and sleep better, while shifting more activity to Asia and Australia due to time zone and opportunity set. Social activism as an investing tool (Priority: 5/5): He argues that small investors can influence outcomes in illiquid companies by combining ownership, public letters, and media amplification—turning Twitter/news coverage into leverage for better corporate outcomes, especially in sub-$1B float names. Hunter Douglas case study (Priority: 5/5): Raper recounts how he challenged a low-ball takeout bid, mobilized minority holders, and helped drive a higher eventual sale price, using it as proof that activist-style pressure can work even with relatively small capital. Idea generation and pattern recognition (Priority: 4/5): He says he does not rely on screens; instead he reads newspapers, filings, and VC posts, receives reverse inquiry ideas, and uses pattern recognition from prior special situations to identify mispriced setups. Japan as an investment and social system (Priority: 4/5): Raper admires Japan’s social cohesion and service culture but sees it as structurally less shareholder-focused. He expects excess cash and cross-shareholdings to be reduced over time, but not a full Western-style shift. Commodity investing and special situations (Priority: 3/5): He remains constructive on select coal/oil names due to structural underinvestment and valuation, but says he needs a catalyst or special situation to get excited; pure commodity bets are less attractive without corporate intrigue. Alto Ingredients activist campaign (Priority: 5/5): He outlines his latest campaign: pushing Alto to sell or monetize its best ethanol/carbon-capture asset (Pekin) while disposing of weaker assets, arguing the company is undercapitalized and has poor long-term execution under current management.

Key Arguments: Shorting is now a smaller part of his process because COVID-era squeezes created lasting PTSD and outsized shorts can be fatal even when fundamentals are right. Small-cap activism is now democratized: a skilled individual with a modest position, a strong thesis, and social/media amplification can influence boards and outcomes. He prefers illiquid, sub-$1B float situations where a motivated owner, dissatisfied minorities, or a flawed bid create leverage for activism. Media coverage matters more than Twitter alone; traditional newspapers and trade press still move management behavior because executives care what peers see in print. Japan offers attractive corporate excess-cash and cross-shareholding opportunities, but its capitalism is intentionally stakeholder- and society-oriented, so shareholder maximization is limited. Commodity investments are best when paired with a catalyst such as bids, restructuring, or asset sales; pure supply-demand views alone are not enough for his style. Alto Ingredients is a strong activist setup because its best asset has replacement value and carbon-capture optionality, while the company’s execution record and capital structure make a sale or breakup more rational than a turnaround.

Data Points: Retention rate at MacroOps: Highest in the investing service industry - Introductory promo for MacroOps Collective Jeremy Raper episode number: Episode 27 previously - Brandon notes the earlier conversation was very early in the podcast's history Personal loss on Tesla short: Six-figure loss - Raper cites a painful Tesla short as part of his reduction in short exposure Personal loss on NIO short: Close to seven-figure losses - Example of a short thesis being right on fundamentals but crushed by speculation SVB equity price around event: About $150 to $78 to zero - Raper describes missed opportunity during the SVB collapse and the post-headline move Hunter Douglas ownership concentration: About 87% owned by founder - Made the free float much smaller than the market cap implied Hunter Douglas free float: About $700 million - Used to illustrate the effective size of the tradable stake Hunter Douglas bid increase: From roughly 60s euros to 80s euros - Result of pressure from minority holders and publicity Hunter Douglas eventual sale price: $175 - Company later sold to 3G Capital at a much higher price Hunter Douglas acceptance ratio: About 15% - He says it was the lowest acceptance ratio for a board-approved deal on Euronext Amsterdam Singapore Golden Energy outcome: Significant deal bump - Example of successful activism in another market FAR asset value claim: About $1 of assets vs 50-cent bid - Raper cites a newspaper-described bid for Australian explorer FAR TNG / Think Childcare initial bid: Around 30% premium - Illustrates how small-cap bids can lead to higher offers Alto market cap: Just under $200 million - Current size of the ethanol producer Alto capacity: About 350 million gallons/year - Portfolio of ethanol facilities Pekin campus capacity: About 250 million gallons/year - Main high-quality asset within Alto Alto negative shareholder return: Negative 60% CAGR since 2013 - Used to argue management has not created value Current CEO tenure: COO since 2013; about a decade of operational control - Supports argument that leadership has had enough time to prove itself Current CEO compensation: Close to $8 million total comp - Used to criticize alignment and results Alto carbon-capture EBITDA opportunity: About $150 million EBITDA - Potential transformational upside from carbon capture and sequestration Alto ethanol EBITDA in good years: $65–70 million - Historical baseline for the commodity business Crush margin last year vs now: Negative 5 cents vs 35–40 cents - Shows major improvement in ethanol economics Alto stock low: As low as $1.30 - Market dislocation when the company was viewed as near a going concern Replacement cost for Alto capacity: About $2 per gallon - Raper argues current EV/gallon is roughly 50 cents versus far higher replacement value Current value relative to replacement cost: About 50 cents/gallon EV - Used to support sale thesis for Alto Japan population: About 125 million - Used while discussing Japan’s large but insular economy Cyprus deposit levy: Up to 47.5% on uninsured deposits above 100,000 euros - Analogy for potential sovereign balance-sheet recapitalization

Pivotal Quotes: "I spend a lot less time shorting now" — Jeremy Raper: Explaining how traumatic post-COVID short squeezes changed his investing style "Social media activism or social activism" — Jeremy Raper: Defining his newer approach to influencing small-cap outcomes through ownership and public pressure "Price is what you pay, value is what you pay" — Jeremy Raper: Describing a more value-oriented, event-driven approach and disagreement with higher-multiple growth investors

Implications: The episode shows how modern small-cap activism can be powered by research, reputation, and media amplification, not just capital. It also highlights selective opportunities in Japan, Australia, and commodities where corporate action can matter more than simple valuation.