There’s a UK small-cap fund manager, now retired, called Harry Nimmo. In a recent talk for The Library of Mistakes, he gave a masterclass in small-cap investing.
He knows what he’s talking about too. The fund he ran, the Aberdeen UK Smaller Companies Fund, delivered a 1,979% return over 25 years and was recognised as the second-best performing UK fund of the past century by The Sunday Times.
I’d encourage you to watch the talk for yourself, but one part is particularly worth emphasizing: winners tend to keep on winning.
In Harry’s words, “just because something has gone up a lot, doesn’t mean it’s suddenly going to go down. It could go up an awful lot further.“
This isn’t just a passing remark; it’s the core of his investment strategy. In fact, he actively avoids stocks that look cheap on the surface, because low valuations are often low for a reason.
Instead, his approach is built on momentum.
Not share price momentum, to be clear, but business momentum. He’s looking for companies that are not only performing well but are improving year after year.
One of the ways he identifies this is by looking for companies where earnings estimates are regularly revised upwards, or that have a track record of consistently beating analyst expectations. That can be the result of a conservative management team under-promising and over-delivering, or simply the business performing better than anyone anticipated. Either way, it’s a good sign.
Ultimately, you want this to be driven by expanding revenues — after all, that’s one of the best indicators that a company’s products or services are resonating with customers. But it’s even better if the company can do that while improving efficiency at the same time. Expanding margins and a rising return on equity usually point to a business that is scaling well and becoming more profitable as it grows.
While it’s always nice to have some industry tailwinds helping push things along, Harry’s preference is for companies that are growing because they’re winning market share. That kind of growth is more enduring, more within the company’s control, and far more telling about the strength of its competitive position.
What’s often overlooked by investors is that this kind of momentum doesn’t just play out over a few quarters — it can persist for years. And that’s where the real money is made. Harry’s average holding period was five years, with his best performers held much longer.
If a company kept executing, he kept holding. Even if the price sometimes ran a little ahead of a sensible interpretation of value.
It’s a lesson I (Andrew here) have really struggled to learn, despite many opportunities to do so. It can be hard to fight the reflexive urge to sell on strength, or assume a falling share price represents a bargain.
Nimmo’s approach reminds us that real investing edge often lies not in spotting what others have missed, but in having the patience and discipline to stick with what’s working. Business momentum, sustained over time, is rare — and when you find it, the smart move might simply be to hold on tight.
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