Podcast Summary
Networking Shifts from Analytical to Relational: As investors mature, their edge shifts from purely analytical to relational. Building strong networks allows for quick access to valuable information and insights, giving a competitive advantage. Proactively build your network and let others know of your potential.
Key takeaway from this conversation with Ian Cassel is the importance of networking and building relationships in the world of investing. Ian emphasizes that as an investor matures, their edge shifts from purely analytical to relational. Having a strong network allows for quick access to information and insights that can give an investor a competitive advantage. Ian also shares that he started Microcap Club in part to supercharge his investor network and learn from other successful investors in his niche. He encourages young investors to be proactive in building their networks and letting others know of their potential. Ian's experiences demonstrate that networking can lead to significant investment successes, even during challenging economic times.
Building Strong Relationships for Successful Stock Picking and Investing: Networking with management teams, experts, investors, and mentors can lead to valuable insights, opportunities, and collaborations for successful stock picking and investing. Personal experiences and adding value to others are key in building strong relationships.
Building and nurturing a strong network of relationships is crucial for success in stock picking and investing. This can include connections with management teams, experts, and other investors. Mentors can also play a significant role in shaping an investor's strategy and approach. These relationships can lead to valuable insights, opportunities, and collaborations. Networking goes beyond just investing, it can be a valuable asset for decades. Personal experiences and adding value to others are key in building strong relationships. One can learn from mentors, evolve from their teachings, and make meaningful connections that can lead to great opportunities.
Find the right mentor for personal and investment growth: To attract a mentor, show value through research and unique insights, and expand your focus beyond domestic markets as the investment landscape evolves.
Finding the right mentor is crucial for personal and investment growth. Instead of just admiring distant figures like Warren Buffett, look for someone you can build a personal relationship with and learn from. To attract a mentor, show value by doing your own research and sharing unique insights. Over the past 20 years, microcap investing has evolved, and it's essential for investors to be more global in their approach as fewer small companies are going public in the US. Adapt to the changing investment landscape by expanding your focus beyond domestic markets.
US crackdown on reverse mergers led investors to explore opportunities in Canada: Due to fewer quality small businesses going public in the US and later valuations, investors expanded their focus to Canada, finding profitable, rapidly growing companies at low PE multiples. Now, they're exploring opportunities in Australia and Europe.
The crackdown on reverse mergers involving fraudulent companies in the US during the mid-2010s led to a significant decrease in the number of small companies going public through this method, causing US investors to look abroad for investment opportunities. This shift resulted in a flood of US investors focusing on non-resource companies in Canada during a 2-3 year window, where they could find rapidly growing, profitable companies trading at low PE multiples. However, as these companies' valuations caught up with US microcaps, investors then moved on to explore opportunities in Australia and Europe. It's essential for US microcap investors to expand their focus beyond the US due to the fewer quality small businesses going public and the later valuations of these companies. While not all small, illiquid companies are undervalued, there is still potential for finding undervalued gems by doing thorough valuation work. The concept of "lightning in a bottle" refers to finding companies with unique characteristics that have the potential for significant growth. These characteristics include a strong founding team, a large addressable market, and a scalable business model.
Investing in small companies with high growth potential: Investing in small, illiquid firms with unique business models, few shares outstanding, and high growth rates can lead to substantial earnings per share growth and potentially high returns.
Investing in small, illiquid companies with a high organic growth rate, few shares outstanding, and a unique business model can lead to significant earnings per share growth and potentially high returns. This concept, referred to as "lightning in a bottle," was inspired by Benjamin Franklin's discovery of electricity and his ability to store it in a jar. Similarly, small companies with these characteristics can go from having no earnings per share to substantial growth in a short period, attracting both retail and institutional investors. The scarcity of shares in these companies contributes to their allure and potential for explosive growth.
The power of community in investing: Surround yourself with like-minded individuals for learning and portfolio growth. Institutions prefer investing in stocks with fewer shares, and the FAIR framework is a useful tool for effective micro cap research.
Investing can be a lonely and challenging journey, but having a supportive community can make all the difference. The TIP Mastermind Community is an excellent example of this, offering investors weekly live Zoom calls, access to special podcast guests, lifelong relationships, and in-person events. The importance of being surrounded by like-minded individuals who can help accelerate learning and portfolio returns cannot be overstated. Another key takeaway from the discussion is the significance of share structure in the US market. Institutions often prefer to invest in stocks that trade above $5, making it essential for companies to have fewer shares outstanding to have a higher stock price and attract larger pools of capital. Lastly, the speakers discussed the importance of researching micro caps effectively. The FAIR framework, which stands for Find, Analyze, Interact, and Research, is a useful tool for finding potential investments. While there are multiple ways to find companies, such as through newsletters, databases, or industry reports, the most effective method may depend on individual preferences and resources.
Combining Brute Force, Screening, Networking, and Curiosity for Effective Microcap Research: Successful microcap investors use a mix of methods including brute force, screening, networking, and curiosity to increase their chances of discovering promising investments that others may overlook.
Effective research for microcap stocks involves a combination of methods, including brute force, screening, networking, and curiosity. Brute force involves looking at every potential investment opportunity to ensure nothing is missed, but it can be time-consuming and tedious. Screening involves narrowing down the investment universe using specific parameters, but the downside is that many other investors are likely using the same criteria, leading to a crowded field. Networking and curiosity can provide valuable insights and leads, but they require building relationships and staying informed about industry trends. Ultimately, a successful microcap investor likely uses a combination of these methods to increase their chances of discovering promising investments that others may overlook.
Identifying Red Flags in Microcap Investing: Focus on red flags like past fraud, small auditors, complex cap structures, related party transactions, and large IR campaigns, but also consider positive aspects like execution, leadership, and team culture for successful microcap investing.
Successful microcap investing involves a combination of traditional and non-traditional research methods. Red flags such as past fraud associations, small time auditors, messy capital structures, related party transactions, and large investor relations campaigns are important to identify quickly. However, it's equally important to focus on the positive aspects of a company, such as execution that matches with the fundamentals, great leadership, skin in the game, and a strong team and culture. Networking becomes increasingly important as an investor matures, and non-traditional research methods like deep dives into a company's background can provide valuable insights that are often overlooked. Ultimately, the goal is to understand the company better than anyone else and identify those with the potential for significant growth.
Going beyond traditional methods for due diligence: Conduct on-the-ground research, attend trade shows, hire private investigators, and interact with customers, employees, and partners for deeper insights into a business.
In addition to traditional methods of analyzing a business, such as reading press releases, filings, and interviews, it's important to conduct on-the-ground due diligence through non-traditional means. This can include tracking customer reviews, sales, and movements, attending industry trade shows, and even hiring a private investigator to delve into the background of a company's management team. Furthermore, interacting with the business through talking to customers, employees, and potential partners can provide valuable insights and help verify the truth of the situation. This approach may not be common among investors, but it can lead to above-average returns. Ultimately, the goal is to find the truth of the situation and build relationships with management teams, rather than wasting their time with unnecessary questions.
Learning from conversations with investors, employees, and partners: Engaging in dialogues with long-term investors, employees, and business partners can offer valuable insights and exclusive information about a company, enhancing investment decisions.
Investing involves not only analyzing financial data, but also building relationships and gathering insights through conversations with other investors, employees, and business partners. Talking to long-term investors can provide valuable knowledge about a company that would take years to obtain otherwise. Engaging with employees at industry events or during company visits can offer unique perspectives and public exclusive information. It's essential to distinguish between insider information and public exclusive information, and be respectful of the boundaries in information gathering. As investors, our focus should be on the business first, and the people second, ensuring that the business qualities attract us to the investment opportunity.
The Importance of Maintenance Due Diligence for Small and Micro Cap Investors: Continuously engage with management teams, monitor industry trends, and adapt investment strategies to maximize returns and minimize risks for small and micro cap investments.
Investing in stocks requires ongoing research and due diligence, even after the initial purchase. This process, known as maintenance due diligence, is crucial for small and micro cap investors as these companies are constantly evolving. It involves continuing conversations with management teams, tracking changes in tone, and staying informed about industry developments. By consistently engaging in maintenance due diligence, investors can make more informed decisions and potentially avoid costly mistakes. As Jason Brett mentioned, small companies are like teenagers, and their behavior can be unpredictable. Therefore, it's essential to stay engaged and keep a close eye on your investments. Additionally, the Iflex stretch studio offers an affordable and professional stretching service that can help improve flexibility and joint mobility, making it an attractive investment opportunity in the growing health and wellness industry. Lastly, Public.com offers a high yield cash account with an impressive APY rate, making it a smart financial decision for those looking to earn more on their savings.
Micro cap investing requires ongoing relationships and constant scouting: Successful micro cap investing necessitates continuous due diligence, personal investing principles, and a focus on companies with strong balance sheets, intelligent management, and attractive valuations.
Successful micro cap investing requires ongoing qualitative relationships, constant scouting for new talent, and the ability to navigate a company's growth cycles. Micro cap investing is not a "coffee can" strategy, as the high turnover and concentration of a portfolio necessitate continuous due diligence. Growing companies can experience hiccups, leading to significant stock price drops. Investors must decide whether to attempt to time the market and sell during these downturns or maintain faith in the long-term trajectory of the business. Personal investing principles and temperament play a crucial role in determining success. Additionally, desirable companies include those that can grow during economic downturns, have strong balance sheets, intelligent management, and attractive valuations.
Focus on small, niche businesses with strong qualitative elements during recessions: Invest in small businesses with a great product, small revenue base, and dominance of a niche market for potential growth during recessions.
Identifying companies capable of growing during recessionary periods is not an impossible task, but rather requires a focus on small, niche businesses with strong qualitative elements. According to Jason Brett, these elements include a great product, a small revenue base, and dominance of a niche market. He also emphasizes the importance of combining growth and survival in investments. Clay Finck shares a similar perspective, adding that he prefers being involved in the first wave of discovery and forming relationships with management as his edge. By focusing on these factors, investors can potentially find companies that can thrive even in challenging economic conditions.
Discovering undervalued micro caps can lead to significant returns: Early investment in promising micro caps can result in substantial gains due to large valuation gaps and small market capitalization
In the world of micro cap investing, being among the first to discover a promising company can lead to significant returns. This is because the valuation gap between an undervalued micro cap and its fair value can be substantial, potentially resulting in a 1,000% move in the stock. Additionally, the micro cap market is unique in that it takes relatively little capital to move the market price of a small company. Therefore, discovery and being an early investor in a rising star company can be particularly rewarding. However, with thousands of options to choose from, selecting the best ideas requires a well-developed investment temperament and the ability to filter through potential investments effectively. This comes with experience and learning from both successes and failures. Ultimately, the greatest investing lessons cannot be taught in a book or classroom, but must be experienced over time.
Understanding Your Temperament and Principles for Successful Investing: Identify your temperament and principles through experience, apply them consistently, and sell when no longer aligned, overvalued, or questionable decisions are made.
Successful investing requires understanding your own temperament and principles, developed through years of experience and observation. Once you identify these, you can consistently apply them with patience and commitment. When considering selling an investment, look for signs that it no longer aligns with your thesis, the management team makes questionable decisions, or it has become overvalued. It's essential to be willing to sell, even if it means parting ways with a trusted relationship or a profitable position. Ultimately, maintaining a disciplined approach to investing and staying true to your principles is key to long-term success.
Reflecting on investment process and building strong relationships: Successful microcap investors prioritize daily journaling, reflection, and long-term trust with management teams for high returns.
Successful investors prioritize reflecting on their investment process and building strong relationships with the management teams of the companies they invest in. Ross Gerber emphasizes the importance of daily journaling and focused reflection on individual investments, while Ian Bezek highlights the value of long-term trust and communication with CEOs. Both agree that the microcap ecosystem offers unique opportunities for high returns, but requires a willingness to take risks and learn from mistakes. For those interested in microcap investing, Gerber recommends checking out MicroCapClub and following him on Twitter for insights from some of the industry's brightest minds.
Learning from Millennial Investing podcast: Listen for insights on financial success, but consult a pro before making decisions, and respect copyrights
Listening to Millennial Investing by The Investors Podcast Network can provide valuable insights into achieving financial professional success, but it's important to remember that the information shared is for entertainment purposes only. Before making any investment decisions, it's crucial to consult a financial professional. Additionally, be sure to subscribe to the podcast to stay informed, but always remember that the content is copyrighted and requires written permission for syndication or rebroadcasting.
