The First MicroCap CEO I Ever Met

Ian Cassel Blog, Educational 5 Comments

The first microcap CEO I ever met face to face was Hugh Panero, the co-founder of SIRIUS XM Radio (SIRI) in 2002.   Yes, I know it’s hard to imagine but over ten years ago, XM Radio (pre merger with Sirius) was a microcap (~$175m market cap).

I had just got done licking my wounds from the tech bubble, and was starting to look further and further down the market cap spectrum.  I was completely burnt out on the efficiencies of the smallcap-midcap arena.

After listening to my broker in 1999 and losing my ass betting on smallcap tech companies, I was going to do my own DD and focus on microcaps. I felt this was the last bastion of inefficiency where someone could get an edge.

I stumbled upon XM Satellite Radio.

XM Satellite was also licking its wounds from the tech bubble. In less than a year the stock was down 90%, and hovering around $2.00.  I understood the premise of the technology: no commercials, consistent station listings, and digital quality.  But the company had a lot of debt, and just spent a couple billion dollars to launch satellites up into space and had very few subscribers. The shorts were feasting.

Due to my unsuccessful passive approach to investing, one of my new rules was to do everything possible to meet the CEO of my next investment. I didn’t have that much money left, and I needed the next one to work.

I saw that Hugh Panero was presenting at an investor conference in NYC, so I registered for the event under some fictitious name, “Cassel Capital” I think. Needless to say the conference organizers didn’t know my “assets under management” was less than $10,000. I skipped a day of college and took a bus from Lancaster, PA and made the trek to NYC.

I printed out XM’s 10k filing, which gave me ample reading material for the 3-hour bus trip. XM was in an awful position, huge debt service, bleeding cash, no OEM agreements with car manufacturers.

When I checked into the conference, to my amazement I was able to schedule a 1×1 with Hugh for later in the day. Evidently my fake business card had impressed someone somewhere. I listened to a few presentations including XM’s and took in the surroundings for a few hours.

I was so nervous for the 1×1, and my palms wouldn’t stop sweating.  When I shook Hugh’s hand I immediately said, “Good afternoon Hugh, I was just in the bathroom and washed my hands”. I don’t think I even said who I was.

I remember thinking, “Whew, that wasn’t too embarrassing” as Hugh nodded in affirmation of my good hygiene.

To my amazement I didn’t embarrass myself during the meeting, and Hugh seemed to enjoy it as well.  In retrospect, Hugh’s humble demeanor probably had more to do with his company’s market valuation dropping from $2 billion – $200 million market cap in less than a year. I’m sure he was getting beat up everyday by shareholders, creditors, and analysts.

When the 1×1 was over, I stood up, shook Hugh’s hand with my sweaty palm, and told him I liked the story and I was going to buy some stock. I remember him looking at me like I was the first person to tell him that in a long time.

I took the bus home that evening. The very next day, I bought 5,000 shares at $1.78. 18 months later the stock hit $34.00, and my love affair with microcaps began.

The decision and timing to buy the stock was obviously more luck than skill, but the value add of sitting down with management stayed with me. Practice makes perfect and I would continue to talk to management teams. One year later in 2003 I flew across the country to make my first company visit and to meet with management.

Talking to management is a must. It is an edge because so few investors do it. So few investors do it because it is uncomfortable. There is a great quote “Courage is uncomfortable, and that’s why it is so rare.”

More Blog Posts on this subject:

Talking To Management

The Art of Interviewing Management

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Comments 5

  1. Ian, thanks for your site. I’m gradually making my way through all the education articles and enjoying your expertise. I hope to transition from trading to microcaps some day and using sites like this to prepare for that once I reach my financial goals.

    One question that’s been hounding me: is there a rule of thumb for how much money you should have prepared to invest before visiting a company, based on their size/financial situation? You briefly addressed in the article how you hid the fact you had only $10,000. I would feel awkward enough trying to meet with CEOs and management as a novice but exponentially more so if the the amount I was prepared to invest was embarrassingly low.

    If you’ve already covered this then please point me to the article and thanks again.

    1. Post

      Anthony, thanks for the comment and good questions.

      First, never feel like you aren’t rich enough or smart enough to talk to a management team. In most cases the companies don’t know how much you are investing, it could be $5,000 or $500,000. If they do ask, just say you are a private investor that manages your family’s money.

      Now, what I will say is make sure you are prepared. Read all the filings and ask good questions. It is obvious to most management teams when basic due diligence hasn’t been done. This happens quite frequently even with fund managers. You want the management to respect you? Know the company as best as you can before talking with them.

      My DD process goes like this. I do surface due diligence. If it passes the “smell test”, I do deeper due diligence and also try to talk to management over the phone. I might also buy an initial position. Soon after I go visit the company. If I like it further, I’ll buy more. I’ll than wait for the company to do 25% of what they say they are going to do. I then buy more.

      So you don’t need to spend a lot of money on DD. For some, yes spending money to fly to a company isn’t going to happen, and I can understand that. But in most cases you can at least talk to a management person at the company on the phone.

      1. I see, adding to your position as your comfort level with the company increases. Simple and effective. Seems so obvious now. I think watching movies growing up subconciously gave me the false impression that after meeting with a business, you need to be prepared to cut a large check on the spot if you’re impressed. Since I’ve never seen an event like that in person I was accidentally forming expectations drawn from fantasy experiences.

        Thanks for the quick reply and clearing that basic misconception.

  2. Hi Ian

    I would like to thank you for this great blog and draw my attention towards microcap stocks. I am just curious as what kind of conversation between you two happen that made you allocate your 50 percent of capital. Please reply me if not here then on mail. Thanks.

    1. Post

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