The First MicroCap CEO I Ever Met

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.”

The First MicroCap CEO I Ever Met

Ian Cassel

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