Generating Microcap Stock Ideas

Sean Marconi Blog, Educational 1 Comment

I’ve learned over the years that there are several different techniques to finding microcap ideas. Each investor has their own technique to finding ideas. I’ve tried to stick to a unique approach that my mentor taught me about 5 years ago.

One piece of technology that I use is called 10k wizard (http://10kwizard.com/) and allows you to search using keywords and allows you to search through filings. They are now owned by Morningstar and offer a good service for the price. I would recommend the professional version, which costs $802/year and allows you to do two very important things. It allows you to search key words using advanced Boolean operators throughout all filings and allows you to identify the changes that happened between filings.

Identify Trend – Many trends are happening right before our eyes and we don’t even realize it. I read the book “The Invisible Gorilla” which related well to investing. If you can identify the trend before the masses you should be in good hands. http://www.theinvisiblegorilla.com/gorilla_experiment.html

Some of the strong trends that I see moving are food verification, bluetooth low energy, proximity based data, natural gas engines, tanker railcars, advanced metering infrastructure, food transparency, EHR workflow, obesity, just to name a few.

Keyword Search – Searching for specific keywords through filings is extremely important. It also allows you to use advanced Boolean operators to search any specific way that you want. Once you identify a niche you may have more than just one opportunity in that niche/sector that could work. Most of the time I find investors aren’t specific enough to their searches.

Identifying changes between filings – I find this very useful seeing what was added and what was deleted from the previous filing. It helps you more efficiently scroll through the filings. Over the years this has helped ask questions on my initial call that I have with the company or future conference calls that the company has with investors.

Filings Alerts – REFRESH….REFRESH….REFRESH…Yes call me crazy but this is what I used to do back in the day on Yahoo Finance or SEC.gov. Microcap companies are pretty predictable in terms of when they will release their 10Q or 10K’s. I look back to the prior year and see when they reported to see how consistent they are. I enjoy reading the 10k filing as it has the much more detailed information than the 10Q.

I typically search specific exchanges that I’m interested in depending on the number of results that are pulling up. I then go through each company and identify the ones that seem interesting. My sweet spot are is a Nanocap company between a $7-25m market cap company that is illiquid. I like the chart that has range bound and has traded very tight for a long period of time with no breakout. I generally look for companies with cash and that have little to no debt with clean share structures, preferably < 30m shares OS. When management treats their shares like gold…that holds a very high bar with me.

All investors have their own methods to their madness, but I’ve found that doing my own homework and Due Diligence has helped me make better investment decisions over the years.

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Comments 1

  1. Thanks Marconi….For long I was looking for a book which can help me in understanding trends. Secondly can you share your thoughts on some imp. things which you see before investing in nanocaps [USD7-25m]. Because generally business model is yet to be tested, we don’t know whether its scalable, dump and pump schemes are common….

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