So You Want To Be A Full Time MicroCap Investor?

Ian Cassel Blog, Educational, Radio Program 17 Comments

Mike Schellinger (aka MikeDDKing) and I get asked quite often about being full time microcap investors. Although Mike and I are both full time microcap investors our investment styles are quite different in a few areas. We hope listeners will find the content educational and thought provoking. (Click Play Button To Listen or Download File)

[Download File Here]

In this program we address the following questions and topics:

  • Our Backgrounds and How we got started
  • At what point did we know it was time to go full time?
  • How much capital is needed?
  • Investing Styles
  • How do we find microcap ideas?
  • Amount of positions and position sizing
  • How do we buy/When do we sell
  • Do we hedge our microcap long positions?
  • Evaluating Management
  • Learning through failure
  • What is the best and worst parts of investing full time?
  • What is a typical day like?
  • What keeps us going?

Did you like this program? Here is Part 2

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Comments 17

  1. Ian, Mike,

    Thanks for sharing this with everyone, and especially with the younger generation. Your combined experience is invaluable to us.

    When you opened the polls on twitter for questions to be included in this radio program, I decided to write something maybe less typical than what you usually get as a question. It was, what keeps you going now? I was glad that you answered it at the end and quite frankly, I burst out laughing when you said ”Greed?” Ian. I really thing this is all about passion. There might more than one way to make money in microcaps, like you two have demonstrated, but in the end you’re sharing the same passion towards that freedom you have.

    This will be my inspiring material for those days when I feel I’m moving away from my goal.

    Have a good one!

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      Thanks Seb, I appreciate your comment. When you can make a living and a life for your family doing what you love to do, it is very fulfilling and it’s never seen as work.

  2. Great job Ian and Mike and thanks for sharing your perspectives on full time investing. Your comments about the challenges of trying to enjoy time away from the markets without checking your portfolio really resonated with me as I have struggled with this as well. I’m not always successful, but I try to go at least 3 or 4 vacation days without any investing activities while on holidays, but I still have trouble shutting off my investing brain..

    If anyone hasn’t listened to the podcast you guys did with David S in 2013 on a similar topic, it is well worth a listen and equally as good.
    Well done.

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      Thanks Chip. I don’ know if its really necessary to shut your stock market/business brain down on vacation because that is impossible. What I try to do on vacation is check things twice per day. Once in the morning for a few minutes (while the wife is still sleeping) and check things again when the markets are closed to see if I missed anything important (when the wife is in the bathroom). 🙂

  3. That was fascinating. Thank you Ian, Mike.

    Perhaps the comment that surprised me most was the one that had to do with microcaps moving up and down independent of the broad market averages.

    Your discussion did talk about surviving, living through and learning from bear markets, but also being up 150% in the 2008/2009 bear market.

    Would you talk more about that, perhaps in a follow-up discussion or here on the forum? Would you say your investment results were higher during that 2008/2009 market than they are typically or about the same? If different, was that for reasons independent of the market — reasons perhaps related to the specific securities you were invested in?

    Finally, I’m interested in any thoughts you have on frequency of new positions. On a theoretical basis, the big money in the market has typically been made investing in high growth, quality companies after a 30-50% decline in the averages, which of course means investing only every 5-10 years. That kind of patience isn’t easy of course. But do you have any thoughts on the irrelevance of that approach to microcaps? Is it more appropriate to more mature companies than the smallest nanocaps?

    I’m reading a very interesting, statistical analysis right now of momentum investing — DUAL MOMENTUM INVESTING — in which he advocates making portfolio changes only once a month — getting out, getting in, reducing, adding too — as a means of avoiding reacting to the ultimately irrational emotion-based swings of the market. He offers substantial statistical analysis to back up his approach.

    I know neither of you follow either of those two approaches — investing only after substantial market declines or modifying your portfolios infrequently — but I am very curious to know if you think either approach would overall help or hurt your investment performance.

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      The key I’ve found is to only invest in great growth companies that aren’t owned by institutions. These companies do well in good and bad markets. The upside is more pronounced because they eventually do buy in and move the stock up, and in bad markets institutions/indexes are’t continuously hammering the stock price because of redemptions and outflows.

      There are 9,000 microcaps here in the US alone, so you can usually find good opportunities in good and bad markets. Small money has a bid advantage in microcaps:

      1. I’ve become aware in the last few months of how poor my investment timing is. And thinking back when I advised institutions and corporate acquirers, while I don’t remember the specifics — it was twenty five years ago — I think I was similarly way ahead of the reality. Certainly recently, 75% of my positions have lost money in the first few months. And I’ve been experimenting with selling after a short term loss. What’s happened is those short term losses have added up.

        So I’ve been studying, reading trying to improve my timing – technical analysis, momentum investment strategies.

        With the market at high levels I’ve been mostly short — Russia, oil (especially marine service), high yield bonds.

        An initial conclusion — if I imposed upon myself the discipline to just buy or sell once a month, and spent the rest of the time thinking, reading, studying, my investment results would be greatly improved.

        I thought I should clarify that that’s what inspired my questions.

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  4. That was a great discussion and helped me understand what it’s like to be a full-time investor. Ian, what screen software do you use?

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  5. Hi Ian. I know one of the books that you recommended was the Sleuth Investor. I’ve read it and I find some of the thiings very difficult to apply in practice and that is probably the reason why not much people do it. For example, one microcap company that I am researching is a software company and one of it’s customer is IBM. So how the heck am I suppose to call IBM and ask them what they think about the software? Is that even possible?

    1. Post

      There is limits to sleuthing. Some things you’ll just never know. In other cases you might know someone who knows someone etc. You sometimes can’t go directly from point A to point B. You have to be creative.

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      William, I think we covered that question in this interview but the short answer is No I don’t hedge. I just try to always invest in the best companies I can find.

  6. hi ian, im not sure where to ask this because it looks like but how does one judge merger and acquisitions? I know this is a immensely complicated subject but do u have any recommended books? there are plenty of good companies i was on the verge of investing in but when i read how much they pay for acquisition, it leaves my scratching my head as what management was thinking. i think M&A is not appreciated enough by retail investors. i know a fund manager who would spend several hours talking to manage about acquisitions and reject investing on that reason alone.

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