SUMMIT
As a follow on to [PART 1], Mike Schellinger (aka MikeDDKing) and I answer additional questions on our microcap investing strategies and becoming full time microcap investors. Although Mike and I are both full time microcap investors our investment styles are quite different. We hope listeners will find the content educational and thought provoking. (Click Play Button To Listen or Download File)
In this program we address the following questions:
- Have our investing strategies changed as our capital has grown?
- When fully invested..
- How do we react to short term trading opportunities?
- How often do we sell positions to cover your expenses?
- What is our average hold time?
- How do we buy into illiquid stocks?
- How do we sell illiquid stocks?
- How do you build relationships with management?
- How do we control our emotions when making investing decisions?
- Do our strategies change in a bear market?
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Comments 11
Another GREAT recording! thanks Ian, Mike.
Author
Thanks, glad you enjoyed it
I found this session really interesting too.
In particular, Ian’s references to his advantage in investing, and that when he got so confident that he invested outside his advantage (assessing, knowing management) — what he does better than almost anyone — he’s not done well. In Mike’s case it seems to be more related to long hours, hard work, common sense and the related willingness to comb through large numbers of filings and press releases.
I appreciated the discussion of how the smallest microcaps do in bear markets — if you invest in small, rapidly growing, quality companies with honest management on a 3-5 year time horizon, bear markets become more or less irrelevant. I obsess over where we are in the market and business cycle, which I think of as largely related to the creation and destruction of debt, often to my disadvantage.
I appreciated Ian’s discussion of his day in the first session. Nurturing a positive, opportunity sensitive, mental attitude is like fertilizer in a farmer’s field. It doesn’t happen I don’t think without conscious effort and focus and structure.
If you do another, and are willing, I’d be interested to learn more about how you value companies. The value in many of these companies, perhaps most, is based on their ability to create future value, and allocate a reasonable portion of that to shareholders (rather than just to management).
Lately, I’ve been comparing gross profit growth to S,G & A growth — many of these small companies seem to give management huge bonuses based on sales growth regardless of profitability. I wonder if either of you have thoughts on that you’d care to share.
Author
Rod, thanks for your kind words and observations. We will try to address your questions in the next episode.
hi Ian thanks for sharing this very informative discussion. One area which I think you should go a bit more into detail is how exactly you conduct due diligence after you bought your stock. Do you just talk to management often or do you go around just interviewing customers and suppliers?
Author
It can be a combination of both. This book here actually does a great job talking about due diligence techniques
http://microcapclub.com/2014/04/book-review-the-sleuth-investor-by-avner-mandelman/
Hey Ian, something I’m curious about. Im assuming you’re a large shareholder for most of the stocks you hold so have you ever been an activist and would you be willing to be one? I”ve been finding quite a lot of micro caps that would do quite better if some shareholder would give management a small kick, but sometimes a large kick might be needed. Not sure if management likes being told what to do and they definitely don’t like being told they need a pay cut.
Hi Ian. I am just curious about one specific criteria for your stock selections. How much do you care about competitive moats? Warren Buffett talks about this alot and he care a whole lot about this, but when it comes to microcap stocks, most of them are in fragmented industries. For new emerging trends like cloud computing , there are tons of companies offering similiar services but that doesn’t make these companies a bad investment because the market is growing rapidly and everyone can take a slice of the market without needing to steal from a competitors. So my question is basically: is a competitive moat that important if youre investing in companies in emerging industries?
Author
bazooka:
I’m a fan of Peter Thiel. Here is a great video/lecture:
I’m a big advocate of finding companies that dominate a small market that is expanding.
This is awesome! Thank you for sharing. Very interesting to overlay with Greenwald’s book on Competition Demystified
Hi Ian,
Thanks for the reply. I saw that did a writeup on Innovative Food Holdings on seekingalpha. The specialty food distribution industry is very competitive and fragmented but it is undergoing consolidation. So does that mean you are ok with competition if a company is very undervalued vs peers?