In the fall of 2008, institutions were punting positions left and right due to redemptions. This was a great time for some swing trades, as many stocks were under constant bid whacking pressure. The opportunity was finding the microcaps that had a few (not a lot) of institutional holders. You
In the fall of 2008, institutions were punting positions left and right due to redemptions. This was a great time for some swing trades, as many stocks were under constant bid whacking pressure. The opportunity was finding the microcaps that had a few (not a lot) of institutional holders. You could call the company’s investor relations and they knew which fund was pressuring the stock and you could get a good estimate based on volume how much more they had to sell.
As an aside, this is also what helped shape my investment philosophy of only initiating positions in stocks that have very little or no institutional holders. You need to find these microcaps before they buy them, not after, because you want to sell to them not buy from them. Also, the really good, unlisted microcaps with little to no institution/index ownership do much better in bad macro environments since their stocks aren’t under this constant selling pressure. That said, you can certainly find some good trades.
The following is a very true story..
One such company was a small oil & gas exploration company called Far East Energy (FEEC). I had followed this company for years, never owning it. It was a $2 stock a couple years earlier and now it was under 0.15, and I knew enough about it to follow it for a potential swing trade. The remaining institutions were just punting it.
In November of 2008 during the economic crisis, I traveled to New York City to attend a microcap conference where FEEC was presenting. If I remember correctly, I may have been the only investor in attendance J. It was worth spending $1,000 to travel to meet management to potentially make a quick 100% return. FEEC was starting to capitulate now at $0.12, and by my estimate there were a few million more shares of selling to go.
The economy was getting so bad that even the Waldorf Astoria Hotel had dropped their room rates to a level that I couldn’t pass up. The Waldorf has always been a symbol of capitalism going back to the 1930’s. The hotel even had it’s own railway platform which was used by Franklin D. Roosevelt. Business leaders have hammered out some of the largest deals in history within its walls. The bar within the hotel, the Bull and Bear, has equal prestige. You can just feel “old money” oozing out of its walls.
It was the night before the conference, and I wanted to get a drink at the Bull and Bear, so I put on a suit (jackets mandatory) and went to the bar. I ordered a vodka tonic and exchanged pleasantries with a gentleman to my left. While he was talking I quickly realized that there weren’t many women in the place except for one. Capturing the attention of several men was an attractive blonde who sat by herself at the corner of the bar. After some time had past, I was almost done with my drink and at $19 per vodka tonic, I wasn’t going to order another. I figured somewhere on the walls was a list of the Top-50 Poorest People to ever step foot in the place, and I was sure to be on that list.
As I was about to motion for my tab, the bartender brought me another drink, and the bartender motioned it was from the woman.
[INSERT: I was single at this point in my life]
Well this was a first I thought to myself as I nodded politely while acknowledging the woman’s gesture with a smile. My humility soon vanished, and I quickly sat up a couple inches taller on my barstool. I caught a few annoyed looks from the other men sitting at the bar, but they were obviously just jealous and annoyed with the reality of their solitude. It was obvious who the real winner was out of this group!
Then nervousness started to set in. What do I do now? This blonde was a knockout.
As I surveyed the situation, I nervously drank the second drink very quickly. At the very least I had to go over to this woman to acknowledge her kind gesture. I was starting to stand up to walk over and thank her for the drink when…..
The gentleman to my right put his hand on my shoulder holding me down, leaned over so close I could feel his mustache touch my ear and says…
“Son, that woman is a hooker!”
As shock set in, I leaned away from the gentleman to look at him and realized he was none other than a well-known billionaire. I will keep his name from public record.
My mind was racing. Now not only has a high-end prostitute bought me a drink, but a billionaire is sitting next to me staring at me while grinning from ear to ear.
But more importantly I thought to myself, “this woman bought me a drink”, is this the normal custom. In the movies I watched wherever there was a prostitute there was an angry pimp looking to get his money. She is out $19. Is there a pimp around that is going to follow me and clock me over the head because I cost him money?
My mind was racing. I did not sign up for this. I should have stayed up in my room. I come from the land of open fields, Amish buggies, and good God fearing folk.
I looked at the woman, and she was staring at me. I looked at the billionaire, and he was smiling at me.
At that point in time I came to the conclusion I would reciprocate the woman’s gesture by buying her a drink. This way if there was a pimp to deal with at least we were even. So I quickly bought her a drink, paid my tab, and raced up to my room. Of course it did occur to me that maybe she wasn’t a prostitute. At this point though, I certainly didn’t have the nerve to ask a good-looking woman I didn’t know if she was a prostitute. I lived to fight another day.
The next day I went to the investment conference, listened to the FEEC presentation, and had a 1×1 with management. I knew the story fairly well, but I wanted to be sure they weren’t doing a financing or something at these valuations. If not, I felt the stock would rally pretty quickly once everyone was out of the stock that wanted out. Post meeting, I felt the bet was worth placing. I accumulated a sizeable position around $0.10 in the days that followed. Sure enough when there was no one left to sell the stock it went higher. 30 days later the stock was $0.20, a quick double.
My New York City trip in the fall of 2008 was memorable for a lot of reasons. I stayed at a great hotel, was solicited by a high-end prostitute, met a billionaire, and found a good trade.
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