Author Topic: Micro caps  (Read 42824 times)

Tim Eriksen

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Re: Micro caps
« Reply #20 on: September 04, 2013, 09:14:31 AM »
I would argue that Tim's definition of liquidity is much different than most on the board.

I enjoy the buy at P/E 5 and ride to P/E 10 investments as well.  I have purchased a few P/E 1 stocks too, in every case they've doubled, I'm not complaining.

If I'm buying something VERY illiquid, I want to ensure the business is sound.  These companies are the type that Buffett mentions wanting to own if the market were to close for five years.  I have a number of holdings that only report once a year, I haven't lost a blink of sleep over them, they're well run companies that are cheap.  Eventually value will be realized, but I'm patient.

Good point.  By liquid I mean able to typically get in and out within a week for those with portfolios less than $5 million.   Anyone investing in the space knows liquidity can dry up surprisingly fast.   The key is to use that to your advantage.   

I think micro caps investing is the best way for enterprising investors with smaller sums to grow their portfolio more quickly without leverage.   


Tim Eriksen

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Re: Micro caps
« Reply #21 on: September 04, 2013, 09:32:25 AM »
People who study Buffett should spend more time on the early partnership years IMO.  It is fascinating.  They weren't all cigar butts but most were micro caps. 
Holding................................................................market cap at time
Commonwealth Trust Co (bank) bought in 1957-58  - $1 million   (he owned 12% of the stock)
National American Fire Insurance 1957-59  - $2 million (he owned 10% of the stock)
Sanborn Map  1958-1960  - $4.7 million  (he owned 23% of the stock)
Demptser Mill   1956-1960  - $1.5 million (eventually owned 70%)

even American Express was small enough that he bought 5% of the o/s shares. 

rockket

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Re: Micro caps
« Reply #22 on: September 04, 2013, 10:13:52 AM »
nate - what kind of returns have you been able to get? and how much time do you think you typically devote?

i'm beginning to invest my savings - trouble is that i am limited on time right now and can only invest in either microcaps or mid/large caps for work reasons. i'd find it difficult to get a real edge in large caps, and have just begun considering the microcap space now.
« Last Edit: September 04, 2013, 10:38:39 AM by rockket »

king888

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Re: Micro caps
« Reply #23 on: September 04, 2013, 10:53:09 AM »
Just my 2 cent.
 The undervalued areas are not just micro-cap. It can be whole stock market in some countries . For example, Japan stocks  a few year back and maybe S.Korea for now. 
 The problem with micro cap is you are not able to build a meaningful position but it depends on portfolio size as well.
With 1-5% position in each micro cap ,I guess that won't make much differences comparing to market return. 
The key to outperform market and build wealth is concentration in the overlooked sectors/stocks.  Warren Buffett does that in his early day.  But that might be another topic.

I am interesting to hear Nate's return also. He is the real pro is this space.   

DTEJD1997

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Re: Micro caps
« Reply #24 on: September 04, 2013, 11:25:28 AM »
Hey all:

I've been yelling this from the rooftops.  Nano cap value is the way to go!

There are some caveats though:

-You can't invest $500,000k per position.  If you are managing 100's of millions, you are going to have a very difficult time.

-If you are working with a $200k portfolio, this won't be too much of a problem.

-You need to do a lot of work.

-You need to be VERY patient.

-You need to be able to go against the crowd and think for yourself.  You are going to be out on your own.

-You need to be able to go out and check things for yourself.  For example, checking the real estate locations of Calloway's Nursery (CLWY).

-Got to watch the bid & ask.  Some of these can get pretty wide.

If you are able to work with the constraints, there are plenty of pickings.  Stocks will regularly trade WELL under book value and for LOW single digit P/E ratios.  If you are really lucky, you will also get a dividend too!

It took me many years to come around to this, but this area is VERY inefficient. 

Bloggers can give you some help.  I'm looking at:  "Ragnar is a Pirate", "Whopper Investments", "OTC Adventures", and "Oddball Stocks".  These guys do a good job and know what they are talking about!  I can highly recommend them.

watsa_is_a_randian_hero

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Re: Micro caps
« Reply #25 on: September 04, 2013, 11:43:58 AM »
Thanks for sharing Nate and Tim.  PDRX does look good.  A few ideas that haven't been mentioned (skipping most ideas that I've seen already mentioned on this board somewhere):

FCBN - very large holding for me.  Good for a someone with very high patience.  Great mgmt.  No catalyst in sight, but very cheap relative to historical levels.  While ROE has been lower then historical levels, a major transaction seems to be announced every 12-18 months over the last 8 years.  All have been priced very well, with cash. 
DIT
PKBK
BOBS
TSX:CAL
MOCO - not cheap compared to many microcaps, but should be priced higher due to low risk
TSE:7122
BMBN - prob at FV now, bought lower
SUBK - same as above
NNEMF - Sprott is on board; mgmt had past success buying/selling mining co's.

Others:
TSE:8031 - not microcap but goes along with King888's point of international
OGZPY - same as above

abitofvalue

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Re: Micro caps
« Reply #26 on: September 04, 2013, 11:51:01 AM »
PDRX does seem interesting. 

Another one I like is Sitestar (SYTE) - Ragnar is a pirate has good information on this one.
MRVC is good too
GRVY - trades for less than cash but performance lately has been a bit disappointing (still below cash for a marginal business)
Addvantage Technologies (AEY) - this has been widely written up.

LanceSanity

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Re: Micro caps
« Reply #27 on: September 04, 2013, 11:55:03 AM »
I'm looking at CTCH (Commtouch Software). It is a high margin business with little capex needs and 100% recurring revenue. Its core business generates ~ $6m FCF. Using a 10x FCF multiple, the core business is $2.31. The upside opportunity is in its cloud SaaS services. The VIC article has a lot of good details about the business. I still have much more reading to do, but so far, I really like this business.

abitofvalue

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Re: Micro caps
« Reply #28 on: September 04, 2013, 12:52:18 PM »
Nate - how do you find quarterly information on PDRX?

ItsAValueTrap

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Re: Micro caps
« Reply #29 on: September 04, 2013, 01:04:29 PM »
Quote
Warren Buffett said that investing in very cheap small stocks is a good way to make money when you don't have the anchor of a large portfolio to manage.

I'm not sure that he said that.  He has said that buying Berkshire Hathaway was a mistake and that he should've probably bought a (well-managed) insurance company instead.

Originally he made money using Ben Graham's investing style.
Then he realized that investing in cigar butts works better if you have control over the company and can liquidate fast or realize the value of the assets quickly.
Then he realized that it's better to buy wonderful businesses like See's Candies than it is to buy cigar butts.  And insurance can be a wonderful business too, but only if the underwriting is good and only if their float is invested well.

There'd be a large focus on buying private businesses.  He'd probably buy stocks too through his insurance companies.

2- To me, there's a difference between Walter Schloss and Warren Buffett.  Schloss' style is very close to Ben Graham's and I'm sure he'd invest in a lot of microcaps if he was managing less capital.  But there's a reason why Buffett is in a league of his own.  His preferred investment is a private business, not a stock.
"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. " -Buffett

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