My goal is to own the smallest, most illiquid, least institutionally owned, best businesses I can find that are run by intelligent fanatics
The key to outsized returns is finding great companies early, when they are small companies.
With many microcaps you have to place your bet before you have full conviction
Illiquidity is a big driver of outsized returns.
The smaller the company the more you should focus on management and qualitative analysis.
I don’t like small companies that operate in capital-intensive industries like mining, life sciences, and oil & gas. I generally stay away from pre-revenue story stocks.
Microcaps that dominate a small market niche that is expanding tend to drive quality down to the financials.
It’s imperative to understand and buy-in to the CEO’s strategy and vision for the future. A qualitative attribute in most of my winners was a CEO that figured out how to swim on his/her own.
90% of microcap management teams say too much and do too little. The key is investing in management teams that focus on the long-term and let their execution do the talking.
For me a great mental hurdle is limiting my investments to those I think will increase 500% in three years if I’m right and increase 100% if I’m wrong. This is my margin of safety.
To achieve maximum capital gains, your intention with every purchase should be to hold for years. You will have an edge on most investors if you make investments based on expected 3-5 year returns instead of 12-month returns.
Investors tend to over-analyze when stocks are going down (fear) and under-analyze when stocks are going up (greed). The hardest part of investing is holding through these times, embracing boredom and inactivity, and distancing human nature-emotion from investment decisions.
I could give you several examples where waiting days, weeks, months, cost me a lot of money. It’s not just the money but the time. You can’t get that time back.
Confidence and conviction are necessary to hold multi-baggers, but you can’t let it blind you. There is nothing wrong with falling in love with a stock; you just need to be prepared to divorce quickly.
An investor’s goal should be to make as few investment decisions as possible but making few decisions doesn’t mean making slow decisions.
If you want to be a better long-term investor, get rid of all distractions that promote short-term thinking. Focus on owning the best companies you can find.
Risk occurs when you don’t know what you own. Buffett says to focus on what is knowable and important.
In general, microcap CEOs have a tendency to over-promise and under-deliver. The ones that talk too much often do too little. Don’t fall in love with storytellers.