As the tag line at the top of this page states, this site is about long term and opportunistic stock investing. To that end, I will cover many of the micro-cap to small-cap companies that I have researched and invested in. In particular, I plan to primarily feature firms with the following characteristics:
- Market capitalization under USD 2 Billion dollars
- High gross margins and high operating margins
- High return on invested capital
- Stable business models with reliable recurring revenue streams – We will not feature speculative stocks unless such a characteristic is adding optionality to an otherwise stable business
- Durable competitive advantages or niches
- A lack of main stream coverage or understanding
While valuation and the numbers are important, my personal approach is to put a great deal of focus on company management and if applicable, insider ownership. The ideal situation is to find a business with great economics that is being managed by what a “wealth creating” CEO who owns a substantial amount of stock.
Let me explain that last statement. In studying various companies, I have noticed that some leaders just seem to do things that create wealth for shareholders, while others move from blunder to blunder or absorb all the positive economics of the company for themselves via stock compensation or other measures.
When it comes to value, “undervalued” is ideal, however fair value is often good enough. good companies with great leaders are usually not undervalued, except in rare circumstances. Waiting for “value” on a real wealth compounding stock could mean sitting out and missing many years of gains.
Basically, I want to think of the CEOs and the companies I choose to invest in as my investment managers. If I get in at a fair price, the values created in the real economy will be reflected in the value of my holdings over time.
To the above I will add the occasional “speculative investment” type of idea. These are ideas (Often implemented with long term options, if possible) that do not quite fit the above model do to their probabilistic nature, and usually a shorter (1 year) time horizon.
A secondary purpose of this site is to bring to the forefront some of the great entrepreneurs and business leaders who are leading firms that create value in the real economy. I hope that we are able to draw out lessons that have both specific application and universal wisdom. The internet media’s over focus on the financial sector (The latest hot hedge fund manager or guru, etc) is not helpful. I believe that the rightful focus of the financial press should be on productive enterprise that creates values in the real economy – The actual source of investment returns that are sustainable. Investors, stock jockeys, and macro “forecasters” should take a distant back seat. I realize this is not possible do to ratings pressure – it simply reflects my opinion of how things would be if financial coverage was rational.
I don’t always get it right and I don’t expect to. My hope, however, is that mistakes will not be too large, that I will learn from them, and that I can continue to learn and improve.
About me: I have been an active futures trader and stock investor for 15+ years. Passed the three CFA exams. Currently live in Chicago, IL.