I thought I would put together a post that includes some common questions from members, and my responses to those questions. Chances are that if one member asked the question, there are plenty of others possibly wondering the same thing. Keep the questions coming!
Speaking of members, take a look at these stats about my members. I find them truly fascinating, and quite humbling!
- 50% of members are from the USA, 20% from Canada, and the remaining 30% from 25 countries (wow!!).
- 50% of members visit UnusualStocks from a mobile device, with 70% of the mobile visits being from an iPhone.
- The majority of members use gmail for their email provider, with a smaller percentage using Apple Mail, AOL mail, Yahoo, and Outlook.
Don't worry, that's about all I know about all of you!
I hope you guys find the below helpful and informative!
Question: Aren't microcaps boring to you? How do you have the patience and conviction to hold some of these stocks for long periods of time?
Answer: Microcaps can be very boring, but that is why I like them. Perhaps part of the reason for my love of microcaps is because I formerly was a trader and I grew very sick and tired of looking at a computer screen on and off all day. But, the real reason why I love microcaps is because I truly feel like I own a piece of the business. Think about it, if you buy Exxon or Apple or some other large cap, you aren't going to be able to get remotely close to talking to anyone in Management. With microcap companies, however, you can generally get as close to Management as you wish....and that is my favorite part of owning these tiny companies. You really feel like you own a piece of the business, and it's because of this that you can truly build a conviction to hold for long periods of time if your investment thesis plays out as expected. You build your conviction to hold by knowing everything you can about the companies you own. By doing so, you have confidence in taking advantage of volatility when your stock gets beaten up by impatient investors, and this gives you a huge advantage for significant upside returns in future years.
Question: What kind of questions do you ask Management when you speak with them as part of your due diligence?
Answer: The answer to this question can is pretty well described in my recent post on Due Diligence. As I discuss in the article, when I reach the point of speaking to Management I generally know quite a bit about the company already and the purpose of my call with them is to talk about the business at a high level in order to generate a gut feeling about the company and Management team. When my call with Management is over, I want to hang up feeling pretty darn confident about my conviction level (or lack thereof) in the company.
There are no right or wrong questions to ask. You should ask questions that will allow you to form a very strong opinion about the team that is running the company. You have to decide for yourself what those questions may be. If you need any help, email me anytime at firstname.lastname@example.org and I would be happy to talk you through it.
Question: Which company that you own is your favorite?
Answer: You would be surprised just how often I get this question asked! It's ok, I don't mind being asked, but just because something is my favorite doesn't mean it should be yours too!
If I had to pick one of my investments that I would consider my "favorite" it would have to be Kraken Sonar (PNG.V). First, the industry is so 'unusual' that it has been awesome learning about it. Second, I believe I was one of the first (if not the first) individual investors to cover and write about the company (props to Matthew, my former partner, for initially having it on his watch list). And lastly, and most importantly, I believe the opportunity for incredible returns exist. I am not in the business of predicting stocks prices, but I am in the business of investing in companies that I feel will be many multiples higher than where I purchased it. With Kraken it definitely feels like the pieces of the puzzle are quickly coming together, so I wouldn't be surprised to see significant returns in 2016 and beyond.
Question: What the heck is going on with Innovative Food Holdings (IVFH)?
Answer: IVFH is tough right now, it’s hard to really know what to think. However, I think the best thing to do is to just not look at the stock until the spin-off is fully announced. I believe at that time some deep value investors will get invested into IVFH, pushing the price back up toward $1. Also, remember the company did announce a buyback up to $1M, so it wouldn’t surprise me if they start buying some shares soon as well.
My investment thesis that I wrote about is only valid if The Fresh Diet is spun-off. If for some reason it isn’t spun off then I believe IVFH will have to dilute shareholders and raise cash, and my investment thesis becomes invalid. Therefore, I would sell. You may have a different investment thesis, which is perfectly fine. But very rarely do I go against mine.
Question: I know you are a long-term microcap investor, but do you ever trade around your positions?
Answer: Yes I do, but very rarely. There are times when I sometimes get over-invested into a position and may sell some of the position for a gain to get back to owning a rational level (as a percentage of my overall portfolio). And there are times when perhaps I may see a microcap bouncing back and forth in a tight range and I may take advantage of what I am seeing for a quick trade. But rarely do I mix investing and trading because trading can do some serious harm to your long-term microcap investing mentality.