I read "The Microcap Investor" by Richard Imperiale for a refresher course in stock selection and to widen my methodology. Here are some of my takeaways from the book.
Introduction:
Microcap stocks are often overlooked by investors but can present unique opportunities for those willing to do their research. These are companies with a market capitalization of less than $500 million.
Microcap stocks are often overlooked by investors but can present unique opportunities for those willing to do their research. These are companies with a market capitalization of less than $500 million.
Thesis:
The basis of investing in microcaps is to take advantage of information asymmetries. These companies are often not well-covered by analysts, so diligent investors can uncover information that others are not aware of.
The basis of investing in microcaps is to take advantage of information asymmetries. These companies are often not well-covered by analysts, so diligent investors can uncover information that others are not aware of.
How do you screen for such companies
- Financial ratios (low P/b, low P/FCF, Low PE)
Most market screeners can do the above
- Insider buys ( Form 4 SEC filings)
openinsider.com
- Smart money buys ( Forms 13D and 13F)
whalewisdom.com
- Financial ratios (low P/b, low P/FCF, Low PE)
Most market screeners can do the above
- Insider buys ( Form 4 SEC filings)
openinsider.com
- Smart money buys ( Forms 13D and 13F)
whalewisdom.com
whalewisdom.com
Track Hedge Funds Using 13F Filings and Data from the Whales - WhaleWisdom.com
tracks and analyzes hedge fund filings in real-time. Find 13F, 13D, insider transactions and more. B...
openinsider.com
SEC Form 4 Insider Trading Screener - - OpenInsider
SEC Form 4 Insider Trading Screener. Monitor SEC Form 4 Insider Trading Filings for Insider Buying a...
Due Diligence
Once you shortlist some companies, look at their quarterly/yearly filings (10K,10Q and 8Q reports) to
a) Understand the business and identify their peers for comparison.
b) Evaluate the competency of the mgmt to ensure its high-quality
c) Consider possible catalysts
Once you shortlist some companies, look at their quarterly/yearly filings (10K,10Q and 8Q reports) to
a) Understand the business and identify their peers for comparison.
b) Evaluate the competency of the mgmt to ensure its high-quality
c) Consider possible catalysts
Once you made your selection, allocate a small % of capital into it and review the information periodically to ensure your thesis remains on track.
If you do not want to do the hard work, you can invest in a microcap fund and use the Wilshere Microcap Index for reference
If you do not want to do the hard work, you can invest in a microcap fund and use the Wilshere Microcap Index for reference
Reflection: The holy trinity of Low P/B, P/E and P/FCF never fails. However, this fails to take into account macro conditions. Once liquidity comes out of the market, microcaps at inflated values are one of the first to fall. Case in point, the SPAC boom
The market will reward those with the right mindset and methods. I realise I have much more to learn and continue to build on what I have. Does anyone have any more to add?
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