We Study Billionaires - The Investor’s Podcast Network - TIP563: Lightning in a Bottle & Microcap Investing w/ Ian Cassel

Starting point is 00:00:00 You're listening to TIP. Today's guest is fan favorite Ian Castle. Ian is a full-time microcap investor and CEO of Intelligent Fanatics Capital Management. He is also the founder of microcapclub.com and co-founder of the Intelligent Fanatics.com. Ian and I cover a wide array of topics during this conversation, including the role of mentors and his development as an investor, the three characteristics of a business that lead to, quote, lightning in a bottle and unconventional methods he uses to understand. a business better than nearly all other investors. Towards the end, Ian also talks about how he manages

Starting point is 00:00:36 to find companies that are positioned to grow even during recessions. For example, during the great financial crisis, Ian owns just three stocks. Two of the stocks dropped like the majority of the market, but one of his picks more than made up for the other losses and increased by 280 percent during one of the most difficult time periods for businesses over the past century. We always appreciate Ian sharing his timeless investing wisdom with our listeners. I know you'll most certainly learn something from this conversation and I promise that you won't want to miss it. Without further delay, here's my chat with Ian Castle. You are listening to The Investors Podcast, where we study the financial markets and read the books that influence self-made billionaires the most. We keep you

Starting point is 00:01:23 informed and prepared for the unexpected. Welcome to the Investors podcast. I'm your host today, Clay Fink, and we have a very special episode teed up for the listeners today as and joined by Ian Castle. Ian, it's great to have you back. Hey, thanks for having me back. I really enjoy coming on here and getting to know you a little bit more too through the process. Ian, I wanted to start by mentioning one of my very favorite investment books, which is a book by Gottem Bade titled The Joys of Compounding. When I read that book, I couldn't help but notice that Godham highlighted you in the importance of networking and the importance of compounding goodwill by sharing with others.

Starting point is 00:02:09 Could you talk about the role that networking has played in your own life and your own investment journey? Yeah, I'd be happy to. I remember, I think Godown came to our microcap club event back when it was in person. So it's probably at 2018, maybe, and I got to know him really well. And it got to know his life story really well, which is an amazing life story, kind of what he's built himself out of. It's pretty incredible.

Starting point is 00:02:31 And his book's a great one as well. So I'm flattered that he mentioned me even once in it. But I think networking is probably one of the most important things that we do as humans, you know, not only through investing in business, but also life. And we're kind of sticking to investing, you know, as a stock picker matures, you know, your edge goes from kind of only being analytical or you have a slight difference in your strategy. Then it develops into a relational edge, I feel.

Starting point is 00:02:58 You know, your ability to get to the truth on a stock very quickly is really, really important. When you know who to go to or with a certain question, whether it's on the company specifically or an industry question, you know, that's a huge advantage. And finding the truth quickly is an advantage of building out your network. And for me, you know, it's one of the reasons MicroCap Club kind of was started back in 2011. It was one of the two core reasons, number one. You know, launched MicroCap Club in 2011 to be sort of an idea generator. I wanted to see with the smartest investors in my niche of investing, which is MicroCaps,

Starting point is 00:03:31 what they liked and why. But second is it really kind of supercharged the ability to build out an investor network, you know, because you can see what other people like and you can communicate with them internally on our platform. And so, you know, just building out a network for investing purposes can be huge. But kind of getting off the MicroCat Club soapbox for a bit, you know, you have to be proactive building that investor network. You know, you can't just sit back and expect people to come into your line of sight and get to

Starting point is 00:04:01 know you relational. you have to be proactive with it. And so, you know, I think it's really important for, and that's why I tell young investors too, it's like, get out there and showcase yourself, you know, start a blog, present more, you know, just let people see you, let people see your potential. And I'm a big believer that, you know, you really need to kind of supercharge serendipity, you know, a little bit. And you just have to be proactive in letting people know that you exist. And even when it comes down strictly on investing, I mean, there's just like simple things that you can do. such as when you're writing an idea and then you like an idea,

Starting point is 00:04:35 there's probably a bunch of other folks that like that idea well. You can search Twitter. You can search the Google. And you can just form connections that way by reaching out to that individual that wrote on that idea and just getting to know them, sharing, you know, collaborating, reciprocating. And I think over time goes well beyond just networking with investors. I think it's also the you start networking with management teams. And you've built management team relationships over not just,

Starting point is 00:05:02 years, but decades, you've built relationships with experts that you've gone to to get advice on different industry dynamics or strategy of some of the companies you're looking in. All these people, you know, you hopefully had a positive past experience with. You know, hopefully you added value to them, so they see value in you. You know, and the ultimate goal, I think for any kind of stock picker, and I think if you've talked to any successful stock picker that's been investing for, you know, over a decade, they would say that their personal network of investors and their personal network of relationships is probably their greatest asset. But I think, you know, probably the high point of anybody's

Starting point is 00:05:40 kind of network or relationships is when you are that first call that they make. You know, somebody in your network reaches out to you and shows you an idea. And that's when you know, you've made it. When your network pulls you into great situations because they value your involvement. I think that's the sort of the goal of anybody. And you've once said that, you know, one of the people in your own network, one of your mentors actually, over his lifetime, he grew his portfolio from $100,000 to tens of millions of dollars by focusing on microcaps. He did this all in just a span of like 20 years and he's working a full-time job just to keep busy just because he loved stock investing so much and he didn't want it to consume all of his time. Can you talk more about the role of mentors and how that's kind of played into your development as well?

Starting point is 00:06:28 Yeah, I mean, I had two kind of primary mentors. And the first one, and the one that you mentioned was the second one in chronological order. The first one I had was a gentleman I met on a public stock message board back in the early 2000s. And he was a prolific stock picker, a conviction investor. And he kind of really helped me kind of set the groundwork, even for kind of my current strategy of being a pure kind of purest stock picker, concentrated, conviction, quality focused, talk to management, you know, all of those things he kind of drilled down in me. And he's also

Starting point is 00:07:00 the one, quite honestly, who was also a story stock investor. He's the one where the story, you know, was important to him. And he was a professional, not a professional. He was a, certainly wasn't professional. He was a full-time gambler, basically. You know, and he lived in Las Vegas and he had this larger-than-life kind of personality, larger-than-life, life, and larger-than-life kind of radio announcer voice. I mean, he used to actually train brokers for 25 years for a brokerage firm. And so you can just figure out, like, he just had this type A personality. And he kind of had probably got an A-plus and Dale Carnegie's how to win friends and influence people. He's one of those personalities you would like right away. And one of my first trips to go visit him, this is when I was in

Starting point is 00:07:41 undergrad when I got to meet him for the first time was, you know, he literally just kind of showed me the ropes of how he communicates with management teams. He, you know, just showed me a lot of different things. And so for the, probably for the next five years, we, we got to know each other even more and more. We started investing kind of together in the same types of ideas. We started going and doing due diligence trips together to visit management teams. And then probably five or six years after that, we kind of separated a little bit because he kind of was, remained a story stock investor and I kind of evolved out of that arena. And then I met the gentleman that you mentioned and it actually occurred on a blog post that I wrote on MicroCap Club. This would have been

Starting point is 00:08:19 probably back in 2014. He just reached out randomly and just kind of explained a little bit about who he was. And we just started emailing back and forth and we finally jumped on the phone together. And here he was this gentleman that had a normal full-time job that built a portfolio, you know, from, you know, $100,000 in the early 90s to middle of 2014, I think it was around 50 million. And it was all in concentrated microcap and small cap stocks, you know, and he still lived in the same $300,000 house, still had the same friends, still had the same everything, and you would never know it. You know, he's just a genuinely good human being. And for me at that point in time, my previous mentor, the gentleman I mentioned, you know,

Starting point is 00:09:02 he was really good at investing, but he certainly didn't have the best life. You know, he was literally larger than life. I mean, he gambled every day. He always had two 20-something blondes on each arm. And that looks great from the surface looking in. But when you're around that for more than 24 hours, it gets, it's just gets unattractive. You know, it's just, and he kind of lived his life that way. But this gentleman kind of lived the life that I wanted to live.

Starting point is 00:09:26 And he also kind of showed me that you could grow a small amount of capital into a significant amount of capital focusing on concentrated microcaps and be a great human person. being at the same time. And so, you know, both those individuals were really paramount in my development, you know, as an investor. You've also talked about finding the right mentor. You know, we talk about Warren Buffett a lot on the show, but in reality, Buffett is sort of in his own league. He's managing just massive amounts of money. He's looking at a totally different pool than a lot of other investors, including yourself. You know, his mindset, honestly, is probably a lot different than a lot of other people. And, you know, he's in a totally different

Starting point is 00:10:06 kind of situation in his life. What advice would you give to someone, you know, wanting to look for and connect with and develop relationships with a mentor? Yeah, it's a question I like to ask people, too, is like who their mentors are. And, you know, a lot of people mention Buffett or Munger or these people that are on like the Mount Rushmore of investing, but they don't really have a personal relationship with them. And that's what I really mean by mentor, you know. And so I know when I think of a mentor, it is, you know, kind of look out 10 years and visualize. who you want to be, not 100 years or not $5 billion of net worth later. But look out 10 years, visualize who you want to be, then go find that person today and learn

Starting point is 00:10:45 from them. But one of the things I learned with my first mentor is the way you attract a mentor is to show value to them first. You can't just reach out to somebody and be like, tell me everything you know. My first mentor that I had that I met on a public message board, I tried, I think I emailed him or messaged him on that public message board five or six times and didn't get a reaction from him. It was only after I decided to be more proactive and actually do a lot of work into one of his investments and dig into it and get some exclusive public information that I knew that he

Starting point is 00:11:14 probably didn't have. And I actually posted that on the message board that I knew he was watching, that I kind of pulled him in to want to connect with me. You had to show value to that person before they would reciprocate. And, you know, I think that's important for anybody looking for a mentor is, you know, there's find a unique way to show value to the person that you admire that you would like to learn from. And what you're ultimately doing when you do this is you're reminding that mentor themselves, you know, and if they're a good person, they will be intrigued by that. And they'll want to get closer to you and see you succeed as well. And so they'll start reciprocating a little bit to you. And that's how relationships start, the good ones. I really like that. I'd like to

Starting point is 00:11:54 transition now to chat more about investing and more so your process. You've researched microcaps for over 20 years now. And I'm curious what sort of changes you've seen develop over the years and how you've had to adapt to the changing investment landscape. I would say, you know, the biggest thing that I've noticed over the last 20 years is it's becoming more and more important for microcap investors, at least here in the U.S., specifically, to be more global, you know, in their approach. And, you know, it's true. And the reason for that is here in the U.S. at least, there are less small companies going public as small companies. I mean, yes, you'll always have, you know, maybe 50 companies doing a $10 million or $20 million IPO that are trying to raise money for a phase one or phase two trial for a life science company.

Starting point is 00:12:48 But I'm talking about, you know, you don't see many real businesses going public small, at least here in the U.S. And, you know, a big reason for that, I think it down this rabbit trail, but a big reason for that is a lot of the stuff that occurred about 12 years ago, one of the primary ways small companies went public is actually through reverse mergers. And it still is. And back in like even the late 2000, it's like 2007, 8, 9, there would be 800 reverse mergers done a year. You know, when you kind of baseline that up against, you know, 8,000 public companies in the U.S., 800 going public every year, that's a significant amount of inflow into the markets. And so what happened then was there was a bunch of fraudulent companies that went public, some China fraud companies that went public in 2000, 2011.

Starting point is 00:13:33 And it really just, and then when it became known they were frauds, it kind of destroyed that method of going public for a lot of small companies because nobody wanted to be associated with a reverse merger. And so the amount of small companies going public, at least through a reverse merger, went from 800 per year down to 100, you know, per year. And so I think that has a lot to do, too, with you see a lot of headlines about there's less and less public companies. companies in the U.S. over the last, you know, 10, 20 years, what's not really talked about is the effect of the lack of reverse mergers has had. Because going from 800 down to 100 a year is a big, big difference. And so I think it's important because of that, that a U.S. microcap investor, you know, becomes more international and focused in the mid kind of 2010s, 2012, 13, 14, and we saw it a microcap club too, is you started to see a lot of U.S.

Starting point is 00:14:22 investors look north the border into Canada, you know, because again, they have similar accounting rules. You know, they're just north of us. Their filings are in English, you know, it's a kind of an easy leap to make. And so starting like the mid-2010s, you saw a lot of U.S. investors, including myself, start looking at Canada. And especially at that point in time, in Canada, it's a mainly resource center to focus for their investment base. There was a complete, just lack of interest in non-resource small companies up there. And so you could find companies growing 30, 40 percent a year profitable trading at single digit PE multiples. But so there was probably a two or three year window where you just had a flood of

Starting point is 00:14:59 U.S. investors kind of going after those non-resource companies. And then you saw that ARB gap close, you know, is all of a sudden, all right, you know, after three or four years, they're kind of trading the same level as the U.S. microcaps. Then after that, you kind of saw a movement to Australia or Europe. And that's primarily my focus, too. It's like, you know, I'm now look at my sandbox of investment is not just the U.S. but it's Canada, it's Australia, it's Europe.

Starting point is 00:15:23 Because mainly in those other areas outside the U.S., they still have real businesses going public that are small. They still have $10 million IPOs of a company that's growing and profitable, that goes public. So that's the reason why it's important to be global. So it seems to me that the U.S. companies are going public later. So there might be slim pickings in terms of quality businesses that are small. And the other piece that probably ties into this is valuation.

Starting point is 00:15:53 Do you think it's both of those kind of pieces playing into, you know, right hunting grounds and, you know, the Canada, as Europe's and Australia's? Yeah, I think so. I mean, there is a misperception, I think. And, you know, I want to be honest with people, just because a company is small and the stock is ill-liquid doesn't mean it's undervalued. There's plenty of ill-liquid small microcap companies that are fairly valued or overvalued. You know, you still have to do some valuation work.

Starting point is 00:16:19 It's just that here in the U.S., if I focus just in the U.S., I could still, I think, do very well just because the new ideas in the U.S. are mainly companies that have been around for 20 years as a small public company, a new management team takes over that business, provides a capital infusion, kind of refocuses that business on a new area, and it becomes almost like a new company. It's just in the old vehicle that was there before. And so you have all of these transformations that are kind of the new companies here in the U.S. And that's predominantly what I'm looking at. that as well as kind of like an old idea that transforms into a new idea with a new management team. And that's primarily how it's different. I've been loving some of the pieces you've been writing lately. One of the most recent ones is titled Lightning in a Bottle. Talk about the three characteristics that you found that lead to this alchemy of lightning in a bottle. Yeah, it was a fun article to write. It's something that's been the back of my mind for a couple years.

Starting point is 00:17:15 And the term kind of lightning in a bottle came from, it's actually called the Lainteen called the Leiden jar, the lighten jar, which was a scientist from the Netherlands invented the lighten jar in I think in 1746. And it was basically kind of the first iteration of a capacitor, you know, a negative and positive charged kind of jar that was able to store electricity. That's mainly what it was. And a few years later, Benjamin Franklin caught wind of this lighten jar. And he acquired one somehow. And he started using it in his experiments. And in his famous kite experiment in 1752. We actually, you know, where he flew the kite with a key, it's actually the lightning hit the key, went down the wire into this lighten jar. It's how he stored the

Starting point is 00:17:59 electricity. It's how he kind of proved that lightning was electricity. And that innovation itself led to a whole bunch of innovations around electricity. And so you kind of, I just was kind of inspired by this idea of just kind of holding probably Earth's greatest phenomenon, which is lightning in the jar of your hands, you know. And so that's kind of where lightning in a bottle came from. And just through my experiences with investing, some of the biggest winners, some of the most explosive in a positive way, situations were kind of these lightning in a bottle stocks. And they had kind of three primary components. Number one, they started when they were small, you know, and so they were microcaps. Many of them were sub 100 million market caps. And the reason

Starting point is 00:18:40 for that is, you know, small, great businesses. There's a discovery process. First, retail investors discover the company first because they're the only ones that have a small enough amount of capital that can acquire the shares because these companies are so illiquid. So it's retail. Smart retail finds them first, then institutions find them second, and then dumb retail buys them third, you know, on the back end of it. And when you're looking at a seven hundred million dollar company, you're in that first part of the discovery process of the great company. And so that's why being small matters. The second part of that was a business with a high organic growth rate and or high operating leverage with the business. And the reason why that's

Starting point is 00:19:21 important is pretty much anybody and everybody, including institutions, are attracted to high organic growth rates. But it's also important that they're not cash burning companies. You've got to find them that are profitable and or very close to profitability. But the reason I like high organic growth rates as well is, you know, if you're buying at a reasonable price, you know, your forward return should probably match the organic growth rate of the company, even if the multiple stays consistent over time. And so, you know, you have this unique business with a higher organic growth rate. And then what I'm kind of like the jar part of it or the bottle part of it is having few shares outstanding. The outstanding share count of the company, kind of less than

Starting point is 00:19:59 20 million, preferably less than 10 million. And I'm a big fan of scarcity. And the reason why a company with a low outstanding share count is so attractive is just there's not very many shares available for anybody to even acquire the business. And so when somebody goes to buy the shares, they have nowhere to go but up. And it's kind of similar to, I used kind of the comparison to Pablo Picasso. Pablo Picasso produced, I think, 1900 original paintings during his lifetime. And today, he's probably the most famous artist like on the planet. And most of his paintings are owned by private art collectors and also museums.

Starting point is 00:20:35 And only probably one or two or three come up for sale every year. And there's one or two or three go for tens of millions. of dollars to over $100 million in value. And that's because of scarcity. There's just a lack of supply and unlimited demand. And that's the same thing with an ill-liquid stock, a company with few shares outstanding. And even if you want to take scarcity to another level, great businesses in general, you know, whether it's large cap or microcap, great businesses traded a premium because there's a scarcity value of them. There's not many of them that exist, you know, and that's why they trade where they do. And so that's also an element of scarcity that I find attractive. So when you

Starting point is 00:21:09 combine all three of those things. Small company, unique one-of-one business that has a high organic growth rate or a high operating leveraged business combined with just not very many shares outstanding. It creates very explosive kind of earnings per share growth. And that's what I've seen over 20 years is it's those companies that can go from zero earnings per share to $1 to $2 per share earnings per share in like one or two years that just captivates, that mesmerizes is the investor base. And institutions are just drawn to them like a moth to a flame. And that's where you get 10 baggers, 20 baggers,

Starting point is 00:21:44 and a couple of years is from those situations. And so that's primarily what I wrote the article and is kind of drawling on some of my past experiences. I always wanted to talk about Benjamin Franklin and the kite experiment. So kind of drew that into it as well. Let's take a quick break and hear from today's sponsors. All right. I want you guys to imagine spending three days in Oslo at the height of the summer.

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Starting point is 00:26:06 All right. Back to the show. The interesting piece about that, you know, it kind of caught me off guard is the share count. You know, there's a saying it doesn't matter how many different ways you slice a pizza. The value is, you know, what the value is at the business. But you make the important point that institutions don't want to buy what they, you know, many refer to as a penny stock.

Starting point is 00:26:25 So if a stock's $10 instead of $1, you know, they may be, you know, flooding into the $10 stock, which I find just quite an interesting dynamic there. Yeah, and that's more specific to the U.S., but here in the U.S., the term penny stock is defined as a stock that trades under $5. And so to have a stock that's over $5 is a big deal, you're kind of naturally at least visible to larger pools of capital that can acquire your shares. So, you know, I think here in the U.S. specifically, share structure is probably more important than in other areas like Australia, for example.

Starting point is 00:27:01 You actually find companies that trade for five cents that have four billion shares outstanding, you know, that you're basically a small cap that trades at four cents. It's actually not that odd, you know, but here in the U.S., it's a benefit to have few shares outstanding to have a higher stock price. I wanted to transition to some of the content you guys have been putting out related to researching microcaps. You have what you call your Fair Framework, F-A-I-R. It stands for Find, Analyze, Interact, and Research.

Starting point is 00:27:32 So starting with Find here, which relates to finding companies to then research and dig deeper on, what are the four ways investors typically find an investment? And I'm curious which of the four you have sourced the most ideas or which you put the most focus on. Yeah, this is a presentation I've been meaning to do for a few years. I get asked quite a bit about, you know, where do I start kind of as a question, whether it's for subscribers that are kind of new to invest in or new to microcaps. I've always wanted to create some content around, okay, here's at least a one-hour presentation.

Starting point is 00:28:06 It's free and you can search YouTube for any of the listeners. You can search a beginner's guide to researching microcaps stocks and find it. But, you know, quick kind of like quick and dirty tutorial that gives you a baseline of knowledge on how to appropriately attack researching a microcap company. And, you know, you talked about, you mentioned the fair research. method and the first letter F and fair is find. And what I primarily have found is that when it comes to finding companies, it's predominantly three ways, you know, and then there's kind of a fourth kind of umbrella way of doing it. So it's kind of brute force, screening, networking, and then

Starting point is 00:28:43 this umbrella term would be curiosity. Because I don't think you can do any of those three without a certain level of curiosity, wanting to find the truth and wanting to find something. But the first way is brute force. And, you know, kind of the key with brute force is the only way you know you weren't missing something is to look at everything. And, you know, Michael Liu and I recently did this in the UK with the London Aim Exchange, which is sort of like their smaller NASDAQ version in London. And we literally went through a thousand public microcaps on the London exchange, you know, A through Z, you know, and we actually try to do this every other year on the OTC markets here in the U.S. You know, literally go A through the entire list because that's

Starting point is 00:29:22 the only way you know you don't miss anything. And I also know other investors that literally look at every single press release of every company under a certain market cap. You know, it's the way they kind of spot something changing or something that could be actionable. You also see a lot of different ways that people just kind of use this brute force and it sounds tedious. But it's all about trying to find those crumb pieces of what could be a promising investment, you know, basically. You know, the advantage of brute force is that few others are going to go through that. effort. You know, just me saying this, people probably start to fall asleep thinking about going through a thousand companies. You know, it's just, it's not fun. It's not tedious. Yes, you too, Clay.

Starting point is 00:30:02 I wanted to ask, for brute force, how quickly do you disqualify something? Is it five minutes? Is it an hour? Talk a little bit about that. You know, when you're going through it, a lot of times, you can take 10 seconds sometimes. You need to go through it. And what you're doing is you're kind of going through that quick overview. Those 10 second ones, check them off. or cross them out, I should say, that anything that looks half interesting, you kind of like highlight. And then you go back through, you take that thousand down to 70. And then the ones that are half interesting, you might spend five minutes on. Well, you know, 80% of them go away that you're down to like 15.

Starting point is 00:30:37 And then you might spend 15 minutes on those. And then, you know, so it's, it takes time, but it's not in an orbit an amount of time. It sounds worse than it is. And especially as you kind of grow as an investor and you gain experience and you know what you're looking for, it's easier to say no to things. So I think brute force, again, you know, the pro is that you don't miss anything. The con is it's tedious. But I think that's also the advantage of brute force is because you're able to look through, you know, this mountain of uninvestable ideas is sort of an advantage because few people will want to do that. The next one

Starting point is 00:31:11 would be, I think we talked about was screening. And, you know, there's a couple of different ways you can screen for companies. And all screening is doing is you're taking the investment universe. You're plugging in some either financial parameters or some other parameter and you're trying to take that ocean of stocks down to a pond. You know, that's kind of what screening is. And a lot of folks use more of a, I would say, targeted approach using mainly specific financial parameters. But the problem with that is there's a bunch of other investors doing that exact same thing. And so you're all staring at the same list of, you know, 30 companies because you're always, everyone's going to put in. Well, I'm looking for something that's growing 30 percent.

Starting point is 00:31:48 That has 80 percent plus gross margins. that has 20% operate margins that has debt to equity of this or ROI of that, you know, you're staring at the same companies everybody else is. You're looking at a bunch of probably fairly valued to overvalued situations. I like to use more comprehensive screens. And Michael, who works with me at the funds that we manage, I mean, he does a great job of this. I mean, one of the screens that we do is for insider buys over a certain amount.

Starting point is 00:32:13 And that's kind of globally. And the reason we like to do that is there's oftentimes, we mentioned before in this interview, you know, here in the U.S., a lot of times it's an old situation where a new management team comes in, provides a capital infusion. And so that's triggering us to a potential transformation is when you're screening for large insider purchases. If somebody's putting in a small microcap, a half a million dollars or more into a business, they obviously think that the stock's going to go up. And so it doesn't mean that it will, but it's enough to, for a spidey sense to go off that we should probably dive into this situation. And so that's, that's predominantly the type of screens that we do,

Starting point is 00:32:49 you know, from that perspective. And then, you know, networking we kind of already hit on before. But that becomes less of an asset in the beginning of your maturity and then just keeps growing and probably 10 years into your building out your investor network. It's by far the most important part of finding ideas is through that investor network. Jumping to analyze in the fair acronym here, you're pretty big on looking not only at a company's filings and their earnings calls, but you're also really big on diving into the non-traditional methods of doing research. You know, you want to understand the company better than anyone else out there practically. Can you talk a bit about how important that non-traditional side

Starting point is 00:33:33 of your research is and which methods of non-traditional research have been most helpful for you? When it comes to analyzing, probably the first thing I do is look for red flags, which are important. You're trying to get to quick noes really quickly because half of all public companies are microcaps. So there's not a lack of ideas. So you just want to get to a quick no. And so kind of the most prominent red flags for us as investors is past associations with fraud is number one. It's amazing how many investors and how many institutional investors don't put each management's name into Google with the word fraud. see what comes up. It's just simple stuff like that, which sounds insane. You're like,

Starting point is 00:34:13 oh, of course I would do that. It's amazing how many people just don't do that. I mean, that's like number one. Number two is a small time auditor. So the company has an auditor that audits the financials, that basically blesses the financials and you look into it and you realize they only audit one other public company. That's also based out in Nevada or some, you know, or Boca Raton, Florida or something like that. No offense to Boca Raton. The third thing is just a messy capital structure, just a lot of shares outstanding, kind of the opposite of what I was saying. We were talking about lightning in a bottle. You know, a lot of shares outstanding, different classes of shares, lots of warrants. You see a lot of self-dealing from the management, repricing their options

Starting point is 00:34:48 or whatever case may be. That's a red flag. And then also another prominent one is just a lot of related party transactions where the management team is figuring out ways how to enrich themselves with self-dealing, whether it's sale leasebacks with the company headquarters or, you know, we've been seated quite a few times where the personal plane is paid for by the company that they use specifically for personal business mainly. Just stuff like that is just red flags. And also, it's one of the things that becomes less and less attractive as a quality focus investors are those companies that have like large investor relations campaigns

Starting point is 00:35:23 to really promote their stock in different ways. And so those are kind of the red flags that we first do when we, when we analyze microcap companies is you're trying to get to a quick no right away. And, you know, the things that really matter, and I think I mentioned, I don't know, maybe six of these in that presentation. But the things that really matter are execution matters when you're looking at a company. And so is what the company is saying and doing matching with the fundamentals of the company. The leadership obviously matters. And I spent a lot of time on the leadership side. I'm very quality focused, wrote co-authored two books on intelligent fanaticism, really trying to

Starting point is 00:36:00 fine tune my lens for finding great leaders. Because that's the key. I mean, to find great companies early, you've got to find great leaders early. And so just fine tuning that qualitative of less. And so leadership matters to me. Skin in the game, obviously, matters. Do you see a team around the CEO? In MicroCap, you see a lot of hustles. Companies that can go from zero to 10 million, but the CEO's still wearing every hat and they don't ever kind of let go enough to bring in a team around them. So you see a lot of that culture matters. Are the employees happy? We'll probably get into this later, but that's a big thing. Our customers happy. Or balance sheet matters. All these things matter. And so that's where you're just trying to figure out what the truth is using traditional or

Starting point is 00:36:38 non-traditional ways of getting to what the truth is within these companies that might pass your immediate framework of, okay, this could be an attractive, you know, situation. And so the way that you kind of dig in past just reading press releases, reading filings, you know, reading every interview the company is done is you're just going, I don't know, just do non-traditional matters. Like, you know, I think we mentioned like tracking company sales, you know, just looking at customer reviews of the products. You can track customer movements, especially if it's a company that has customers that are also public. You can kind of dive into their earnings calls to see what the

Starting point is 00:37:13 overall industry dynamic looks like, feels like. There's regulatory databases that you can pull down business records, UCC records. You can hire a private investigator to do background work into the management team to see if they are who they say they are, which is an interesting one to do, which is actually not as, that might sound insane, but it's actually, if you want to find out about somebody really quick, that might be a good way to do it. You know, going to industry trade shows, which is something that Michael and I do quite a bit, is actually going to the large industry trade shows where our companies are presenting

Starting point is 00:37:43 and just kind of milling around, talking to people, see what the buzz is, that type of thing. And also just reading industry publications. So there's some non-traditional ways to do some analyzing into the companies. Turning to the interacting piece, I wanted to pull in this quote from you. 95% of due diligence is analyzing if customers

Starting point is 00:38:04 and employees are happy and why. and your edge is that 95% of investors will not do this. If you want above average returns, you need to do what average investors aren't willing to do. So what does this interaction piece look like for you, you know, when you're analyzing a business? This is quite interesting, I think. So I'm really curious what your interaction process looks like. Yeah, I mean, this kind of gets back to, you know, it's on the ground due diligence is what really what interacting means.

Starting point is 00:38:33 And that can take a variety of forms. But it's kind of going back to the Phil Fisher, you know, scuttlebutt research kind of method. And it kind of, you attack this as a way to verify what the company is saying. And really, it's all about, like I said before, multiple times, it's about just finding the truth of the situation. What normally this looks like from our perspective is, you know, we reach out after we do kind of a mountain of work. And that's something else I agree with Phil Fisher is, you know, we don't really reach out to the management team. until the business itself was attractive enough for us to be willing to reach out to the management team. And we don't reach out to them until quite honestly, we're probably 60, 70% of our way to a buy decision.

Starting point is 00:39:19 Because you don't really know what the right questions are to ask of the management team until you've done that type of work. Because you don't want to waste their time either. It's kind of obvious when somebody doesn't know the basics of a business and they don't find that attractive. You're trying to build a relationship with these management teams. it would be back to networking relationships. And so you want to always put in that front-end work, and we're not there to waste a company's time. And so what normally looks like is a lot of front-end work,

Starting point is 00:39:43 and a lot of that front-end work could be even talking to some of the customers, even talking to some of the employees through expert calls and things like that, that you can set up to get a sense of what reality is, even before we've been talking to the management team. And it's just amazing to me how many people don't actually talk to customers and talk to employees before. where they invest to basically verify that what the company is doing and saying, you know, is actually reality.

Starting point is 00:40:11 And so that's who you talk to can change company to company, depending on what the importance is. But predominantly, you know, for us, it's talking to employees, talking to customers, talking to potential partners or partners they used to have. I mean, through expert networks like Tegas and other places, you can talk to ex-employees, which is always always a good thing to talk to. You kind of already know they have a negative bent because they're a next employee, but you can, it's a good way to uncover some things that you might not know about.

Starting point is 00:40:40 The other part of interacting, which is really helpful for investing, is just simply talking to another investor that has owned that company for a long period of time. Because oftentimes they have a knowledge level into the business, into the management team, that it would take you years to get that amount of information. So we like to reach out to kind of known longer term investors in it to get a sense of reality. And usually if they're in it for two, three, four years, they're not there to BS you. I mean, they'll tell you the good, bad, and different before you go into the conversation

Starting point is 00:41:08 with the management. How do you get parties like employees and business partners interested in chatting with you and answering questions about the company? It's amazing. People like to talk. You know, it's actually not that hard. And it's actually going to industry events, too. What we found is like just going to an industry event and a company might have 10

Starting point is 00:41:27 employees there just manning the booth. They don't know what they should say or not say. Like, they're just there to happy to talk to somebody that's interesting. in their product or company. And so that's a great place just to meet employees. We do a lot of company visits. And so a lot of times, you know, well, I got to go use the bathroom. And I'll like, you know, veer off here and poke my head into somebody's.

Starting point is 00:41:45 You have to be a little bit creative. But what I found is it's actually easier to talk to employees and find you have to be creative and how you do so. But they're usually very receptive in talking. One thing I'll mention, though, when I probably should have mentioned earlier is we're not looking to find insider information. You know, we're looking to find kind of public exclusions. exclusive information. And these are two important distinctions.

Starting point is 00:42:09 What is the distinction there between something that's insider information that only, you know, executives would know and something that we're so public? I would say, you know, talking to employees, there's nothing wrong with that. You know, they're going to say whether they like or don't like working there. You know, favorite question of mine is kind of like, well, you know, if you got offered $2 an hour or more across the street, we can move. You know, it's a good question to find out if there's a culture there because a lot of people, you know, if they really love to work somewhere, if somebody throws another dollar an hour at them, they're not going to move. And so,

Starting point is 00:42:39 you know, things like that, I mean, you're fine to ask. We're not, even when we talk to management, we're not interested in guidance. We're interested in what is their five-year strategy. Management teams are willing to talk about strategy. They're not willing to talk about what are going to do next year. Another sort of quote I pulled from that presentation you guys did that I absolutely loved is if the business situation isn't really exceptional, then you don't go any further. And I just really like that how you're really strict on knowing what you want to find and knowing what you're looking for. That's probably something I haven't really gravitated the most until probably the last five years. I mean, I think as investors, we all overemphasize certain

Starting point is 00:43:23 areas given our maturation as an investor. So most people start out in investing as value investors. So they're just fundamentals, cheap stocks, book value. You know, you're over-emphasizing. Then you kind of like start caring about the qualitative aspects of investing. You know, I'm going to find an outsider. I'm going to find intelligent fanatic. I'm going to find somebody that basically runs a billion-dollar company out of a strip mall that pays themselves to nothing that buys stock every month.

Starting point is 00:43:48 You know, it's like these sort of, you have this vision of this gritty kind of entrepreneur. And you can overemphasize that because you start like being so attracted to the quality of that individual overshadows the actual business they're overseeing. And so I think kind of your maturation as investor, you tend to over-emphasize whatever you're learning about and getting better at. And so it's important to kind of step back and view investing that, you know, the business comes first. The people obviously are a close second, but I want the business qualities to attract

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Starting point is 00:48:03 I think maintenance due diligence is the most important part of any conviction investor. Because when you think about it, you're doing a lot of front-end work before you make an investment. But it shouldn't stop there because these companies are evolving, you know, as soon as you make that investment decision, especially a small company. I mean, they're kind of like teenagers. They're going to, you don't really know how they're going to turn out. You have an idea. But you kind of have to watch them. And so the maintenance, due diligence and research is really important, I think, for microcap and small cap investors just because these companies are small and they're evolving.

Starting point is 00:48:37 And quite honestly, most times they're not going to evolve in good ways. it's going to be bad ways. And so a lot of the maintenance due diligence is the same type of work you're doing when you're making your initial investment. It might be reaching back out to that expert or contact. It might be continuing to have those conversations with management over time. The ability to, I know a big thing for me is we're pretty high touch with our management teams. And so just the ability to kind of journal and keep track of how they answer questions, even their tone during a conversation. That's something I learned probably 12, 15 years ago is just the repetition of talking to management can be a huge advantage because you can just spot the changes in just a

Starting point is 00:49:15 tone difference with a management team over time. And a lot of times it's those subtle, soft cues that, you know, looking back, you realize, yeah, 99% of the time I should probably have sold that, you know, when I just sensed that something was off. And you don't have that unless you're putting in those consistent reps, you know, on the qualitative side. So a big part of the maintenance due diligence is continuing to have those qualitative relationships, whether it's with the management team, whether it's with experts that you've used before, kind of getting an idea on how the industry is tracking, how strategy is changing, how competitors might be entering the market. And just realizing that microcap investing will never be coffee canned.

Starting point is 00:49:53 You know, it's not a coffee can type of thing. I mean, if you want to go broke, you'll coffee can a bunch of microcap companies. I mean, I think I know what I'm doing and I've been doing it for a long time. If you were to ask me, you know, how many of the companies that I owned five years ago do I own today or how many companies have I owned over the last five years? I probably have owned 40, 50 companies, and I probably own three from that period of time. So that shows you, you know, this is a higher turnover type proposition. I go into every purchase with the intention to hold forever, but very few companies will earn that right. So it's, you want to continue to own the companies that execute

Starting point is 00:50:31 over time. You let them get into bigger portions, bigger positions of your portfolio, and they've earned that right when they go up. And it's kind of like a major league baseball team. We're always scouting for younger talent. You know, you'll bring somebody up from the minors to play. You put them in a game time position. They'll either succeed or not succeed. If they don't, you boot them back down. And that's kind of what my portfolio looks like. It's concentrated, but there's a lot of activity under the surface and the smaller positions because I'm trying to find that next breed of veterans that will deserve that playing time and become a larger part of the portfolio. you. Related to the maintenance due diligence, I think that one of the most difficult parts of the

Starting point is 00:51:09 overall investing strategy is thinking about a company that's growing at a relatively fast pace. And once that growth, I think you refer to it as a company has a hiccup or has a misstep or earnings miss, then the stock can really get punished when, you know, a bunch of these momentum investors and a bunch of these traders just kind of bail on it. And a lot of the tourists are gone. And, you know, you've talked about in the past how you want to be able to sense when that growth is going to slow and get out before the stock gets punished. So I'd imagine that that has to be one of the most difficult parts of it. Oh, it is.

Starting point is 00:51:44 It's very difficult because every one of these companies, especially the successful ones, we talk about bull and bear markets in the macro economy, but each one of these companies has a bullet bear market in it, even within that construct of a macro bullet bear market. So, like, each one of these companies will go up into the right and then they fall 30 to 50 percent. They usually investors in the winners. Usually expectations get too high. They stub their toe. They come back down.

Starting point is 00:52:07 Fundamentals backfill into a lower valuation. Old shareholders leave. New shareholders enter. Start over again. You go make a new high. Same thing. Eventually, two years later, they stub their toe, come back. But over time, so kind of it just looks like this.

Starting point is 00:52:19 And just being aware of the type of investor that you are, like, do you want to try to play the game trying to pick tops and take 20 or 30 percent of your position off the table? or do you believe in the five-year, 10-year trajectory of the business and you're not going to waste your time trying to trade it and out of a portion of your portfolio? Are you better off using that time to find another one? And so those are all very personal questions that, you know, the right way for me to do it might be the wrong way for you to do it, you know, and vice versa. That's something where you have to figure out your own temperament and of your own principles with investing and figure out a way that feels right for you. Because I know people that do it successfully either way. During one of your previous conversations with Trey on the show, you had mentioned that you wanted

Starting point is 00:53:03 four things in a company. It's a company that's positioned to grow during a recession as a strong balance sheet, intelligent management, and an attractive valuation. I also remember how you talked about your portfolio during the great financial crisis. I believe you mentioned you had three holdings. Two of them didn't fare so well through the crisis, but the third one happened to increase by 280% over that time period. So I'm curious how you go about assessing whether a company is positioned to grow during recessionary periods. You know, the term of kind of finding a business that can grow through a recession, you know, probably get some people to roll their eyes. Like, that's like the holy grail or that's, you know, some unicorn that'll never be captured or

Starting point is 00:53:47 something. But at first came about actually just, I think five or six years ago, I was talking to investor and they were complaining about the macro market or something like that. And I said, well, all you have to do is find a business that can grow through a recession. We both kind of laughed and chuckled. And then I started thinking about it more. I was like, well, that's actually exactly kind of what I did through the GFC in 2008 and nine. And that was a company. The company was Zag. Then I think it was acquired a couple years ago. But that was a company that was, you know, growing 50 percent, growing the bottom line 100 percent through that recession. And, you know, that wasn't some double long gold ETF or something like that that you would expect to do well in a bad

Starting point is 00:54:25 environment. That was a company selling a consumer product, a low-price consumer product during a recessionary period where the overall markets went down 52%. That company went up 280%. And so to answer the question, how do you go about accessing if a company can grow through a recession? I think a good place to start is with a small company. If a company has a great product and it only has a small revenue base, it doesn't take a lot to grow it. Just take two or three customers to have that thing grow even through a bad period. And so I like the idea of investing in small companies in recessionary periods. And you also, a lot of the really, really good and interesting my hair cap companies dominate niche markets where they might sell their products into

Starting point is 00:55:06 niche into areas of the market that aren't cyclical. And so you can find these smaller companies that's kind of where not being global can benefit you, you know, either or not being diversified can help you in who they sell their products to if it's B2B. So I think for me, thinking about it that way, I've sort of gravitated to kind of looking for these qualitative elements in my investments. I like to combine kind of growth and survival together. And I think that's what forms quality. You have growth investors that, you know, we sell it in 2020, 2021. They just loved hyper growth and all they care about was growth. And you kind of have survival and you can kind of put that into the deep value or value camp of people that are just looking at balance sheet,

Starting point is 00:55:45 with trading a book value. I like to combine those two elements. And I think that the combination of growth and survival equals quality. And one I'm looking for just happens like right now I'm positioned pretty heavy in healthcare. And mainly because I wasn't seeking to invest in healthcare, it's just that it's an area where you can find companies that have 80% gross profit margins, 30% operated margins, founder led. They have IP, so they have a moat around them. And oh, by the way, you know, people are going to still keep getting injured, need wounds healed, need surgeries done. whether it's elective or cosmetic, they still need these procedures done and they'll still do well through a recessionary period. And so I've kind of found my ways. Probably half our book

Starting point is 00:56:25 is in the healthcare stocks. And it's mainly not like I look to be a healthcare investor. It's just that they have the qualities of what I'm looking for, of something that can grow and survive. I remember messaging you once about a smaller company that was close to the microcap land. And it seemed like you almost immediately dismissed it because it didn't pass your test of being within the first wave of discovery. I'm curious, how did you come to appreciate this and value this so much? Well, I do remember that exchange. And I think if I remember correctly, you mentioned a larger microcap company. And my reaction was basically that I wasn't that interested because I was a business that was already well identified and well loved by a bunch of

Starting point is 00:57:08 quality focused investors that actually are more larger company focused, but it was a well-known company. And it's not to say that company is a bad opportunity. It's just one that wasn't for me. And I know that just because of how I invest. I like to be involved in the first wave of discovery an idea. I like to be one of the first to understand the business. I like to be one of the first to form a relationship with management because that's my edge. You know, I don't have to be first, but I enjoy being one of the first. And I find it's really important because that first wave discovery is what normally takes one of these companies from being undervalued to fairly valued. So that first wave discovery is where that kind of that valuation gap can close.

Starting point is 00:57:47 And that's probably the first 100 or 500% move in a stock. And the beauty of microcap investing is it, the beauty in the curse is that it only takes sometimes tens to hundreds of thousands of dollars to move a microcap millions of dollars in market cap. And so in microcap, discovery really matters. It's probably the only place in really the public markets where discovery matters, where you being one or two investors later can mean. in that situation, at least that easy money is gone, that first discovery phase.

Starting point is 00:58:18 And so I enjoy being first to an idea or one of the first for that reason. I think it's also the reason why I think that way is I'm generally more attracted to rising star companies. So you kind of have fallen angels and rising stars, you know, and fallen angels are companies that were, let's just say they were the high flyers of the tech boom in 2021. They're the one or two billion dollar market caps that are now sub hundred million dollars. They're the SPACs. They're these things that everybody's kind of picking through trying to find that diamond

Starting point is 00:58:48 in the rough of the dead. And all these companies are down 70, 80 percent from their highs. And, you know, some people, a lot of people enjoy going through that. It's just not for me. Like all of those companies, they're well known. They have five analysts covering them still. Most investors that know about them have been disappointed by them. A lot of investors have a reason to say no to that idea.

Starting point is 00:59:09 That's just not who I am as an investor. I'd love to find kind of rising star companies, like new ideas. I like to find them first. I like to find ones that's generally a new idea that no one's ever heard of, maybe even in the microcap ecosystem, to where every new investor that hears that idea can be an incremental dollar. They don't have, that company hasn't had enough time to disappoint everyone yet. That makes, it's a cynical view of it.

Starting point is 00:59:32 So you have that tailwind of perception where in Fallen Angels, you have a headwind of perception. And so just for how I invest, I like to find things first. I like to find new things first. As you were saying that, I was just imagining, you know, the diamond and the rough analogy where the very first one that's finding it and then when others discover it as the business fundamentals improved, then the stock naturally gets a boost. I'm also curious that given the microcap land, it seems that you really, really need to understand the qualitative aspects of the business because you're doing the due to

Starting point is 01:00:09 diligence yourself, you're doing your own research. And given that you have thousands of companies to select from and you have plenty of ways to generate new ideas, I'm curious what your thoughts are on how difficult it is to select the best ideas and how sort of valuation factors into that. You have your watch list and you have your current portfolio. Do the best opportunities really stand out to you or do you find it difficult to sort of sift through them? Well, I'll take a step back. I don't think microcap would be. investing is too much different than other investment classes where you have thousands of options to put your capital. It sounds like a yogi bearer quote, but to find something, you first need

Starting point is 01:00:48 to know what you're looking for and you need to know who you are. You know, when you start out, you really don't know as an investor, you really don't know what you're even looking for. You approach things as a sponge. Then over time, as you experience things, you soak up everything and you learn from reading and experience and solely but surely, you turn into a filter. You start filtering things out. I actually started writing an article that I'll probably put out at some point this year, you know, one, this topic of active patience. And I mentioned in an article a few years ago that I wrote.

Starting point is 01:01:18 And, you know, I think it's, if I were to define active patience, it's knowing what you were looking for and not doing anything until you find it or it finds you. And I think you develop kind of active patience and the ability to find things quickly through this development of three steps. You know, you first have to develop your temperament. as an investor, which means determining what flavor of investing aligns with your kind of natural inclinations so you can apply it consistently and successfully over time. That's your temperament. You know, investing's greatest lessons can't be taught in a book or classroom. They have to

Starting point is 01:01:50 be experienced. So it just takes time to develop that, really, that temperament. And the temperament is, you know, your views on risk, your time horizons, your position sizing, and all of those kind of broad pillars of investing. You know, then you have to develop your principles over top of that. Once you figure out kind of what type of investor you are, it's really the principles of what guides you. It took me 15 years to develop kind of my theories around those four attributes you mentioned earlier about growing through a recession, a balance sheet that can endure. I'm looking for intelligent fanatics. I'm looking for evaluation that can hopefully double in three years, things like that. It took me 15 years to kind of develop that around scarcity, survival,

Starting point is 01:02:29 tailwinds, discovery. It didn't happen overnight. It took 15 years of investing with different types of management teams and CEOs speaking to them, having dinner with them, truly knowing them until I started to see patterns in kind of their personality and character, that these are the types of people that I would align with. So it just takes time. And when you do all those things, when you know what your temperament is, when you know what your principles are, then you just need to apply those things consistently with commitment and just be fully committed to those because anything less, it's just you're not going to be able to see it through to the end. That's why I don't get too hung up over a missed opportunity that I missed because it probably wasn't something

Starting point is 01:03:08 that I would have been able to hold anyway if it went up. So that's how you develop kind of this active patience. And when you do that over time, you can get really, really quick at saying no to an idea. And you can get really, really quick at saying yes, too. You know, there's been times where I can get to a yes in a few days because it just, you know, I'm not talking about you. I have to do six months of work into a name and produce 200 pages of notes. Like, the best idea is it's, it's they kind of hit you or punch you in the face sometimes. Those are the great ones because that means they were meant for you. Related to my question earlier regarding the maintenance due diligence,

Starting point is 01:03:46 I'm curious if you could share an example of a company you sold and why you ended up making that decision. I'm more so interested in just like sort of the things you're looking for and the filters that you kind of go through and your holder sell decision. I normally sell for kind of four main reasons. You know, first is I find something better than my seventh best idea. And that's probably the thing that happens the most is you just find something that's better than your worst idea. And normally when that occurs, to replace something in the portfolio, I'm basically

Starting point is 01:04:15 replacing a relationship that I trust unless that company or that position is doing something wrong and I want to get rid of it anyway. And so a new idea has to be better than anything I currently own or at least I have to think that to replace anything. It's just like, you know, if you have a lineup in baseball of 350 hitters, what's the point of adding one that that's 280? And so you're always looking to raise the average with any new idea. So that's the first.

Starting point is 01:04:37 The second one is probably the most common occurrence is it stops tracking to thesis. You know, you start to pick up on those clues that we talked about earlier, whether it's through management conversations or tone or your experts that you talk to, that something has changed and it just needs to be sold. And what I found over the years is every time that I've kind of my spidey sense has gone off and I've waited. That was a mistake because that's the great thing about maturity and experience, too, is your gut feel that it's sort of a summation of all your senses and experiences actually gets more and more accurate as you get older. And so every time that I, that's sweaty sense goes on,

Starting point is 01:05:09 I usually listen to it. And that's a tough thing about investing too, because you've got to be willing to marry these companies, but divorce them quickly, you know, when the story changes. And then I guess another way would be, you know, the management team just does something dumb, which happens too often. And it just forces you to sell because that means you just just can't trust them anymore. And then the fourth one is the best reason to sell. And that means something went up too far too fast, where it's that lightening in the bottle that, you know, it went at 10xed in a period of a year or two. And it went from undervalued to being trading for perfection. And you know it's only a matter of time until it's going to pull back 50%

Starting point is 01:05:46 or they stub their toe. And that's a great time to sell. And every time I waited on those, I wish I did because that 50% retrace always happens at some point. Something that really stands out to me throughout this conversation is you mentioned the spidey senses or almost going off your gut feeling. I can't remember if it was George Soros. Whenever he would have back pain, he knew he needed to make a change in his portfolio. And yesterday I was listening to your conversation with our friends Toby Carlyle, Jake Taylor. What's really interesting me with people that are as busy as you is sort of how they spend their time. how do they develop these processes to ensure they're doing things like journaling and reflecting. What does that look like for you, you know, where you're journaling and you're reflecting on your

Starting point is 01:06:34 overall investment process, what your mistakes were, what your by decision? What does the journaling process sort of look like for you? I try to do it every day in the morning, like the first thing I do with a cup of coffee, because that's usually when my kids are still asleep and I have time to do it before they get up and you can try to get them out of the end of school. So usually that first hour of the day is when I journal either creatively for writing or thinking about investing. It's similar to, do you know who Tony Deaton is? Yeah.

Starting point is 01:07:01 Yeah. So he's a really cool investor. It's, I don't know, his, I think he's only done one public interview. It's on YouTube. You can search it has like a million views on it. But I have decent friends with him. And he goes sailing every summer for three months or something like that on his sailing yacht. And he was telling me, but he uses that to just think.

Starting point is 01:07:21 And he'll devote one week during the summer to just thinking about an idea, one of the investments they own and just kind of focus on it and come up with questions or things that could go wrong, more or less, that he might be missing. And that's sort of how I do it, too, where I go through periods of, you know, two or three days where I just simply focus on one investment because I'm usually having these constant repetitions with the management team. What's interesting about that, too, is, like, I probably talk to management teams a lot more in the beginning because it takes me more time because you're trying to put in those relational

Starting point is 01:07:52 reps with them. It's like dating. And then all of a sudden, like once you actually trust them, the only way you trust them is actually just like you do with your spouse or any relationship, living life together. You have a bunch of shared experiences, the ups and then over time, you've seen them go through the downs and you can trust them in the downs, which means you can trust them in the ups. And so you normally what happens is if it's a business that I own for two or three years or longer, I probably, you know, only talk to the CEO me once a quarter. And probably that time is when he reaches out to me to ask advice on something or something like that. So the actual relational reps get less than more you trust these businesses of what I find.

Starting point is 01:08:28 So yeah, I mean, it's probably consistently inconsistent, but I try to focus on each individual investment, at least focus on them a few days every probably quarter. And then most of that time is spent every morning the first hour of each day. Got it. Well, Ian, this was absolutely wonderful. really appreciate you joining us on the show again. Hopefully we can do it again someday. Before we close it out, as always, we want to give you the opportunity to give the handoff to any resources you'd like. Of course, Microcap Club, your Twitter and anything else, your blog. People can find me on Twitter.

Starting point is 01:09:03 My name is my handle on Twitter. You can find me on MicroCap Club. I still post regularly on there, as well as 300 of the smartest microcap investors in the planet. You can find me on microcapclub.com. And yeah, I mean, I think microcap investing, it's not for everybody. It's not without risks. But I think it's an area of the market that is underdeveloped and underappreciated given the fact that most of the best investors of all times started in microcaps. Most of the best performing companies ever came out of the microcap ecosystem. And I think 83% of the best performing stocks in the last 10 years have came out of the

Starting point is 01:09:39 microcap ecosystem. So it's a vetted investment landscape. but you just have to be willing to lose money when you start, you know, because that's how you learn. So thanks for having me on. Yeah. Thanks so much, Ian. Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investors Podcast Network and learn how to achieve financial independence.

Starting point is 01:10:02 To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only, before making any decision. consultant professional. This show is copyrighted by the Investors Podcast Network. Written permission must be granted before syndication or rebroadcasting.

We Study Billionaires - The Investor’s Podcast Network - TIP563: Lightning in a Bottle & Microcap Investing w/ Ian Cassel

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