Ian Cassel on Stock Picker, the book that blew me away | MicroCapClub

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0:31you're about to listen to the yet another value podcast with your host me andrew walker say oh i say this all the time but we have such a great one for you we have ian castle on for the first time he just wrote a book stock picker there's a link in the show notes go follow it buy it on amazon support and whatever and look i've had multiple books on the podcast and most of them have been quite good but this book blew me away i i kyle mowry he's a friend of the podcast you've several times he will attest i was at a bar with him last night and i was like i just read this Ian Castle book. And it was unbelievable.

0:59It's so good. And one of the reasons you're going to hear it, you're going to hear how excited I am, as I am on most podcasts, about the book. It's got a real personal touch. And it just hit me in a lot of places where there's investing, there's research and everything, but there's a lot of other stuff that comes with it that is very hard to deal with. And it's such a well-written book. There are so many fun stories, all that sort of stuff. So if you are going to love this podcast, you are going to love this book, go buy it. There's a link in the show notes. We're going to get there in one second.

1:25But first, a word from our sponsors. Today's podcast is brought to you by AlphaSense and more specifically, my upcoming webinar with AlphaSense called the AI Agent Reality Check, what they mean for investment decisions. It's going to be me, Steve Clapham from Behind the Balance Sheet, and two AI leaders at AlphaSense. And we're going to be talking about using AI agents and all the upsides, all the downsides and the rapidly evolving landscape for investors using AI. You know, I know for me as a one person shop, just kind of going around, I have found if If you've been listening to this podcast, you know I have found AI just incredibly transformative for the research process.

1:59But I'm always worried. Am I using AI correctly? Are there things I could be doing to improve? What are my peers doing? What am I doing wrong? What am I doing right? What should I be thinking about? And look, Sarah and Ben, the two experts from AlphaSense, all they do all day is work with investors on how to use AI. So I think it's going to be a super interesting conversation. If you want to sign up to go see it, it is free. There will be a link in the show notes. You can follow that. Sign up. And I'm looking forward to the conversation on September 22nd. All right. Hello and welcome to the Yet Another Value podcast.

2:28I'm your host, Andrew Walker. With me today, I'm happy to have on Ian Castle. Ian, how's it going? It's going great. Thanks for having me on. Cool. Just quick disclaimer before we start. Nothing on this podcast. Investing advice, always true. You can see a full disclaimer at the end of the show or in the show notes. But Ian, let's hop to it. The reason I'm having you on, aside from your Planet Microcap event ownership, which is one of my favorite events. I unfortunately couldn't go this year, but it'd gone the past three years and Planet Microcap and all that sort of stuff is you wrote a book.

2:58You wrote a stock picker. It's just called Stock Picker, right? Yeah, just called Stock Picker. That's correct. I should know this. Well, I'm going to just discuss. I effing love the book and I've had book people on before and I'm sure people say, oh, every person says they love the book. I loved it. People are going to hear that because I've got so many questions, so many notes. And I was at a bar with my friend, Kyle Mowry, who's been on the podcast multiple times and he will vouch for me. I was like, Ian wrote this book. It's so good. But let's just let's just start here. Why did you decide to write a book?

3:25And I think you've written books before, but why did you decide to write this book? Yeah, I mean, this one, I co-authored two books about 10 years ago on the topic of intelligent fanatics. And I wrote that with my co-author, Sean Eddings. And that was mainly going over, you know, we did a deep dive into some of these intelligent fanatics that Charlie Munger mentioned in his speeches, you know, folks like Les Schwab and John Patters from NCR and kind of like trying to dive into those stories and figure out if we can pull out some lessons and how we can kind of apply some of these great leadership skills that we saw and how we can apply that to microcapitalism.

3:58investing. So it's kind of a, there were two books that we wrote 10 years ago, kind of on that topic. This book is really just kind of a combination of, I don't know, my narrative combined with stock picking and micro cap investing. And it's, it's strictly, it's more personal. And it was a joy to write because of it, because of, you know, I've written a bunch of articles over the last 15 years and, and, you know, I've had people come, you come to me and say, Hey, you know, it'd be great if you put some of these things together in a book, you know, and package it up so I could just read the whole thing.

4:29And finally, I don't know, something about hitting the age of 40, you know, or just over the age of 40. You're just like, I never write a book. I never write a book. And I was like, well, maybe I should, you know, to kind of bookend that first half of your life, maybe. Well, hopefully it's my first half. I can die tomorrow. But just get these lessons distilled out in paper. Look, so you hit on the two things I was reading. I'm rapidly approaching 40. And it's something, one of the reasons I think this book hit for me is a, it's a lot in my head space, you know, a lot of the things you write, but it is a, you know, you start, it is a deeply personal book.

5:02Like I couldn't believe the first five pages you start and you detail it, you, you open with this and then you've got more of the story in the middle of the book, but you talk about how your mother died. And like, I was just, you know, when I opened up a book called Stock Picker, I thought it was going to be here. So I pick stocks, here's how to do research. You know, I know you do a lot of scuttlebutt and I thought it was going to be all that. But I was just like, I read the first page. I had to like step, I read it on PDF. I had to step away from the computer for a second. It's like, man, the, the, the mom dying and, you know, we'll talk about more.

5:30Like, I think one of the things you see throughout the book is as an investor, you know, you use the term stoic in one of your things. You're supposed to be stoic. You're supposed to invest and you buy the stocks and you don't let any of the, the emotions of the stock market get to you. And you don't really want the emotion stock market. But I think the thing that shines through this book and something I'm wrestling with as I have 40 and have two kids, like there's a lot of personal factors in this. I mean, you talk a lot about the personal finances of being this and it jumps out. And I think that's something when I was 27, maybe I wasn't prepared to think about when you're working as an investor.

6:03You think, oh, that stuff doesn't matter. I am, you know, the Uber alpha. Anyway, I'm rambling. But that's the first thing that jumped out to me about this book. Well, I appreciate that. Yeah, I wanted to write something that was authentic, genuine, personal. I don't think the world needs another invest like me book or instruction manual book on how to invest in microcaps or whatever it is, because we're all different. And you can be successful in every different myriad of ways of flavor of investing. And so, yeah, it's one of the things I'm proud of is just how personal and genuine it is, kind of stitching my narrative and some of the personal lessons that I had and family lessons and having to support yourself on your own capital.

6:42And then, you know, with the fund and, you know, having kids and all that stuff kind of plays into it. And your maturation as a human being kind of goes alongside your maturation as an investor. A hundred percent. A hundred percent. Okay. Let me try to recover from the talking about the personal stuff with the letter. So you start basically every chapter with a fun anecdote that relates to the story. You know, I think the first one you start with is they're trying to ship codfish in the 1800s, codfish from the Northeast, the West coast, and they just can't get codfish to taste fresh. And what they figure out is they, you know, first they try freezing them tastes terrible.

7:18Then they try shipping them in an aquarium tastes terrible. They figure out they need to put a catfish in there to chase them. So the muscles are working. Right. And you've got a story like that in front of basically every chapter. How do you find all these stories? It's a, it's a good question. I've always been curious. And I mean, I usually read a decent amount and I've always found these little like oddball stories like listen today everybody just puts it into claude give me a story that is somewhat reflective of this and it can punch out something to you right away but you know i've been doing this for like 15 years before claude was around or ai and so it's just mainly just about finding these like little interesting anecdotes and then i've always found it fun to then kind of somehow relate that back to stock picking in some way shape or form in some loose way or direct way um and i feel like that's how you know you connect with people not only inside investing, but outside investing, you know, as well.

8:10No, I mean, I think you really smashed on that. And there's lots of stories, you know, the John, the one that really struck me, and there are a lot, but it's towards the end of the book. There's a story about John Madden, and he's serving as I think he's an assistant coach at the time. He hasn't been full coaching. And he goes and sees Vince Lombardi and Vince Lombardi spends eight hours talking about one specific play. And Madden is like, I know nothing. Like, I couldn't talk about a play like that. And a lot of times, you know, to bring this back to the investor and myself, I look at that and I say, man, I'll put myself aside.

8:43A lot of times I'll have an investor come, you know, most of these podcasts are not me talking about a book. It's me with a person talking about an hour about a stock. And I'll have investors be like, I don't think I can talk about a stock for an hour. And I'll kind of tell them, man, if you've done a lot of work on a company and I do an even OK job of asking questions, you're going to be surprised how quickly an hour goes and how many things there are to talk about about this company and this stock so but that one just sucks me because a lot of times i've got a lot of doubt like oh my god could i talk about anything like that i just thought that one was an interesting one yeah and i think that's the commonality you see in anybody that is in the pursuit of greatness of their craft like and you know there's a couple other anecdotes in that chapter too um you know with uh with purdue yeah the chicken guy you know and just his his story and how, I mean, that book about him was amazing.

9:31And you just see this constant obsession kind of with their craft down to the nitty gritty details. And I think you can relate that back to, especially concentrated stock pickers, when they have a portfolio of 15 or less stocks, you have the time to dive in and know every little detail about the culture or what have you, whether it's qualitative or quantitative. And that's the beauty of it too. Like, yeah, and I agree. It's like, if you know a stock well, you should be able to talk about it probably for five hours on any random topic because you've done so much work on it to know better than everybody else that you better you better know better than everybody else well let me bring it back to the market so i don't want to say this is the only thing for investing but you know you run microcap club.com you now are kind of the co-organizers like planet microcap so you are an evangelist for microcaps and you know if you read this book if you put the personal takeaways aside, I would say the one thing you're saying is, hey, get out of your spreadsheets, go travel and visit these companies in person, shake some hands, meet the companies, and then invest in, invest heavily in the best ones you find, right?

10:37And I, great, love all that. But the one thing I would, and specifically microcaps, right? I mentioned microcaps this time. The one thing I do wonder is like, is this describing a market from yesteryear? Because, you know, you start in the 2000s is kind of when you start trading. I've seen the SiriusXM story before. But when I look at the markets today, there aren't a lot of companies under$500 million in the US. Let's put international aside, and we can talk international, but there aren't a lot of microcaps in the US anymore. They're not coming public as microcaps because of mainly Sarbanes-Oxley, public company costs.

11:13They can stay private as long as VC, all these things that have been detailed. And most of the kind of under 500 million microcaps are, you know, you describe what is a microcap? Well, sometimes it's a small cap that's gone down 90 % and become a microcap, right? Most of the under 500 million market cap companies I'm aware of are small caps that became microcaps, or, you know, they've kind of been picked over. So they're the, I don't want to disparage Indiana-based pizza companies, but they're Indiana-based pizza companies that are controlled by a, that are completely controlled and have no regards for shareholders, you know, and there's a larger, there's not just that specific company, but there's a lot of companies like that, right?

11:48Where the shareholders are secondary to the CEO's control and there's no way to replace them. So I guess, are you describing different market? Like, are there still these great companies in micro caps or haven't they kind of, don't those stay private? Can you really get access to these? Well, I mean, I think, I think there's some truth, especially here in the U S you know, there's definitely, you don't see Walmart going public in 1970 as an IPO, as a micro cap anymore, that quality level of a company, you know, and that's what you're talking about. You know, Yes, you still have 100 to 150 IPOs in the U.S.

12:19exchanges, and it's mainly story stocks or somebody raising money for a phase one trial or something like that. It's not like an actual real business behind it. But we sort of also have the luxury here in the United States is just having so many to begin with, you know, where there's still, you know, the number of micro cap companies still surpasses the amount of companies in the New York Stock Exchange and NASDAQ combined. So it's just a huge amount of companies. And so, you know, luckily for you and me, we don't have to own all 8 ,000 of them. You know, we can pick and choose the 5 or 10 or 15 or 20.

12:53And, you know, depending on what your flavor of investing is, it's going to determine, too, like how many you get out of the U.S. market in particular. And also, I think just living in the reality of, yes, I would love to find something I can buy and hold forever. But reality is very, very, very few will fit that over time, you know. And that's just the truth of it. The shelf life of probably the average hold of a microcap company, even somebody that I think, like, I know what I'm doing. It's around a year. And so that's the type of turnover it takes. And mainly because these companies are fragile.

13:28Small businesses are fragile when compared to a larger company. They have key person risk. They have customer concentration, product concentration, jurisdictional concentration, which just increases the spectrum of bad things that can happen compared to larger companies. and you have to live in that reality, you know? And so you have to stay on top of these things as best as you can. And it's just gonna involve a shorter shelf life of a hold period. And the goal is, you know, for me, you know, I probably own a hundred stocks over the last, I don't know, six, seven years. You know, I've owned one for over five years.

14:01You know, it's hard to find ones that are worthy of owning and not just renting. I guess that's how I would characterize it. Well, let me ask a question on that then, right? And you discuss this in the book. I think there's, I can't remember if it's the opening of a chapter or not, but you say, I'm going to say something controversial. Most microcaps should not be held for more than 36 months, I believe is the exact thing. So when you say that, and you do have the, you know, you have the curve, the junior minor curve in there, which I think you, you're kind of saying, Hey, this is how a lot of microcaps look right.

14:30Where you want to buy them before they're discovered. You want to kind of ride them until they're basically about to start producing or start drilling or whatever it is. And then you kind of sell and that's the peak. You mentioned you're renting these microcaps. You're holding them for a year. I mean, how do you kind of think about that? Because if you came to me and you're like, Andrew, I have this great strategy. You buy a stock on a Tuesday. You sell it for 100 % gain on a Wednesday. But if you sell it on Thursday, it's a zero, right? They're like, well, that's real luck. You're saying, hey, I buy the stock.

15:01My goal is you buy the stock on January of 2025. It inflects up. And on January of 2026, you sell up kind of at the height of that curve. And then after that, it's come back down. How do you kind of think about that? That's really timing dependent, inflection dependent. Well, and it's each one is so independent in itself of the situation, you know, and each one. I don't know what the end is. You know, I'm not going into it saying I'm going to hold this for three years because these things just evolve, you know, in an instant, you know, whether it's the market around them or them themselves, you know.

15:35And so you just have to live in this reality that you just have to stay on top of these things because it could change from week to week or month to month, quarter to quarter. you know my intention is to hold for a long time but i but just the reality is that most of these companies will deserve to be sold and because even the successful ones it's usually a small let's say you know you know micrograph is almost as well as i do andrew so it's like you have these really small ones that are a 20 million revenue company they get one large contract all of a sudden revenue blips up 30 the next three quarters everybody else that's out there puts in their Excel spreadsheet that this should continue until, you know, the next 10 years, you know, and all of a sudden they, they apply a, all of a sudden it goes from an 8 PE to an 80 PE.

16:19And then after year, the fourth quarter where they have to get the comps, you know, they have to replace that contract and get another one. It doesn't happen. And thing falls 80%, you know, so that's, it's kind of a perfect example of that's what you're dealing with that concentration risk in these small businesses. And you just have to be aware of every, how everything's shaping up. But that's just one little example. But you see that. You have this story in the book of the company that, you know, Hurricane Katrina hits and this company buys like two other firms and they become the largest basically hurricane recovery company in the US.

16:50And their pro forma financials are like, hey, this 60 million market company would earn like 90 million dollars on the pro forma financials and the stock rips. And I think you you quite successfully like you buy it, you sell it for a big win and then the stock goes bankrupt. And you're like, oh, what everyone forgot is, you know, the 90 million required like the two biggest hurricanes in the history of the country to hit every year. Yeah, the business model required two direct category three hurricanes that hit cities. But I was reading that. I was like, yeah, I have been here before. I just think that it's a great over the top example of what you're saying.

17:28Yeah, it is. Yeah, that was. You have a whole chapter devoted to talking to management teams. Right. Right. And I felt personally seen by this because anybody who's listened to this podcast before, I mean, my last book person I had on was Ross O'Toole, who wrote How to Interview a Management Team. I pull back and forth on interviewing management teams all the time, right? Because on one hand, I want that unique information. You know, like a lot of investing is what do you know that other people don't or what do you understand? And one way to get information no one else knows is go meet the management team.

17:58You know, actually, do they have a firm handshake? I hate to keep using handshake, but you will find out stuff that no one else knows when you go meet management teams. But on the other hand, I have also come to get worried. Like, you know, I am just a little silly investor with a mustache sitting in a closet. And these management teams, I mean, they're they get to the top because they are great salespeople. They're great at interpersonal dynamics in the office. They're probably meeting, you know, 10 investors a week. And I might meet, you know, you've got to travel. So you might at best meet two CEOs a week.

18:28Like they're just more practice. And I've always worried because my biggest losses have been, I feel like I kind of got pantsed by management. So I just wanted to ask about that push and pull with, you know, going to meet managements. Like, how do you avoid my proverbial pantsing when you're going to meet these management teams and develop relationships with them? Well, I think it takes more. Well, first of all, when you start out doing it, which you're probably at your thousandth rep, but like the first 10 or 20 times you sit down with the management team, your eyes are as big as saucers. And, you know, you're not even paying attention to what you're even asking just, and you're going to walk out and buy the stock either way because you're just enamored to be sitting across the table.

19:03In your head, you're still, because your first time, you're probably right out of college or maybe in college. In your head, you're still a college student and you're talking to this titan of industry. Even if they're just a 20 million CEO, you're talking to this titan of industry who has wisdom beyond your years. Absolutely. Yeah. So I think it probably takes a good 10 or 20 or 30 reps for that liability to turn into an asset, to where you have enough reps where you can approach it with a neutral mindset, which is like the first hard thing to do when you're starting out the gate with it. I know for me, you know, again, and you and I both know plenty of people that don't talk to management at all and have excellent track records, you know, but for my approach, I've always just been hands-on.

19:44And it's probably because of the first experience I had with that XM salary radio CEO sitting across the table for him. And that kind of got me enamored with this whole qualitative art of trying to find out about these, these leaders if they're great or not. But, you know, I do think that for me, it's the it's not just the first conversation. It's the repetition. You know, it's the it's the third, fourth, fifth, sixth, seventh, eighth, ninth. It's going out and not just spending an hour with them, but spending an entire day to where you can get past the sound bites of the first two hours of a conversation.

20:16You get to see who they really are spending that amount of time. And so it's like for me, again, And it's even less about building the conviction to hold something longer because as we just discussed, a lot of these things deserve to be sold. You know, it's a lot of times it's just kind of trying to get to know them well enough where you can almost spot the signs of something going wrong. You know, just like, you know, your wife can she can be angry at you and she doesn't have to tell you. You know, it's like it's kind of the same thing that you can just sense something's wrong. And that spidey sense has saved me a lot of money over the years.

20:47So you are going in person to meet these companies, right? So it's one thing to do Zoom calls, where a Zoom call is pretty low stakes, right? You block off 30 minutes, you hop on a Zoom and you do it. And in-person meeting, it requires time, right? Time away from, again, you and I are both talking about 40, time away from your family. It requires flights, it requires money. But the big thing is the time, right? Like you're going to spend at minimum a day flying there, going and meeting the management team, probably staying in a hotel, flying back. It's a lot of time devotion. how are you i mean you're running a concentrated book but how are you you know choosing what meets the bar to go put put the time in is it something that you've already done the work on like i might actually you know and you talk about running quite concentrated early and now that you're kind of running fun running still very concentrated but not quite as concentrated yeah 10 stocks ish uh is it something that you've already bought is it something that you're on the verge of buying or is there something of, hey, I could see myself buying this at something in the future.

21:49Maybe I need to start planting those seeds now and building the relationship now so that in three years when this is ready for prime time, I've got that relationship with management team where they'll let me spend a full day or I already know their tells when I'm talking to them. So how do you think about just the time allocation when you're choosing whether or not to go do this? i would say i'm usually at least mentally more than halfway to a buy decision okay if i'm going to be putting the time in to go go meet with them and it doesn't mean it could be something i'm initially looking at that that struck a chord that i want to go immediately and it could be something that i've followed for a long long time you know that all of a sudden something happens and there's a catalyst or there's a you know a fat finger seller that comes out drills it down 30 it's something i know fairly well and i could just hop on a plane quick and see what the real story is and hopefully, you know, take a position and take advantage of that seller.

22:42So it's kind of like a bunch of different reasons why you would do that. But, you know, listen, especially when you're married, you have kids like I, I have a kind of a call like a checklist of, let's say, 20 trips, you know, about five of them are just my own events that planet microcap. And so like the rest of them are for these company visits where I can just be nimble and just go really quickly. And luckily, I married well, and she can step up with the kids, you know, and that's key for this game too um and yeah it allows allows me to be able to do that still you know in that section you also you've got in every almost every section you've kind of got like paragraph rules for how to follow this thing and stuff and one of your rules there is don't ask multi-part questions and i will tell you as you can tell from this interview i felt personally seen and attacked when you said don't ask multi-part questions because uh i love to ask seven questions in a row and just say hey why don't you take all those i mean and it's okay to do that if you know you have a big block of time with them and you know you can kind of follow back and and not allow them to skirt around something you know the problem with like multi ones is people can skirt around some of those you know just to stick with building management relationships this is earlier in your career but in the like 2008 to 2014 time frame you mentioned several of the companies you buy and you mentioned that you know this is kind of when you're getting started and you say hey i want to be a full-time investor but i need something to like cover the bills and you kind of do capital markets consulting work and several of the companies you're buying you're doing capital markets consulting work and that that was really interesting to me because look i i run a podcast i run it like i am no stranger to being an entrepreneur so but i hadn't heard of someone doing like kind of capital markets consulting work as they have a position in the stock so and it speaks to like building a relationship with the management team and all this sort of stuff so how did that kind of come about what were you looking for when it seems like you wanted to buy this stuff when you worked with this company.

24:37How did that kind of come about? What was the structure and everything there? Well, it was difficult because ultimately, so that was from right after grad school. So 2005 to 2009, I did that consulting just to bridge the gap until I could become a full-time private investor. And so, I mean, I mainly just went out and found companies that I actually liked as an investor and then said, well, these are the things you should be doing differently, you know, either with your narrative, you know, or whatever to help tell the story better. And, you know, in all of those cases, I'd be like, you know, I, I'd like to buy, I can't buy it if I know something I shouldn't be, I shouldn't know.

25:15So I can, I'm basically blocked out until I'm done working with you. You know, and so it was kind of a risk going into it, you know, just because it's kind of blocked out from ever selling, you know, when I was doing that, but it, so you would go internal, You would get MNPI. Like you would be not all, not all the time. But in the cases where I felt like it was a gray area, I would just, you know, I just had a rule. Like I just wouldn't, I didn't just went across that, that bridge. And there were some times that it hurt me. You know, I probably left a million dollars on the table in 2009 because I was still kind of over the wall with one last time.

25:54And, you know, nothing's worse than when you have a seven figure position in something. And the CEO says we're about to miss a quarter. you know well i'm just i'm just like uh you know and you're just you know it's like all those things but would you have would you have sold in advance of that is the question right like without the ceo saying we're about to miss the quarter i do know like i've been on the inside where a company says hey it's not going to be good and you're like oh you know this is marked at 100 in my portfolio and i can mentally mark it down to 60 if i'm generous waiting for that ax to drop oh god i know but it was a but that experience kind of really solidified something i didn't mention the book was around 2003 or 4 i i befriended a fund manager small i mean probably 10 million dollar fund vested in nano caps and he was and he took a 10 position in a health care company and um it was about a million dollars even like 10 but he filed went on the board and i saw him like kind of just help the ceo with a narrative help him with a couple other ways with capital markets.

26:57And it ultimately ended up being a 20 bagger for him over the next, I don't know, four years. And it was just cool when I looked back and reflected on it. It was by the time I was 2006, 2007, when he actually realized that win, it was cool that he was a value added investor. He wasn't a value investor. He was actually adding value to the company and allowed them to have a more positive outcome, most likely because of the advice he gave. And he wasn't just, I'm here to buy low and sell high. And so seeing that kind of made an impact on me. And I kind of remember thinking about that as I was consulting with companies, as I kind of stepped into sort of that type of role, so to speak.

27:37And some of them were successful and some of them weren't. And, you know, I like that feeling. And it's like, now fast forward to the fund so many years later, yeah, that's kind of how I view our fund now is like, we still deal with these really small rinky dinky market caps, you know, but we like to take a decent position. Usually, you know, reputation somewhat precedes us where, you know, the management team would like us on the cap table. They realize we're not here to flip out the stock. They realize we give good advice. And I really view ourselves as a fund as kind of this hybrid of PEVC meets public micro cap to where we're trying to find good situations that can become great, not bad situations that can get less worse, you know, but being a multiplier to that company where, hey, you know, I was a part of that, you know, when you can point at it and be like, this is a is better because I was here.

28:25And that's something that goes beyond returns. It gets into fulfillment and all that stuff, which starts, you start thinking about when you're above over the age of 40, you know, so it's kind of another thing. You, you very much do, you know, and again, this is the things when you're 27. And I think most of my listenership is like in their late twenties, early thirties, you're like, Oh, what are these gray haired guys talking about? And then when you get in your late thirties, early forties, you're like, yep, yep, I get it. I get, I get why there are midlife crises. I get all this. 25-year-old Ian was just like, okay, I'm mainly a story stock investor.

28:57Buying Porsches and selling them to keep the stock portfolio. Yeah, my average hold period was six months. And I could care less about being a valued investor. I was more worried about who was going to buy my shares 100 % higher. That's all I cared about. A few just other things that I thought were interesting. You had this interesting one on scarcity, right? And this kind of relates to who's going to buy my shares 100 % higher. You say, hey, you like companies that are scarce on a bunch of different lines, right? And you kind of say, first, you like the niche and all this sort of stuff. But you also like when the stock is scarce because if they're not issuing equity and the story gets a little sexy, the institutions are going to be just forced to buy it higher, higher, higher.

29:39I thought that was really interesting because, again, this is something I think 10 years ago I would have dismissed. But I've seen it so many times, even in larger caps, right? Like for, it's hard to believe now, but a while ago, cable companies were really popular. And there was one cable company, Cable One, that was a small cap. And it traded for a huge premium to all the Comcast, Charters, the big companies. And everyone asked why. And what you would find was when you would talk to small cap managers, they would be like, we love the cable story. We cannot buy Charter or Comcast, right? We would prefer to buy them.

30:13We think those are better businesses. We think they are cheaper. but our mandate does not let us cable one is the only play we can have on a cable company so cable one traded for this massive massive premium and like just as you were saying with scarcity obviously you're talking micro caps where institutions are kind of like trying to fit in through a small door but i think it's something i would have dismissed six seven years ago that i've come to kind of agree like hey once something like if once something gets in the mandate and people can hold it like they will drive it higher than the fundamentals might demand if they need to get into it.

30:46Yeah. And it just gets multiplied if it's in something illiquid, like a microcap company. And that's, I think the combination of the tailwind and scarcity, you know, kind of a fire hydrant of water hitting a couple things, you know, is kind of what I would love to look for in everything. And, you know, when I gave a couple of examples in the book with Kpasa.com, which was a Latino social network back then. And that was kind of like my, the far flying example of this. But, But, you know, in general, I think, and you can look at this with anything, whether it's AI, like a theme or whatever, you know, just trying to find the best microcap way to participate in that theme.

31:25And it's especially a great theme if there's only a few of them. You know that there's going to be this just tailwind of buying into it eventually. You know, one thing you don't mention much in the book, I just did a control F through the book. You only in a, let's call it 300 page book, you only use the word dividend six times. And basically all of them are on the same page. It relates to the gold mining stock, I think, Goro. Yeah. You say, hey, I bought them for a dollar per share. And a few years later, they were playing a dollar per share dividend, right? That's the only time you mentioned dividend.

31:58I don't think you use the word share buyback or share repurchase once in the book. So I thought one thing that was interesting is capital allocation, because I can be a very capital allocation, numbers-focused, Excel-focused person, right? You don't seem to think about that too much. Now, you do, to our scarcity point, which is kind of why I was playing off this, you don't, you obviously don't want them diluting like crazy because that's the way to destroy a multi-bagger, right? Okay, the value is 10 times higher, but the share price is 10 times higher. But you don't focus a lot on capital allocation.

32:27Is that just because, hey, there's micro caps, there's not a lot to do, the growth is all that matters? or is there something else to kind of the lack of focus and mention a capital allocation here? Well, no, I mean, and I think you're correct to pick up on that. I think it's mainly because I'm more of a growthy investor. You know, I'm trying to find things that are undervalued, that can get very overvalued, not necessarily as interested in things that are going to pay a dividend or doesn't mean like they're not going to buy back stock, but specifically dividends, I probably wouldn't own too many of those.

32:57It's not like there's anything wrong with those. It's just my flavor of investing is just a little bit different. I'm trying to find like really high organic growth rate companies that can self-fund their growth and they're going to just plow it all back into that growth. No, it's great. And you know, I think there is something too, I've come to believe this as well, like particularly with dividends, like, okay, great. Yes, I would like my company giving back, but I think there's something too, you want, you know, if you think you have skill, you want more variance and a company that is at the point where it's paying a dividend or where you're really focused on the dividend yield, the variance has just kind of shrunk.

33:30And honestly, the variance is kind of left-tail-ish at that point where they cut the dividend or something. But there's not that much, hey, if they're paying a$1 dividend this year and that's part of the story, everybody's going to pay it as$1.08 or $1.10 next year. There's nobody's going to be like, it's going to be seven. So I think there is something to that too. And I would never say never even Goro, they paid a dividend. I'm sure something I'm going to own will pay a dividend. But I think one of the things too, I mean, and you've been investing for a long time is like the way you invest today is probably different than it was 10 years ago or 15 years ago, you know?

34:04And so it's like, I feel like the whole maturation of an investor, like I started as a story stock investor, then, you know, kind of precious metals, junior mining, and then more GARP. Like I didn't care about profitability until 10 years in. And so I kind of view each one of those stages, almost like learning how to paint with a different color. And after like 20 years, you can learn to paint with like a few different colors. And so I do have some cheap stocks in the portfolio, but I also have some, a couple of story stocks in the portfolio because that kind of represents my past and I did decently well in that endeavor.

34:34And you don't have to just do all one thing. Well, look that I actually have a note on that. You've got a line, great investors evolve or go extinct. Right. And I, I am with you. I mean, you mentioned your mentor in the book, you mentioned your mentor skip and you say, Hey, you know, you still love him and respect him. But after a few years, like you start to evolve and move away from him and he He kind of sticks with the same story. But it struck me like the investor you are today, and you also mentioned towards the end, you know, you're always trying to improve yourself and you're comparing yourself to your past investor.

35:03But I think there's a lot of investors who have success. And, you know, I'd point to there's a lot of famous investors who did really well from 2000 to 2002. And they've done pretty poorly probably since the GFC. And they keep decrying, you know, they'll decry the Fed or passive or broken markets or whatever you want. And they haven't really looked themselves in the mirror and said, hey, from 2000 to 2008, yes, the very basic traditionals of value investing worked really well. But maybe that's been competed away. Maybe I'm not evolving. Maybe I need to look in the mirror and say the problem isn't the market.

35:36It's me. And you can Buffett. He's always been a value investor, but he's evolved, right? He evolved from I'm doing Ben Graham deep net nets to I am doing – you mentioned Seize Candy in the book. I'm doing great companies that I can compound. Part of that's his capital base. But, you know, I see a lot of investors who do well and they freeze and it's because they're not they're not evolving. So I just like that line. And I think you said, go ahead. I think the good ones really just press out their circle of competence and it's easy for us to judge. And sometimes there is a thin line between pushing out your circle of competence and FOMO, you know.

36:11But, you know, I do think that they they evolve and continue to grow and push that out. And they do so by doing so in small ways. you know, shooting bullets before cannonballs, you know, when they're when they're doing that. And I think they're constantly just not satisfied to where they are. You know, they know there's always a better investor inside them. And I think that's what you see and kind of Buffett and how he evolved, just like you said, cigar butt to buying quality. So now he's basically a private equity firm with a public book. And, you know, so it's like all the really the goats, like they do a whole bunch of things.

36:43Well, they go from also, in addition to that, like kind of playing every instrument in the orchestra to leading it like putting a team around them eventually you know and so it's interesting to see how they've evolved did you see the i think it was the fun smith letter where they said hey at right at the end of the q2 they were like we've always been fundamentals but now we're like really leaning into momentum as we do this i did that i saw i saw i liked it you know i was probably one of the only people who's just like not gonna jump on him and say he's an idiot i liked that he was willing to evolve but i think something you said like bridges the gap right i I think the willing to evolve was nice, but you said shoot bullets before cannonballs.

37:23And I think the biggest, the issue is he shot the cannonball, right? He said, Hey, we've been underperforming wholesale changes to the process, wholesale changes to everything out goes the value incomes, the momentum. And I think the issue was, he kind of shot the cannonball. Cause you know, I think it's supposed to be a little bit more gradual than that. I think you're probably right with that. And unfortunately for him, you can tell that he didn't shoot any bullets. You know, he dealt with his cannonballs. Yep. You know, one thing you just mentioned is putting a team around you over time, right?

37:56And Buffett does this with Berkshire and he gets, you know, bring Charlie Meyer, builds a big business. But on the other hand, and I'm quoting from you, as a portfolio manager, it doesn't matter if you have a team around you, your investors don't care. You get the credit and you get the blame. You have no place to hide. You know, I wrote that down because it related to the Fed comment I just made where, you know, you see investors and they blame the Fed. They blame everyone but themselves. but how do you think about putting the team around you when you are the portfolio manager you are the one calling the shots it doesn't matter if your analyst comes and says this is a great idea you're the one who puts it on it goes down it's your fault not theirs how do you think about putting a team around you when you do that well i i i probably am not i'm probably speaking out of turn because i don't really have too much of a team around me from the fun level you know it's me and i finally hired somebody for ops you know that can handle the admin stuff so i don't have to do that um i've been kind of blessed just because microcap club and a lot of the personal networks I have kind of fill a bunch of voids, probably two or three research analysts when I can just kind of lean on kind of my personal network, you know, for some things.

38:54And some of the, you know, I have a Slack group of, as you're well aware of, of probably like 10, 20 somethings that remind me of me from 20 years ago that, you know, they're the people that have 28 hours a day to research stocks that remind me of me before I was married. So, you know, so you tend to figure out where your weaknesses are. And I think that's a huge thing for a stock picker. Like, I think we do have all, all of us have strengths and weaknesses, you know, in regards to the skills, you know? And so I think it's just being honest with yourself of what you are strong in and what you are not strong in and looking to fill those voids and what you're weak in, you know, either with tools or people or a combination of both.

39:31And then just finding people that, you know, are going to be hungry, you know, and want to roll alongside you and also be okay with them when they leave, you know, because ultimately you're looking for somebody that reminds you of you and you're entrepreneurial. If you were you, you would probably leave to eventually. And you have to be okay with that. And you have to kind of give them applause when they do, you know, and be like, Hey, that's awesome. You know, and always be kind of recruiting the next person or having your eyes open for the next young person that reminds you of you. So I think it's just, at least at my scale, that's kind of what it looks like.

40:02It's really interesting. Well, this relates to, you know, the other thing I was just like standing up saluting when you, you've got something on create your own brand, right? And you mentioned how one of the ways you got started was stock market message boards. And I don't even know if the youngsters know what that is, but you would like become the axon name and you'd post on it frequently and you reach out to people. And that's one of the ways you start building your band. Obviously you've got micro cap club and you have that to help people get, you know, there's great research on there. A lot of people, uh, I guess the two things I want to ask here, Hey, how do you, when you, a lot of youngsters are coming on my crap club, right?

40:39For a lot of different reasons. How do you kind of separate the wheat from the chaff when you're looking at these youngsters who are coming in and putting things and probably looking for a guiding hand to help steer them? I'm usually looking for something differentiated. It's getting harder and harder because there's so many AI write-ups. And I think right now it's obvious when it's AI, but it's going to become soon where it's not going to be as obvious. And for me, I guess I'm kind of lucky where I still put a lot of value on the qualitative skill set of talking to management. And I feel like even with the onslaught of AI, I feel like it's all coming back to that again.

41:15Like the only place to get an edge is the interpersonal skills that aren't recorded, transcribed, or whatever. It's going out of your way to have those conversations. I think like that edge is actually going back to what it was 30 years ago. I think it's going way up. Again, it's unique information that only you can get if you can go get it. I think that edge is going way off. And so for me and my flavor of investing, what usually attracts me is when you see a, you know, a younger person that actually went to have the effort to actually talk to the CEO or whoever, you know, at the company. And they include that in the thesis, like this, this additional insight I learned on the strategy or, you know, something like that.

41:47Like they made that extra effort because that is something I would have done, you know, and that relates back to my strategy, the way I invest, you know, so that's what I would particularly look for. No, that's really, because I have a lot and, And, you know, a lot of them are very eager, but you can only spend so many times a day. And I do try to respond to all. But I've been thinking about how to, like, choose who to spend a little bit more time with versus dismiss. Because as you mentioned, you get these write-ups and they're 10 pages. And I'll have guys who send me, you know, a write-up a week.

42:17And I don't know, hey, is this guy really eager or is he spraying, praying? I don't think any of this is that great. But was any of my work that great when I was 21? I don't know. Well, I think in regards to that, you know, in mentorship is kind of what you're talking about, you know, as much as a relationship there. It's like, I think, you know, it's kind of how I got the attention of Skip back in the day. You know, I first tried to just get his attention by just getting his attention. It didn't work. You know, what I ultimately had to do was show him value. I had to go research the stocks that I knew he owned that he was posting on, find some incremental pieces of information through Scuttlebutt and then post them on the message board.

42:53So he would be like, who's this kid? And how do you get this information? Because I didn't know this. And then, so I had to provide value first before he provided value back to me. And I think ultimately that's what happens in the few people that I've done this with, younger people is, you know, they just show value to you as an individual. Because you're a busy guy. You're doing this. You're managing a fund. You're doing a whole bunch of things. You have a family. And they almost go out of their way so much to provide you value where you feel like you have to reciprocate, you know, either by getting on a zoom with them, you know, just helping them, you know, and I think it just actually happens naturally, you know, not something that you have to worry about reading through, you know, a fire hose of theses from 15 different people.

43:34It's kind of the one that, that really goes out of their way to, to get your attention in a positive way and add value to your life instead of taking time from it. That's great. Uh, let's see just a few other things I really liked. Oh, well, let me start with one of, you know, you are a big component of buy low and then buy higher. So, you know, this is basically you buy the stock and start buying it. And then as the company executes on the story, you start, you buy more of it. You can increase your position. And it is something I've really struggled with over the years. You know, you start buying at 10 and the stock's at 15 and you say, oh, well, you know, it's not 10 anymore.

44:11And how do you kind of develop the flexibility to buy as going higher? And then the couch that is, look, if something's at 10 and you make it, let's say you start with a 5 % position. It goes to 15. Now it's going to be about a 7.5 % position. And if you buy more, it's a 10 % position. Then it goes to 20. And how do you avoid the, I've seen a lot of people buy the way up and then it explodes. So how do you balance the two? Well, I think it's always a fundamental decision on the business. And you're really only trying to average up in things where their fundamentals are accelerating faster than their stock price.

44:46you know and that's the arbitrage you know that's why it's just as cheap at 15 than it was at 10 and that's why you're buying it so i think it's a short answer but i think that's primarily what you're looking for when you're looking to to average up into things and especially uh and i know you'll understand this especially in micro cap you know again like when you you're buying this 20 million dollar market cap thing or 50 million dollar thing you know once it grows up Once the revenue doubles from where it is, it's also a higher quality business than it was before. It's deserving of a higher multiple in addition to everything else.

45:22So it's like they probably have more customers, more products, more geographies, more management depth. It's worthy of a higher multiple as well. And so you kind of have that dynamic overlaid over that, that you do find situations, not every situation that goes up. Some of them just go up because we're in a hot market and hit an AI area or something like that. But for the ones to average up in, really, you only want to invest or average up in ones where the fundamentals are accelerating faster than the stock price.

45:52On that, this is what spurred it. I've got two examples over the past couple of years where something goes up a lot and I kind of write down, oh, I think this is better now than it was the day before. I should probably be buying. And unfortunately, I sucked my thumb on it and both have worked out. Now, that might just be small sample size. But, you know, I write that down. You mentioned in your book a few times journaling, right? And I'd love to. How do you use a journal as an investor? And what is your process with that? So I generally was something I've done ever since I was in my 20s. And I mean, honestly, there's there's really no set way I do it.

46:26You know, I usually get up early at five. I'm over the caffeine to kick. And then I just mindless task before the caffeine kicks in. And then I start writing, you know, and but I don't go into the morning with an agenda. You know, I get sometimes I'm just writing about personal stuff, you know, sometimes about stocks, you know, and sometimes it's about anything else. And some of most of the book came from like just that type of thing. Now on the stock side, I do have a more structured setup where I'm constantly updating my theses at least every quarter after every conversation with the CEO. And there's probably a more effective and efficient way for me to do it.

47:06But I'm kind of old school. It's like in a Word document. I can still search everything. And then I have my watch list of things that I'm looking for something to change. you know are you just probably not on the company specific side but on your journal side you know i i've started doing just thoughts on overall markets and what i'm seeing them are you going back and researching these are you just writing them either is fine right i'm wondering if you're going back and referencing to see like what was i think then or sometimes a lot of it is just getting your thoughts out on paper like that is a very effective habit i think there's been research to that and i'm so are you just trying to get your thoughts out or do you actually yeah i just get my thoughts out the emotions out you know the one thing again on this on the investing side, you know, every trade I make, I say what I did and why.

47:49So I can go back and reflect on it. And then, you know, you rub your nose in the ones that went up five X as soon as you sold it, you know, and I wonder why you did that or this or that. See if we can actually pull out anything from it. But yeah, I mean, it's kind of two separate silos, but you know, most of my journaling kind of creative creatively is in the mornings. I, I, I certainly know that. All right. I'll end with three that really hit me. So there's a chapter 14 story. And you basically say, look, every stock picker after they have a big winner says, can I still do this? Like you're worried your big winner is your last winner.

48:23And I was working with a performance coach for a while. And I was crying like, hey, I had this great idea. It worked, but like I wasn't big enough. I'm never going to have an idea this good again. And she was like, Andrew, you say this like every time. As an investor, I always feel like an imposter, right? I have huge imposter syndrome when it comes to this. As an investor, how do you find you get over the imposter syndrome or you get over the feeling that, hey, my last big winner is my next one. I'm never going to find another one. Or when you have, you mentioned the highs and lows, when you have a big loser, how do you keep your confidence and keep your ability to swing a bat?

48:57Well, it's really difficult depending on which environment you're in. We have a tendency when we're on a hot streak to get conceited and think we know everything. And then when we go through a low streak, we feel like we know nothing. And then we reach for answers everywhere and stretch our strategies in places we shouldn't. And we buy things at the top that are about to fall out, you know, and all those things. So it's kind of two different kind of mindsets that you can find yourself and neither one of them is good. I think the key is just trying to be as even keel as possible and stay away from the tendencies during the downtimes that a lot of stock pickers go through, at least concentrated ones, which is what you see quite a bit, are concentrated stock pickers that just double down, triple down into averaging down into positions that aren't doing well.

49:45And they get in this mindset of wanting to prove the market right rather than make money or stop losing money. And you see it time and time again. They start selling some incremental winners that they have to add more to the losers that are dropping. they get more concentrated into their losers and they go then they go broke and shut down you know and you see that time and time again and i think the opposite of that is what most people need to do if they're going through a losing season which is what i what i ultimately did back then and still do when i do which is get more diversified you know actually sell sell a loser free up the mind share add a couple more batters to the lineup give yourself a couple more chances to win you know and that's how you get out of the hole not from doubling down on things that weren't working where you're probably you know not selling them because they're too cheap even though it's taken three years longer for your thesis to play out and it's probably wrong but it's something i've had a lot right where something goes down and you're like i know i'm gonna prove the market wrong and prove all that it's wrong it's one of the reasons i don't like really engage if somebody's got a bear case like i'd love to hear it but i'm not gonna go on twitter and like debate the bear cases with people.

50:53But it was actually, I think Michael Liu used to work with you. And I was on a panel with him once and they were asking a similar question. He was like, look, when I sell a loser, it's like the ultimate belief in my conviction. Like, cool, I'm going to go find another great one. Like, I'm going to find something else better. It's like the ultimate belief in my conviction. He said that. And it was a throwaway line at a panel three years ago, but it is stuck so with me. Whenever I've got a sock down, I'll just be like, hey, have the belief in yourself. You're going to go find another winner or something.

51:18Yes, selling losers is so freeing, you know, It's like you can just feel like the weight lifting off your shoulders. It's like, all right, let's just move on. Now we can actually focus positive energy somewhere else. It really is. I've had some big losers and I will have some more. And we want you to like kind of get them off the books and you're not seeing the screen. You just feel like so freeing. And yeah, it feels like chains coming off you. Let's see. Two last things. All right. I think we've gone through all my ones except for I wanted to do one last one. uh the worst part of investing is wishing the is wishing time goes faster so you can get your returns quicker we all make this mistake i mean i have that all the time right because you're an investor you're a compounder you're a compounding machine and if you can pull the next 10 years of returns forwards today or if you've got a big position you're confident you're like god i wish i could see i wish i could fast forward and see this quarter's earnings and next quarter's earnings just like pull that all forward and you know our time on this earth is limited again we're guys with some gray hairs you mentioned the kids and you don't get the time back how do you kind of balance the two because i feel it hitting me all the time i'm like god i wish i could speed this effing thing off yeah well i mean i think and again i think it's only at this period of my life again the 25 year old me would be like what are you talking about you know just because the 25 year old andrew or ian you know time was abundant you know and now the time was abundant i was still drinking alcohol yeah exactly a lot of there are a lot of mistakes all the time in the world.

52:42And then all of a sudden, all of a sudden it's become scarce again, scarcity, you know, just time becomes scarce. And, uh, and I think I realized kind of that and it's hard. You're never going to get out of it completely, but you know, as stock pickers, you're always looking one, two, three years out in the future, estimating where the business is going to be making a decision today. And then you can't wait for the next quarter to hit or the next year to hit for you to be proven right. And you collect those returns, you know, the money, the accolades, everything. You just want to get there tomorrow.

53:09You can't wait. And in the meantime, you have a family, you have kids, and they come home from school. You're still thinking about the earnings call that happened. You're still thinking about all this stuff. You're thinking about all these things out in the future, and you're not living in the present, which is what you should be doing. And the ironic thing about that is even sticking to stock picking, thinking too much about the future is going to prevent you from getting those returns because you're probably not doing something today that you should be doing to get the returns tomorrow. And so that final chapter is about kind of kind of the secret of to compounding, which is what I called it, which was like the secret to happiness, I think, in your family life, personal life, stock picking life, whatever is just taking care of today, you know, hugging your kids today, kissing your wife today, telling her you love her, even though it's a bad day, and you don't feel like saying it, you know, calling your dad today, you know, apologizing today, you know, all those things, including doing the research today, doing the expert call today, doing the screens today.

54:09And if you do all these things today and not wait, that's what produces tomorrow. That produces the long-term outcome you want is actually living in the present today and the future will take care of itself. That was beautifully said. I'm an old softy. I'm getting a little mushy up in here. That was great. Why don't we end it on that? Ian, I mean, again, I can't tell you how much I just truly enjoyed this book. I would be shocked if anyone is listening to this podcast and would enjoyed i found it energizing again some of the things i personal offense when you said don't ask multi-part questions some of the things i mean relating to your mother and stuff i i had to put the book away because i was just getting touched but it was just a wonderful book i'm so glad i read it i'm so glad you came on this podcast i enjoyed this and uh yeah i've always had a lot i've had a lot of respect for you uh you know we've been you know fighting the same battles for a lot of years so i appreciate the work you do as well like bringing bringing good quality small cap or younger managers on your program, giving them a voice, I think it's huge for this, for micro cap investing too.

55:08Not all of them are micro cap investors, but it all helps. So appreciate that. Cool. Well, hey, I hope to see you in Vegas next year and we will go from there. Take care. A quick disclaimer, nothing on this podcast should be considered investment advice. Guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.