[00:02:16] Kyle Grieve: So I’d like to start this discussion by talking about a less discussed part about investing in most circles, which is the journey towards becoming a private investor. So I know many members of our audience probably already invest on their side, but maybe haven’t quite take the leap into investing as a private investor full time and on their own. So Ian, you’ve successfully made that leap. So I think you’re going to be a wealth of practical information because you did it for quite a long time.

[00:02:43] Kyle Grieve: So I just want to start off with some of the basics. What are some of the mental, intellectual, and psychological aspects that are required to be a successful private investor?

[00:02:52] Ian Cassel: I was a full time private investor from about early 2009, where the depths of the GFC through about late 2018. That’s kind of when I launched my fund and that’s where I kind of put the cutoff of being a full time private investor. And I think it’s, it’s often probably best to kind of define what that actually is, what’s the difference between being a private, full time investor and retirement. it’s like, wait, what is that?

[00:03:17] Ian Cassel: And so, I think when we think about retirement, we think about a person that’s saved for 30, 40, 50 years, their dollar cost averaged into some passive ETFs, mutual funds, other investments, the portfolio has reached a size by itself or including a pension or whatever, social security here in the US, real estate, they can retire.

[00:03:38] Ian Cassel: And a financial advisor agrees that that given a 7 to 8% long term expected return, drawing down 3 to 4% per year that the person can retire, the capital base continue to grow and keep its purchasing power with inflation. so that’s, that’s how I would kind of define what retirement is now full time private investing.

[00:04:00] Ian Cassel: I would kind of define as, full time private investor actively matches their own portfolios. They are stock hikers. And they normally take the leap sooner rather than later, and probably sooner than they should. And so they need to produce an above average return to not only support themselves as a full time private investor, but obviously continue to grow.

[00:04:22] Ian Cassel: That snowball and so their expectations for returns are higher than the average retiree and they don’t need to eat everything they kill as a full time investor, but they do need to eat, and so that’s kind of how I’d like to frame it too. And so. I think most of the, the mental, intellectual, psychological aspects, which was what your question was getting to about being a full time private investor are all around the stresses of needing to produce results.

[00:04:52] Ian Cassel: And that includes paying the bills and growing the portfolio over time and working with the ups and downs of the market environment and your own returns. And so to be a successful full time investor, I found, really your strategy, your spending, your emotions, your lifestyle all need to be in harmony. So you can make it work.

[00:05:13] Kyle Grieve: So let’s get into the kind of nitty gritty here of some of the numbers. What are some of the monetary targets that a private investor needs to kind of hit in terms of their capital base before they decide to make the leap? And, if let’s say they have a job and quit it before they become a private investor.

[00:05:28] Kyle Grieve: So I’ve heard some figures here, such as 20 times expenses or 25 times expenses. So I’m just interested in learning a little bit more about how did you think of this when you went private? And how would you change this number if you started again today, given the experiences that you’ve had?

[00:05:42] Ian Cassel: It’s probably the one question I get asked the most about full time private investing is how much does it take? And I wish there was a one size fits all answer to this. I mean, it’s a personal question that deserves a personal answer. And so maybe, maybe what would be helpful is to provide some context into my situation and how I made that leap.

[00:05:59] Ian Cassel: And then I think it will help answer that question for others. I think first of all, your lifestyle matters. when I became a full time private investor back then in 2009, you actually moved back to Lancaster, Pennsylvania. And this is an area of the country where the cost of living is lower than living in Manhattan, obviously.

[00:06:18] Ian Cassel: I literally rented an old renovated red barn that had been renovated into a 2 bedroom apartment. My neighbors were Amish, literally and back then I was single, and so I calculated that I could live on about 2,000 a month all in my fixed costs. I lived a frugal life and when you become a full time investor, there’s kind of no such thing as savings.

[00:06:41] Ian Cassel: It’s one thing I had to talk to my wife about when I got married, because she’s like, what about saving for this or that? I’m just like, there’s no such thing as savings. It’s just different degrees of spending. it’s just flexing up and down the spending because you’re, it’s all coming from the same, capital base.

[00:06:55] Ian Cassel: And that’s what I got good at doing, is kind of the ability to flex up and down my spending and any type of market environment, my worst nightmare was becoming, having to work for somebody again, being employed by someone and that type of fear kind of chased me to kind of live below my means.

[00:07:14] Ian Cassel: And I was always very disciplined with my finances, even though I was a full time private investor invested in micro caps, which is seen as. A risky volatile investment class, which it is what allowed me to kind of invest in that area in what’s perceived to be risky was my very conservative lifestyle and habits that I had.

[00:07:36] Ian Cassel: And kind of that barbell, conservatism on one side, one side allowed me to be aggressive on the other side. And so I never had any debt. I never had any, mortgage debt, car debt, whenever I had to pay for something, I paid cash for it. And I think that that personal financial kind of riskless view of how to view my personal finances really helped me a lot.

[00:08:00] Ian Cassel: And so that’s lifestyle matters. You’re, I think the future, your future expectations. Also matter, I’m reminded of this back in, I think, 2021, 2022, whenever the height of the growth bubble, at least recently, I would see some posts on X or even a micro-cap club about investors wanting to make the leap to be in a full time kind of private investor.

[00:08:19] Ian Cassel: And they’d be talking about how they think they can produce 35 to 40%, cake or net returns over a long period of time. And I kind of had to sit back and just like, shake my head because. Most of these folks would have 2, 3, 400, 000 and they think they can make a hundred grand a year, consistently over time.

[00:08:38] Ian Cassel: And that’s just not a good way to do that. And to have that type of expectation, the future is just not reality. you have to be. Somewhat cognizant and self-aware about the current environment we’re going through right now. we haven’t had really a recession since the coven trough. We didn’t really before that.

[00:08:56] Ian Cassel: Since the GFC in 2009, it’s been 15 years and so people have already forgotten what it looks like and feels like to invest in a bear market. I always felt like I was really lucky given my age. In 2009, because. I was old enough to have invested through the dot com bubble crash and also the GFC. I was old enough to be able to invest through that, but still young enough to be able to apply the lessons learned.

[00:09:24] Ian Cassel: And that’s been a big, big benefit. So I still remember those times that I don’t want to go back to it but when I was a full time investor, I really had no expectations. I didn’t have a target return. I really focused on my breaking point, more than anything. And how much money did I need to become a full-time private investor. I kind of inverted this and, and asked what is my breaking point? I wanted a portfolio that was big enough to sustain two 30% drawdowns, which taken together is a 50% drawdown. 30% drawdown, back to back is down 50. I wanted to have enough to where I could support myself, even given a 50% draw down, not just financially, but emotionally could withstand that type of pain.

[00:10:08] Ian Cassel: And I’m kind of remind a little bit of, and I’ll get this wrong, but I think Morgan Housel, of course, has all the best quotes and financial universe. But I think one of them was something like, no one success is proven until they survived a calamity. And I think that’s true, with full time private investing.

[00:10:23] Ian Cassel: So, breaking point matters, survival matters. I wanted to invest through that type of bad bear market environment before I made the leap. in rising markets, it’s easy. Like I said before, to get just nonchalant about the ability to produce returns over the long term. and so in 2007, I was already thinking about making the leap, but I was hesitant because I was never really tested in a bad environment.

[00:10:48] Ian Cassel: And so going through 2008 into 2009, having survived that environment, that gave me the confidence to make the leap. And I think also, I think your strategy matters, if you’re more of a trader. Or somebody that holds a lot of positions and can trade and you view it as income, I think that’s a different mindset than what my strategy is, which is long only concentrated micro-cap investing, and so I think that plays a role.

[00:11:17] Ian Cassel: Into the decision, because my returns are not consistent, my returns look like even back then, even today, looks like me losing money for a couple of years and then making a million dollars in year 3 and then losing, 20%, it’s like these big kind of plateaus and then you have a big win.

[00:11:38] Ian Cassel: And so you need to have an amount of capital that affords you the patience to wait for those good times and also not overspend when you do have the good times. So, anyway, to answer your question for me, it was 2 million dollars. I figured that was kind of the amount that I wanted to have that I felt like I was very comfortable and continuing my strategy and a good bad in different market environment.

[00:12:02] Kyle Grieve: So now that we know a little bit more about how much capital you need, I’d like to kind of go over what your withdrawal framework is, because like you said, obviously, you can’t be messing around with this money. You have to actually take it out and live on it. So I know you mentioned also that you didn’t necessarily have return targets on your capital back then.

[00:12:19] Kyle Grieve: You’re just kind of trying to focus on not losing that capital. So I’m just interested in learning a little bit more, how did you deal, let’s say, obviously you said you invested through the dot com bubble and the great financial crisis. So how did you deal with years where your capital base would go down drastically versus years where it would go up drastically, where you, would you take out multiple years in advance in case of, a potential drawdown in the future? I’m just interested in learning more about how you handled that.

[00:12:43] Ian Cassel: Yeah, and again, my sample size is one, but I know for other full time private investors I’ve spoken to everyone’s answer on how you handle cash and things like that is different. Many people will have, what you kind of describe, you want to have 25 times your, the amount that you’re going to spend per year as a starting point.

[00:13:06] Ian Cassel: They also might have 1 to 2 years’ worth of cash sitting there as well. So they don’t feel like they have to sell stuff at the wrong time, at least for a year or 2. I was never that disciplined. I’ve always been very fully invested. And whenever I was staring at staring at a cash pile, I always thought that I could do better just keeping in the market.

[00:13:25] Ian Cassel: And I was mainly when it came to cash, I usually had about 3 months’ worth of cash at all times. And that was about it. And obviously, sometimes I wish I had more, but I feel like for my temperament, it actually worked pretty well, having less cash. And so that, that’s how, and obviously that changes too.

[00:13:43] Ian Cassel: When I was single, that might’ve been having 10,000 in cash in the bank. when I was married with kids, that more looks might look more like 30 to 40,000, because kids and wives or spouses are expensive. So that, that changes too, but in good markets or when stocks are working, everything is easy.

[00:14:02] Ian Cassel: You don’t really think about selling stocks to pay bills. In fact, you might even flex up your spending. I know I did too. So, I went and became a private full time investor in early 2009. I had a really good 2009, a really good 2010. And what did I do? Well, in 2010, I was still single. I was about to get married.

[00:14:22] Ian Cassel: And I went out and bought a brand new Porsche 911 and I bought a brand new gold Rolex, pure gold. And guess what? That was the top of my portfolio. I also ended up getting married later that year. And that was, there was a two year law where my portfolio just did not do well. And I sort of think that’s fate, God, whatever you want to talk about, just saying, you handled that, you handled what I gave you not in the right manner.

[00:14:47] Ian Cassel: And I’m going to take it back. and that was kind of that learning lesson, but even in that environment, I never really fell in love with any material things that Porsche, I bought, I sold the next year because I didn’t want to have to sell stocks to pay bills. I just sold it the next year, it was, it was gone and I had no issues with it and no qualms about it.

[00:15:08] Ian Cassel: And also in the bad years, obviously then all of a sudden you feel the pinch of what paying bills out of your portfolio feels like. And it’s. 10 times the emotional load is 10 times. The financial load is just knowing that because you don’t know what the future is going to look like. And when things are dropping, you always think they’re going to drop more and it’s much tougher in drawdowns, market drawdowns, or your portfolio drawdowns to get through, get through those times.

[00:15:36] Ian Cassel: The other thing I learned during that time is I went to buy a house in 2014. And what I learned is financial institutions do not like full time private investors because we don’t check a box. and I remember going to meet with them and I ended up having to put down like 60% down to just to buy the house that I was in, which was excruciating and I hate debt.

[00:16:00] Ian Cassel: So I think I paid it off within a year then right after that. But again, I just always thought about worst case scenarios as a full time private investor. It wasn’t the best times. I always thought about worst case scenarios. And when I had a really good year, I would pay off any debt I had and I would buy some hard assets.

[00:16:16] Ian Cassel: Thanks. And I would keep some on the sidelines, and I would stay living below my means and nobody knew. nobody knew any, any better. And I feel like that’s important to just stay emotionally neutral in your mind, in your emotions, and just financially where nobody can, nobody really knows outside of you, whether you’re doing well or, or not good, financially, to save it, staying even. And that’s, that’s, that’s how I always just dealt with that, that environment, the ups and the downs, the best I could.

[00:16:44] Kyle Grieve: So you mentioned in a previous question that. You liked to try to be able to survive two consecutive 30% drawdowns, which as you pointed out comes up to 50%. So I’m just interested in learning a little bit more about how you arrived at that number. Was there something in your history or experiences that made you get to that number?

[00:17:01] Ian Cassel: Yeah, I mean, so again, like two 30% drawdowns is a 50% overall decline and GFC in a couple of my positions. I wanted to be able to withstand the pain I felt during the 2008, 2009 market environment.

[00:17:17] Ian Cassel: And for me in 2008, 2009, I was invested in 3 companies. So, because I’ve always been super concentrated. 1 of them or 2 of them went down 60, 60 and 64% peak to trough. And then 1 of them went up 280% and, that could be a podcast in itself, just the learning lessons from the 1 that went out.

[00:17:37] Ian Cassel: But the 2 that went down, they ended up rebounding. It’s kind of similar to coven where they ended up rebounding. Everything they lost by the 3rd quarter of 2009 and end up making all new highs the next quarter. So, I knew you just needed time to kind of withstand that if as long as you’re in quality.

[00:17:57] Ian Cassel: Profitable micro-cap companies, you just need time. But to get to your question, the 50% was really what I experienced. At least in two out of those three companies during the GFC.

[00:18:07] Kyle Grieve: So, becoming a private investor is very attractive for a lot of listeners of the show because we all love investing so much here, but let’s talk about some of the potential downsides of being a private investor.

[00:18:17] Kyle Grieve: Obviously one downside is you can blow up a significant portion of your portfolio, which you just discussed, but obviously you had this, long timeframe in which you could hold on to stocks and allow them to kind of normalize. But I’m just interested in learning a little bit more about, back then, did you have any type of contingency plan, did you plan like, okay, if, if my, portfolio goes below a certain amount, I’ll have to quit and get a job or, did you kind of just have yourself all in and, and, and make it so that, your mindset was I got to, I have to succeed in this because I think if you have that contingency plan, other investors might be taking undue risk in order to just be like, okay, well, I’m going to shoot for the moon and hopefully it works. But if it doesn’t, I can always go back to my job.

[00:19:01] Ian Cassel: Everybody thinks themselves as being unique and so I’ll reframe this as for me, it might number one goal since I was a sophomore. An undergrad was to be a full time private investor when I was 21, and I was able to then do it when I was 27. And so that 6, 7 years. Was 100 %focused on that goal and a big part of that was I had no plan B.

[00:19:28] Ian Cassel: Yeah, I went to undergrad. Yes. I got my MBA, but I was pretty much unhirable. Like pretty much all my time was spent on honing the craft of micro-cap, investing, visiting companies, all of that stuff. That was what I was a hundred percent focused on. And so for me, I had no plan B. I didn’t want to plan B. I could never imagine a plan B.

[00:19:50] Ian Cassel: And I think that helped focus me more. And also kind of think about the downside. Of a lot of things too, and which was, which is always the right way to look at investing anyway, to look down before you look up. And I think 1 of the things that I will say is, I don’t think that most people, well, definitely not most, but even the people that are thinking about it should be a full time private investor.

[00:20:14] Ian Cassel: And kind of another 2 definitions or additional definition is I do think everyone should want to be financially independent but that’s not the same thing as being a private full time investor. I think that there, a lot of people will do far better if they simply create enough wealth where they don’t need enough that they can do nothing.

[00:20:37] Ian Cassel: They just need enough. So they have a choice and work a job that they love to do that provides them the autonomy. So they can invest. And that’s a great plan B. where you can actually find a job that gives you the autonomy, just like yours, Kyle, where you can also just invest full time, that should be probably the goal ahead of just doing not nothing, but just becoming a full time private investor, because there’s definitely some negative sides to it, too, especially given your strategy, when you’re a concentrated long, only investor as a full time private investor, I mean, that your biggest risk is just overthinking everything because you have so much time to think about everything.

[00:21:15] Ian Cassel: And so just having a productive distraction can be, I think, a good thing, not only for you emotionally, in addition to, yeah, having an income stream that also pays at least here in the U. S. your health care bills or whatever it is.

[00:21:33] Kyle Grieve: So I’m just interested in learning a little bit more about this through the lens of, the relationships that you’ve been able to build with, the executives in some of the businesses that you’re researching.

[00:21:43] Ian Cassel: I was trying to think of the, what are the differences between when I was a private full time investor and managing a fund. I don’t know if it’s really helped me get in front of any more or additional management teams when it comes to micro-cap. I mean, I think quite honestly, just being the founder of micro-cap club has helped me more than anything because I can just leverage that and people have heard of what micro-cap club is or whatever.

[00:22:06] Ian Cassel: And so I can usually get an audience with a management team. I think we’re managing a larger pool of capital has helped is quite honestly, just having a larger pool of capital and being able to invest directly into companies as well. We don’t do it often, but I think we did it twice in 2023, just the ability when you find something new, that’s undiscovered, that’s profitable that you’d like, if they do need additional growth capital and hopefully management is also putting skin in the game that you could invest alongside them and fill out a 1,000,000 or 2, 000,000 dollar funding round and they don’t need anybody else.

[00:22:41] Ian Cassel: They don’t need to worry about bankers trying to exploit them with fees or whatever and so the ability of having a larger pool of capital, it’s allowed me to kind of extend my investing in a very positive way.

[00:22:53] Ian Cassel: And that’s what I enjoy doing. My moat as an investor, I feel like my edge as an investor and our fund is the relationships we have, the management teams we invest in, the ability to utilize those relationships to help them, but honestly not make bad capital markets decisions, which also then fly wheels back, we can help produce a positive outcome.

[00:23:16] Kyle Grieve: So before we started this conversation, you brought up the fact that you’ve been working on a presentation that I’m pretty excited to learn more about, which is called the skills of stock picking. So, can you just, outline this presentation that you’re working on and maybe tell me a little bit more about how this topic came about?

[00:23:32] Ian Cassel: This is going to be a journey, Kyle. You’re going to wish you didn’t ask that question. So this, this idea about the skills of stock picking got in my head when I started studying John Danaher. And I don’t know if many of your listeners will know who John Danaher is, but John Danaher is considered the best Brazilian jiu jitsu and mixed martial arts instructor in the world.

[00:23:56] Ian Cassel: I mean, he himself, I think, is a, a sixth degree black belt in Brazilian jujitsu. he’s coached some of the best fighters in the sport, including St. Pierre, considered the greatest mixed martial artists of all time, and including Gordon Ryan, who I think is considered the greatest submission grappler of all time.

[00:24:13] Ian Cassel: And John is considered the best coach possibly of all time. He’s also considered to be kind of the Einstein of kind of the fighting world because of how deeply he thinks about combat and innovating and just winning and how to, how to help his students dominate opponents and you can find several of his interviews.

[00:24:34] Ian Cassel: On the line, Joe Rogan has interviewed him a couple of times. Lex Fridman has interviewed him a couple of times, and they’re all like two to three hour long interviews and both Fridman and Rogan love them just because they both do Brazilian jujitsu and, and also because he’s such a good interview. I mean, quite honestly, when you listen to John Danaher interview, it reminds you almost of listening to a Warren Buffett or a Charlie Munger talk about investing.

[00:24:59] Ian Cassel: You can just tell there’s a lot of horsepower under that brain and a lot of that just tends to come from the fact he was. A philosophy major in undergrad, he was a philosophy major in graduate school. He came to the US in, like, 1990 and was a PhD in philosophy at Columbia. And so he, he just does a lot of thinking about thinking, and you, and you get that pretty quick.

[00:25:20] Ian Cassel: And just to give you an idea, this is a funny example, just thought about this, but you can find this. A clip from a Lex Fridman podcast where Lex Fridman asks John in a fight, who would win between a gorilla, a grizzly bear and a lion. And it’s just a ridiculous question, right? It’s hard not to smile or laugh at the thought of just somebody asking that question.

[00:25:42] Ian Cassel: And what’s fascinating is you can pull up this clip on YouTube. It has 1. 5 million views. And the reason has 1. 5 million views is there’s a 36 minute long answer and you’re like, what? And, and you start, you kind of start the interview and listen to it and you’re kind of smiling and laughing the first minute in the senior, your smile starts to fade because he starts citing research and academic studies and aggression, behavioral tendencies of each animal and the bite force of each animal, the stamina, the endurance, and all these different they found gorilla feces and leopard poop, or whatever in Africa, and he’s citing all these things and you realize.

[00:26:18] Ian Cassel: Like, half a minute or a minute into it, you’re kind of smile starts to fade and you realize in this moment, you’re just like, this guy’s already thought about this before, and this wasn’t a question that was posed to him ahead of the interview. this is he didn’t know this question was coming, but it just shows you how like, cerebral.

[00:26:35] Ian Cassel: He is to have already thought about and have done research, even on animals and their fighting techniques. So, again, it’s a fun, fun question to pull it up on YouTube. But what I found too, is during these interviews, he’s often asked questions that relate not only to fighting, but leadership, and you can relay them to investing as well.

[00:26:54] Ian Cassel: And I think 1 of the questions in 1 of those interviews, he’s asked about how do you become the best in the world in your craft? And he says in the interview in every sport or profession or craft. You have 5 or 6 core skills that are necessary to participate and to be the best in the world. You need to be good at all 5 or 6 of those skills.

[00:27:20] Ian Cassel: And also be the best in the world, at least 1 or 2 of them. And so that got me down this path of thinking, what are the 5 or 6 core skills in stock picking? And it’s been something I’ve been thinking about for the last few months that I’ve been journaling a lot about it, about it. And I’m going to be doing a presentation here in the shortly, probably in August, where I’m kind of turning it into a presentation.

[00:27:43] Ian Cassel: But those 6 core skills that I’ve identified. Are identifying valuation, buying, holding, selling and perseverance. And those are the 6 core skills that I think are necessary to participate as a stock picker, regardless of the flavor of stock picking, you do short term, long term value, hyper growth, macro trading. I think all of those types of skills are the core skills, given whatever flavor investing or stock picking you are.

[00:28:16] Kyle Grieve: Oh, that was an excellent answer. So I’m, you probably don’t have any idea about this, but I’ve actually done Jiu Jitsu for over a decade now. So I’m actually very well familiar with John Danaher because he’s an incredible teacher.

[00:28:27] Kyle Grieve: He has these instructional videos. I’ve watched tons of them. So even in his instructional videos, if you see him talk, he literally talks the exact same way about, doing an arm bar or doing a choke. He’ll spend, half an hour telling you about, the mechanics of how to choke someone else.

[00:28:39] Kyle Grieve: So he really goes very, very in depth with everything. And especially with like, you were talking about these skills. So You know, listeners are lucky here because I’m going to talk a little bit about some of the skills here that you think that investors should learn. The first one here you talked about was ideas, and obviously, getting ideas is a very, very important topic, specifically because investors always want ideas and, maybe they shouldn’t, because, like you said, and you’re, I’m, I’m pretty similar to you.

[00:29:06] Kyle Grieve: I’m concentrated long only investor. I, I kind of want to have my ideas and I just want to sit on them. If I get more ideas, then my brain starts going everywhere, and I’m thinking about buying new things. But it’s still important to find new ideas. we’re always looking for something interesting or maybe something that’s better than what we already have.

[00:29:21] Kyle Grieve: So I’m just interested in learning a little bit more about where you find your ideas. is it screeners? I assume you’re probably getting a lot from micro clap club. What about your just network of friends and other people that you know, in the industry, Twitter? Yeah. Just please, we’ll give us some insights on where you find your ideas.

[00:29:36] Ian Cassel: Yeah. I mean, and I think the skill of identifying is really what we’re talking about is finding actionable ideas before others. And yeah, it’s kind of a hard question to ask is like, how do you find ideas because you first need to know what you’re looking for, what type of investor are you, because that will determine, how you find something.

[00:29:56] Ian Cassel: But I think the way you highlighted it is correct. I mean, there are sort of the. I would say 5 kind of basic ways to find ideas 3 out of the 5 are you going out and finding things. The last 2 are ideas coming to you. And so kind of the way you go out and find them yourself is through brute force, and that’s, it’s important with brute force because the only way, you weren’t missing everything is to look at everything.

[00:30:27] Ian Cassel: And that’s kind of my definition of brute force kind of identifying. And I know this is really big for the way I find ideas, too, because quite honestly, oftentimes your advantage is just your willingness to sift through a mountain of sand to find that small diamond. And most people say they do that, but very few people actually do.

[00:30:48] Ian Cassel: That is what I found and as an example I think 2 years ago, we went A through Z through all the London names exchange listed companies. every year we go through A through Z, all the OTC markets companies, and just really just going through them. And it sounds, it sounds like a lot of work because it is a lot of work.

[00:31:05] Ian Cassel: But the more you do it, the quicker you get at it, because the longer you do it, the more, exactly what you’re looking for. And so you’re like, take 2 seconds per company. It doesn’t take a lot of time. So I think brute force is a really, really important way to find it. I think another, another way that some people use it and it’s part of brute force is literally looking at every press release, every filing, every insider filing as a way to spot potentially actionable things as well.

[00:31:32] Ian Cassel: And so I think that kind of falls under brute force. And I know we, as a fund, we do specific things such as look at every insider by over a certain amount. In the US, Canada, Europe, and Australia, and unfortunately, there’s not 1 way to do it. There’s like 3 or 4, some of them free, but. And it’s just work, it’s like, every day you have another 100 to look through, and most days, none of them are actionable, but 2 or 3 out of the year.

[00:31:58] Ian Cassel: It’s something that sparks something where you look into it and it is actionable. And we had one of them or two last year. So that’s kind of the brute force way. The second way would be kind of more fundamental screens, which a lot of people like to do, and I kind of divide screens into, well, the way I would define screens is narrowing down the investment universe on what you value as an investor, depending on your flavor of investing.

[00:32:24] Ian Cassel: And so I find screen is a trade-off between specific and being comprehensive the way I invest. I don’t find specific screening to be helpful to me. What I mean by that is strictly screening on 4, fundamental characteristics that you’re looking for. You’re almost screening for the output of what you ultimately want to find.

[00:32:45] Ian Cassel: And so, what do you do? What happens there is great. There’s 23, 000 stocks in the US and Canada. I want to screen for everything under 100 million market cap that does more than 10 million in revenue that has greater than 20% insider ownership that has a greater than 20% ROE.

[00:33:01] Ian Cassel: That’s growing 20% per year. Guess what? You took 23,000 companies down to 3 literally and guess what? Everybody else is doing that screen. And guess what? All those 3 companies that are left at the end of that screen are probably fairly valued because everybody’s doing that screen. And so I don’t find it that useful to do those types of screens.

[00:33:23] Ian Cassel: I tend to do and we tend to do at the fund more comprehensive screens, which is just kind of actually screen everything under 100 million market cap and look at it, or event driven screens, such as. Insider purchases or rights offerings, something that triggers you to an event that took place.

[00:33:42] Ian Cassel: That might be a transformational event in, in a stock. Or a business, and that’s, that’s tends to be, where we find a lot of ideas and isn’t those types of screens. The last, not last, but the 3rd way to actually go out and find them yourself is researching. And so just researching different companies.

[00:34:01] Ian Cassel: A lot of times you’ll stumble upon another company and, from what searching for 1 thing, you found another. It’s sort of like how the Titanic was discovered. This guy, Robert Ballard discovered the Titanic in 1985 after, I don’t know, what was it? 72 years of it being sunken in the bottom of the ocean.

[00:34:19] Ian Cassel: And even though there was dozens of other expeditions for the Titanic, he founded in 1985. And the irony was he found it only because another expedition to find 2 sunken submarines. He was funded to go find them and, in the process, found the Titanic. And so, like, 1 thing led to another thing, and it’s kind of the same thing with researching kind of stock sometimes and finding things.

[00:34:41] Ian Cassel: It’s like, you’re searching for 1 thing, but you actually found the other thing. And then, like, the last 2, like I said, the last 2 actually are how ideas find you is through networking, and so networking is 1 way. Bye. I would lump kind of micro-cap club. I would lump, X or Twitter or your sub stack or you are being proactively engaging with others, and building out the last thing, which is relationships.

[00:35:07] Ian Cassel: And these are kind of longer term relationships that you’ve solidified over time and reciprocation and trust where they know what you’re looking for. what other people are looking for. ideas come through those relationships over time. And as you mature as a stock picker, most of your ideas, a lot of times actually come from the relationship bucket. Just because you’re really interested in that idea. The other people might not be because they don’t invest like you. It’s not a zero sum game.

[00:35:33] Kyle Grieve: So after you identify a potential investment using one of the strategies that you just taught, just outlined. Let’s examine the valuation process for actually deciding if it’s worth buying or not.

[00:35:45] Kyle Grieve: So part of the beauty of microcaps is the mispricing’s in microcap businesses just tend to occur much more frequently than they do in, mega caps or large caps or pretty much any other I think market cap quartile or decile with microcaps. A lot of these are early stage growth businesses. I know you that you kind of look for businesses that are profitable, but a lot of them aren’t profitable or, maybe they’re on that trajectory towards getting to profitability, but aren’t quite there yet.

[00:36:11] Kyle Grieve: So I’m just interested in learning a little bit more about your exact strategy. how do your account for microcap businesses that are a lot earlier in the growth stages compared to larger cap companies in relation to the evaluation process?

[00:36:24] Ian Cassel: Each company is a little bit different, but in general, the overall framework is, well, do I think I can double my money in three years?

[00:36:32] Ian Cassel: But even ahead of that is, I love this. I forget who said it. But looking down before you look up, looking at what the downside is with every situation before you look up and that’s predominantly what I’m doing with every new investment is what is the downside and it can change from investment.

[00:36:52] Ian Cassel: To investment, we have one investment that we made, in the open market. It was maybe middle of last year and it was, a company trading at 5 times earnings and obviously it was just cheap because it was growing, and so there’s not much downside there. There’s other ones that we’ve invested in the past that might not be quite at profitability, but we have comfort because the management team has built up companies in the same industry before they backstop that company financially.

[00:37:23] Ian Cassel: To provide them cash, they don’t need to go into the market with investment banks and raise capital. They have a good growth runway ahead of them. They are growing. And in that case, you can kind of look for a price to sales, which I hate type of multiple, but there you’re putting a bigger bet on the management team’s ability to duplicate what their success they had before.

[00:37:43] Ian Cassel: And in every type of investment we do is, I mean, it really is mainly betting on the people. every small company, the smaller they are, the more important management becomes. And the more the mode of that business is actually the management team or the leader or founder of that business. And so a lot of the, a lot of what attracts us to initially to a situation is the management team and the leadership.

[00:38:03] Ian Cassel: we want to find those overqualified management teams that. Should be running much larger businesses. They just aren’t yet, and maybe this is their 2nd or 3rd or 4th go around. And those are the types of things that we’re, we’re attracted to. So each, each situation is different. I wish I could give you a magic formula for it. My favorite situations are obviously finding things that single digit that I think are just. just cheap, but again, there’s also screen easily and so you can find them or you can find them where sometimes the financials are a little bit muddied and in the earnings power isn’t quite seen yet, but it will be. And so a lot of it is just trying to find the point, trying to buy them as close. You can to where the earnings power becomes evident to everybody else.

[00:38:51] Kyle Grieve: So now that we know that you like, obviously in really good managers, you want, let’s say the business is at a valuation that you think is attractive.

[00:39:00] Kyle Grieve: And now, you’re at the stage of actually buying the business. So, obviously, some investors really just kind of like piling into a position, almost immediately and just, I, I like this position. The price is right. Let’s make it, whatever, 5%, 10%, whatever. And then other investors, maybe they like taking small bites, maybe a tracker position or maybe something a little bit larger, maybe a 1% position and then holding it.

[00:39:21] Kyle Grieve: And then as they gain more and more familiarity with the business and they start developing more and more conviction, they add over time, who knows how long it’ll take. Maybe it takes six months, a couple of years, whatever. So I would love to know more about your specific buying strategy.

[00:39:35] Kyle Grieve: Obviously, you’re a concentrated investor. you have very few positions, so I assume you like scaling is up pretty high, but yeah, how do you like initiating positions and how do you like building the positions up?

[00:39:44] Ian Cassel: It really depends on the illiquidity profile of the company. I think in the past I would have said, oh, well, if I can’t put 5% of my money into something, I’m not going to bother.

[00:39:53] Ian Cassel: Well, you can’t really say that because some of these companies, it just takes time to accumulate them. And I’m not going to pass on something just because I can’t, I don’t know if I can get a full 5%or 10% position in something you just have to start just because honestly, even if you got 2 or 3%, even if the stock goes up, it could be a better buy at a higher price.

[00:40:14] Ian Cassel: So it just doesn’t make sense to have this mental threshold of, unless I can buy 5% like in the next week, I’m not going to bother. No, I mean, because one of our positions we even have today, I mean, we started buying it in July. Of last year, and I think we probably been 70% of the volume over almost a year, and we’re, I think we own just under 5% of the company.

[00:40:38] Ian Cassel: And if I would have went, I would have never been able to start, and I, and quite honestly, the stock’s going up 100% or so, but it’s been a better buy at a higher price because they’ve continued to execute hit their marks. And it’s at the valuation point that was similar to when we initiated the position.

[00:40:54] Ian Cassel: And so a lot of these companies, you just sort of have to evolve with them. you dip your toe in the water and you’re not afraid to average up over time and averaging up doesn’t mean you’re overpaying.

[00:41:07] Kyle Grieve: Yeah, that’s one thing I’ve noticed, especially in the microcap world is, these businesses grow so fast that it’s kind of harder to kind of envision in a lot of these larger cap businesses, although a lot, some larger cap businesses do grow very fast, but you can literally pay double your initial price and still be getting a better deal just because these businesses are growing so fast and because they’re cheap. So I just wanted to put that out there.

[00:41:28] Ian Cassel: Exactly. Well, and the earnings power can really compound the thing you thought was cheap at, 50 cents.it could be even cheaper at a dollar and it’s hard for people to mentally get their mind around that, but it, it happens all the time.

[00:41:42] Kyle Grieve: That’s right. So I think most investors would probably agree that at least long term investors that the hardest part of investing is holding on to your stocks and doing as little as possible with them as they increase in intrinsic value. Like we literally just talked about, but one of the biggest takeaways I’ve had from following you very closely over the last couple of years is understanding that most businesses deserve to be rented and not owned.

[00:42:04] Kyle Grieve: So when I started investing, I was really interested in, long term investing like Warren Buffett, try and find businesses that you can own for the rest of your life and, own for decades. But the fact is, I think I, when I was a newer investor, I’ve made a lot of mistakes and in my investing process that I owned businesses that didn’t deserve to be owned for a long period of time.

[00:42:22] Kyle Grieve: And the fact that I was so Stubborn about, trying to be a long term investor actually cost me. So, that’s kind of a potential downside of, of, being a long term investors, the stubbornness, and obviously there’s tons of different biases that we go over as well, but I’m just interested in learning a little bit more about your specific strategies for holding a stock. That’s one of the skills that you, that you outlined. So take us through, holding a stock and, and what skills based around that people need to develop in order to be a good investor.

[00:42:49] Ian Cassel: Yeah, holding is obviously the most important, or at least I believe it’s probably the most important skill. And I think 1 of the fit 1 of the areas that people get in trouble with is they try to.

[00:43:00] Ian Cassel: Overlay what works in different market cap classes or different investments and say, that’s what should work in this small micro-cap bucket, and I’ve said this before, and I love Chris Mayer too, because we’re good friends, but I was like, the biggest way to go broke is like coffee, canning a basket of micro caps, it’s just, and it’s just maddening.

[00:43:20] Ian Cassel: I mean, it’s just true. The shelf lives of smaller, Microcap companies that were smaller companies in general is just shorter, and especially when they’re public, because there’s different, there’s a lot more ways they can hurt themselves as being a public company. Quite honestly, a lot of micro-cap successes, I would say 80% of them are simply a micro-cap that has a winning streak for 1 to 2 years, they string together 48 quarters because the product takes off or they hit the right trend or a tailwind comes out of nowhere, they find themselves in the right place at the right time. And it’s just for a season or 2, and that’s most microcap successes and very few. I mean, just go try to find a microcap that has a really good 5 plus year stock chart.

[00:44:04] Ian Cassel: I mean, it’s difficult, it’s embarrassing me for, for me to say that because, I love the space, but it’s hard. And so you can try to live in a reality where you’re, I’m only going to find things I can hold for 30 years, or you can anchor yourself to the reality of, no, I mean, we’re going to try to find winning stocks and it might be for one years or two years and yeah, we hope to be able to hold them for 30 years, but those are going to be the outliers.

[00:44:29] Ian Cassel: And I think that’s the right way to view any small business anyway, because I think it’s wrong to look out, try to guesstimate or DCF out 10 years’ worth of anything, because it’s hard to predict the next 1 to 2 years. And so what I try to do is just kind of stick to a 2 to 3 year time frame and not go out any further and understand that this business will evolve.

[00:44:51] Ian Cassel: It might evolve in good ways. Chances are, it’s going to be a better business. Bad way and be okay selling, as well, and that the selling part is going to be the reality of it. we’re going to have a lot of wins along the way, just holding things for 1 to 2 years, and I hope that after doing this for 10 or 15 years.

[00:45:10] Ian Cassel: After owning 50, 60, 70 companies, I think a proper end goal is that you did find two or three in the portfolio that were worthy of holding for 10 years, and that the average market cap in that portfolio will look like a small cap because you found those three or four. And what’s ironic about that is that’s also what people in large cap have done to, I mean, portfolio turnover is just a part of every kind of winning strategy.

[00:45:38] Ian Cassel: And especially in microcap where it’s obvious when things go south, it’s kind of maddening to think, well, we’re just going to hold them because that’s. We’re just going to hold like now, so that, I don’t know if that that’s kind of a rambling answer to kind of my holding strategy. So, I think the way I hold is to always have a kind of 2, 3 year thesis on the business, always known as best as I can what’s going on in that business, have a good relationship with the management team, do all the necessary kind of behind the scenes work.

[00:46:09] Ian Cassel: But also knowing that at any point in time, I need to stay rational and cut this thing if I have to. And I think that’s what’s kept me. In the game, as long as I have, that’s what kept me being a full time private investor for almost 10 years. Yeah, I had lots of big winners, but it was mainly the losses. I never took, because I could spot the investment thesis cracking before the rest of the market and allowed me to sell before others as much as it was just the losses. Trying to find the one out of a hundred that I could hold for 10 years.

[00:46:38] Kyle Grieve: So obviously you mentioned there the selling of potential businesses. So selling is another skill here that I’d love to learn more about. So I know you were a guest on the TIP mastermind community and you mentioned that generally speaking, if the stock price gets pulled forward five years, that’s a somewhat good signal for you to sell. So can you go over that in a little more detail?

[00:47:00] Ian Cassel: Yeah. I mean, I think there’s, maybe 3 or 4 main reasons why you would sell a stock, the first two are good reasons. The second two, the company did something wrong. So the first two are the stock goes up too far too fast. we would love to have that problem all the time, and that usually looks like, some company that’s trading at a 10P all of a sudden trades at 100P, after they string together 3 or 4 winning quarters, and it gets priced for perfection and everyone’s expectations get way too high.

[00:47:29] Ian Cassel: Then they ultimately put out a quarter that doesn’t meet those irrationally high expectations. The stock gets cut in half because the multiple gets cut in half. And then it spends the next 2 or 3 years fundamentally backfilling into that valuation before it ever reaches that previous high ever again.

[00:47:45] Ian Cassel: And so what I’ve known is whenever you see that type of huge move and especially on the multiple side, 99% of the times they will not meet expectations and the stock will get cut in half and it will probably have to churn for a year or two before it ever gets back up to that previous high. And, and that’s kind of the way you kind of pull are pulling forward.

[00:48:06] Ian Cassel: The returns is through that multiple again, getting back to when I was a full time private investor. Yeah. Yeah. I would have, I would sell, cause I, I need to, I eat what I kill and I still kind of view it that way. Do I wish I could hold every single share that I own? Yes, but when things get irrational, you have to be able to pull the trigger and sell.

[00:48:24] Ian Cassel: And so that’s the best reason to sell is when things go way too well in the short term. The second reason is you find a better investment than what you own when you realize that, oh, I found something that’s better than my eighth best idea. And you replace it. it’s kind of, you kind of manage your portfolio, like a professional baseball team or football or whatever you want to call it.

[00:48:43] Ian Cassel: We’re always scouting for talent and you’re willing to replace the players in the field when you see better ones. and that’s another good reason to sell the 3rd reason is obviously a bad reason. That’s when the company underperforms, the investment thesis starts to crack and you sell. The 4th reason is when you feel like you can’t trust management anymore.

[00:49:02] Ian Cassel: They’ve done something unethical, unreputable, whatever the case may be, since I’m relationship driven type of investor, as soon as I feel like I’m not being listened to or that I can’t trust the management team, I’m gone. It doesn’t matter what the business is doing. And so it’s really those 4 types of reasons that I would ultimately end up selling.

[00:49:23] Ian Cassel: And I think most successful investors are very ruthless to their adherence when they’re selling principles, when their principles are broken. They’re gone and they’re very good at the skill of letting go.

[00:49:36] Kyle Grieve: So the final skill that you outlined here was, Perseverance, which probably is the most underrated on this entire list.

[00:49:43] Kyle Grieve: But when you consider some of the investing greats they have these very long track records, Warren Buffett obviously has the longest, but even if you look at some of the other guys like Peter Lynch, who is shorter, it’s a little over a decade, but it’s still a decade and that’s investing and investing.

[00:49:56] Kyle Grieve: That’s a long, very long time period. So I think that these track records, over a long period of time, signify things like perseverance and adaptability and survivability. So I’m just interested in learning a little bit more about how you view perseverance in the investing landscape and also how you think investors can develop it themselves.

[00:50:15] Ian Cassel: Yeah, I think the perseverance skill. Is something that not only applies to stock picking, but life and business as well. But I’ll stick to the stock picking part of it. I think it was, I think it’s Howard Marks that said that there are old investors. There are bold investors, but no old, bold investors.

[00:50:33] Ian Cassel: That was the quote. And, I think as stock pickers age, and it’s the one thing I’ve had to guard against, you boldness gets scared out of you as you age. And it’s kind of all the random gut shots you take. That you don’t see coming, whether that’s black swan events, whether that’s losses in the portfolio, they just take their toll on you emotionally and psychologically.

[00:50:57] Ian Cassel: Remember that quote, it’s a, when you dance with the devil, the devil doesn’t change. The devil changes you, kind of replace devil with the market, and that’s kind of what happens to stock pickers and I see it all the time. And it’s why most stock pickers, after 20, 30, 40 years, their portfolios kind of all looks like the same type of boring. They’re over diversified and value traps. And over time, the market sort of scares all the risk out of them, scares all the boldness out of them. the last multi bagger they had was 15 years ago. they stopped being courageous. They stopped evolving. They stopped growing as investors.

[00:51:31] Ian Cassel: And that’s why that last skill of perseverance is so important. you can’t let father time and the market. Kind of scare all of that courage out of you to where you can no longer pull the trigger and act on things that, have the principles and values that, need, you need to act on.

[00:51:47] Ian Cassel: You can’t hesitate and it’s something I think a lot about because I’ve been investing for 23 years and, there’s, it’s an incredible mind game, the market, there’s certain investments that I made 10, 20 X, my money on when I was in my 20s that I would never invest in again. And that in itself is quite a mind game when you think about it, and part of that is just the fact that I’ve evolved since what I was then, I’m a better investor than I was then and 5 years from now, I hope to be a better investor than what I am today. And I’m hopefully my strategy looks a little bit different too. I’m continuing to evolve. And so I think the evolving of every stock picker is incredibly important and just continue to continuously have that curiosity and drive. To where not only does it keep you producing outsize returns, but it’s necessary for survival.

[00:52:37] Kyle Grieve: So you quoted a great analytical concept in your microcap blog from Nikolai tangent called inertia analysis, which I find fascinating. So in this exercise, essentially you run your performance with zero changes from January 1st throughout the entire year and see if what you did to your portfolio actually added value, or if it detracted value. So you mentioned integrating this framework into your own investing and I’m just curious on, learning any insights that you’ve taken from this concept and running it yourself.

[00:53:06] Ian Cassel: Yeah, I love the concept. It’s very simple. It’s brutally simple, which makes it so cool. And I only started doing this like a few years ago.

[00:53:14] Ian Cassel: And so I don’t want to seem like I’ve been doing this forever because I haven’t, but I think it does add value to your decisions. I think the key though, is you have to start journaling your investment decisions. I think that’s key. You need to build up enough evidence in every type of decision. So you can narrow down on the types of decisions.

[00:53:35] Ian Cassel: That you realize that you are poor at, or you’re really good at, you might find that after doing this exercise in journaling every decision, and then doing this exercise that Nikolai tangent talks about the inertia analysis. I think a combination of that, you get to kind of zero in on the areas.

[00:53:55] Ian Cassel: Hey, I might be really bad at averaging down or averaging up or selling too soon or holding too long, or whatever the case may be, but allows you to kind of put in enough reps. To where then you can start making decisions on how to get better at the ones that you’re deficient in and how to do so. So, I think that’s where it’s helped benefit me is combination of that inertia analysis alongside just journaling every decision. Not because if you don’t, your mind just plays tricks on you that you do everything great but being able to sticking with reality on where you’re good and where you’re bad.

[00:54:29] Kyle Grieve: So you just mentioned journaling there, which I wanted to get into a little bit more with you. So you’ve highlighted on the, that TIP mastermind community Q and a, a couple of areas that you like journaling about, which was, your own thoughts, your emotions, your decisions, and even predictions.

[00:54:44] Kyle Grieve: And then in a chat with Clay that you had on TIP, you also mentioned that you like spending time on the downside of your investments. And like you said, once you make these, thoughts or have them in your mind. It’s easy to warp them into thinking that, that’s the thought that you always had.

[00:54:59] Kyle Grieve: But if you go back in time and look at your journal, you can have very, very tangible proof that no, I did not think that way and I was completely wrong or maybe I got lucky. In either direction. So I’m just curious here to learn more about, what types of questions or prompts are you asking yourself when you journal to, to really give you the, that high value information that you can go back and look at, maybe in, in years past to help you improve today?

[00:55:26] Ian Cassel: Well, the, the tool that I have used the last few years is journalistic. And big Taylor, yeah, he’s done a great job kind of spinning up that product and making it such a powerful resource for any stock picker to use. And I think he may be targeting more of an institutional investor with that product offering, but journalistic is an amazing 1 that allows you to track.

[00:55:49] Ian Cassel: Your predictions, track your trades, associate an emotion, even with every trade, and it kind of gives you a full framework then of. Your decisions in your decision tree, and that’s a product that is a brilliant 1 for investing and for stock pickers, I outside of that are actually inside that. I also just kind of journal a journal, and so.

[00:56:12] Ian Cassel: In fact, most of the articles I write on micro-cap club or a result of that journaling, it’s a combination of just writing about. The positions and write about my emotions, that turns into a blog post or article with a micro-cap club blog. And I think 1 of the, 1 of the things Anthony Deaton does, which I find fantastic.

[00:56:33] Ian Cassel: But he spends an entire summer every summer on his sailing yacht in the Mediterranean. And I just thought I was talking to Anthony via FaceTime earlier this morning. And I forget where he was, I think he was like 75 miles south of Sardinia or something like that. It was funny. So anyway, we’re Face Timing it.

[00:56:49] Ian Cassel: But 1 of the things he does is he spends 1 week. On his boat, just thinking about 1 position and journaling about it. And then the next week, just spending 1 week on a specific company and journaling about it, and I think everybody journals differently. Right? Like, I don’t think I could do that or want to do that.

[00:57:09] Ian Cassel: But I know for me, what I usually do is, it’s a, it’s a hodgepodge of things. I don’t really focus my thinking. I’m thinking about in the moment, and I just kind of pour out what’s in my brain on a page, and that might be on a specific company. And it might then turn into an emotion, or it might turn into a writing topic, or the course.

[00:57:27] Ian Cassel: Course of time it might be, but for me, I’m more sporadic. And how I journal on specific companies. It tends to, it does tend to gravitate more towards specific companies around the earning season, or when I have a conversation with the CEO, which I input into a journalistic, my notes about the conversation notes about what they said, how they said it.

[00:57:49] Ian Cassel: Any, if it was through zoom, anything, I thought I could pick up on body language wise, they’re having that conversation because that in itself, the type of investing I do, I mean, it’s crazy just how much body language tells you when you’re talking to somebody in person or even over a zoom where you’re just like, huh, they kind of reacted differently to that same question.

[00:58:06] Ian Cassel: I asked them 3 months ago as I did just now, that might mean something. So that’s how I journal. It’s a little bit more sporadic, but, but I do find journaling is necessary. To becoming a better investor than where, where you were a year or two or three ago.

[00:58:20] Kyle Grieve: Can you share any insights from this year that you’ve taken from going back and looking at your journal in the past that you’ve spent some time thinking about?

[00:58:30] Ian Cassel: I think my biggest takeaways going back, I think my biggest takeaway in 2023 was to get back to my roots, investing in very small microcaps. I kind of was going upstream a little bit too far, and my sweet spot has always been kind of identifying buying, forming relationships with management teams, kind of in that sub 50 million market cap arena.

[00:58:55] Ian Cassel: And I was getting a little bit too up the threshold a little bit. So, only me and you Kyle would laugh at that because everybody’s like a hundred millions puny, but kind of sticking to the lowest decile micro-cap. Once we started refocusing in that area and repositioned some things in the portfolio, it’s almost like things started clicking again.

[00:59:14] Ian Cassel: Like, okay, that’s where we need to be. Let’s stay here. So that was probably a big takeaway from late 22 into 23. My biggest takeaway in 2024, kind of through journaling and also just, well, journaling and writing was. The takeaway that I got while listening to Justin of Shore Capital, that was really eye opening to me.

[00:59:38] Ian Cassel: When you hear somebody that has a private equity firm focused on, he even says it on their website, micro-cap companies, but they’re Private, you have somebody that’s done 600, 700, 800 acquisitions across a 10 year period that has put up a 50% net return for their investors during that time period, that their number one focus when they’re making an acquisition, when they’re building their platforms, they build up when they acquire these smaller companies is focusing on the right board.

[01:00:09] Ian Cassel: That’s their number one priority. And that was just eye opening to me because. It’s something I always knew, but I never like to hit me in the head and listening to that, it really was like, okay, I really need to focus on this. You have like literally the best, probably private equity investor that buys small businesses in the United States saying their number one priority is the board.

[01:00:28] Ian Cassel: Maybe that’s something I should be focused on as a small as a micro-cap investor. And so kind of what that looks like, put into action is having conversations with some of the CEOs. We’re invested in talking to them about upgrading their board, kind of utilizing my network to be able to make introductions to perhaps put people on the boards that can be additive to their business instead of just a yes, man, or woman that needs to sit there and just say yes to everything the CEO says.

[01:00:55] Kyle Grieve: So in a previous interview, you noted that microcap investors tend to formulate a lot of their decisions based on, very short, call it three month timeframes. So just interested in getting your observations about this. Is this a feature specific to micro caps or do you think that investors look at this no matter the market cap segment?

[01:01:14] Ian Cassel: I do think shorter timeframes are more prevalent in micro caps. And to be honest, it’s well deserved for all the same reasons we discussed about shorter shelf lives in businesses.

[01:01:24] Ian Cassel: And so I think some of that is earned. like I said before, I think the average duration of a micro cab winner is 1 to 2 years. they get lucky with a product or service for a season or 2.and then it just kind of goes back into mediocrity. That’s kind of the norm I posted about this the other day, but you make the most money by having sort of a 1 to 3 year variant view on a company or a business and buying it 9 to 12 months in advance of the business actually turning up, because then you’re getting sort of a value multiple for something that will hopefully get a growth multiple one to two years out, and that’s really the double lever of what you need to have multi bagger type returns is that combination of growth and earnings power and multiple expansion. And so what you see a lot of times is, and you see it, I’m sure all the time on X too. You’ll find a company trading at 4 times earnings.

[01:02:20] Ian Cassel: And everybody looks at it like, well, if something’s wrong with it, it’s a bad business. The management sucks, whatever they’re idiots. At 10 times earnings after they have a good quarter, well, they got lucky it’s a 10 times earnings at 20 times earnings after the second good quarter, okay, this could be something.

[01:02:36] Ian Cassel: And then after the third or fourth earnings they put out that they, they crush it. Now it’s a 40 times earnings and all of a sudden, it’s an outsider CEO and it’s a great business. you kind of see that maturation happen all the time, even in micro-cap, and whether it’s a micro caps or large caps, investors love chasing momentum, investors love to buy good situations that can become great or get greater.

[01:02:57] Ian Cassel: And investors don’t have a lot of patience to buy troubled turnaround situations or more troubled situations that can become great. And that’s where I think having a longer timeframe can be your advantage is if you can just look out 12 months. And not pay attention to the short term noise and do the work to form a thesis that you think that this thing that is, undervalued today, it can get overvalued 2 or 3 years out and you have that longevity, the patients and the vision to see that and buy it 6, 12 months ahead of that business actually turning, having the willingness to look.

[01:03:38] Ian Cassel: And for a period of time, which most people can’t, I think that is significant edge in microcap investing, but as, as well probably as anywhere else in the market too. But I think it is more prevalent in microcap.

[01:03:51] Kyle Grieve: So you just brought up a good point there where, sometimes you might make these moves a little early and according to everyone else on X or your network, you might look a little bit dumb.

[01:04:00] Kyle Grieve: So I’ve been, I’m just interested in, in learning more about how you, how do you deal with that? I mean, I think some. People deal with it by not having a public presence, which obviously you don’t do because you have a very big public presence. But I’m just interested in how do you, how do you deal with biases, for instance, from sharing ideas that, that you might be investing in with, with other people and how do you, make sure that those biases hopefully don’t come back and have a negative impact on you?

[01:04:26] Ian Cassel: Yeah, I’m, I’m pretty good about, I think I’m pretty good about having Not trying to stay away as many biases, if anything, I probably have a positivity bias, like you said, in part of your question, I think most long only stock pickers are obviously tilted, bullish.

[01:04:44] Ian Cassel: And when they buy something, they obviously think that this is going to get better. And our baseline is that we are usually too early into a situation because we, as part of our core as human beings root for an underdog. And we want that thing to work out, and we want it to work out better. And usually we are 6 months, 12 months earlier than what we even think.

[01:05:05] Ian Cassel: Is what I found, at least for me, and just being aware of that bias itself, I think is crucial. But I think for me, the way I post on micro-cap club, I post some thoughts on a lot of different companies that. I own and don’t own. and I think I don’t post publicly.

[01:05:27] Ian Cassel: I don’t talk publicly about many positions I have on 1 or 2 occasions. And it’s mainly because I do want the fundamentals of the business. To drive that business higher, not me finding an incremental buyer to take the offer in it. That doesn’t understand what they own and I kind of scratch that itch of just networking and giving my thoughts kind of on a private community, which is 1 of the reasons why I created it. Oh, microcap club.

[01:05:55] Kyle Grieve: So Ian, I just want to say thank you so much for coming on the show today. This was an awesome episode. Where can the audience learn more about you and also microcap club?

[01:06:05] Ian Cassel: Yeah, you can find me on X. My handle is my name, @IanCassel. You can find me on microcapclub.com. I’m on their readily as well as 282 of some of the smartest investors in the planet that invest in this niche.

[01:06:18] Ian Cassel: We’re doing some really cool things over there. So you’ll find me talking about, stocks and, and, and emotions and psychology and subscribe to our blog. If you want to write something, usually once every 1 to 2 weeks, and that’s kind of my creative outlet to get some of the stuff I’m journaling about out there in the public domain and people seem to connect with it. So love to have you on there.

[01:06:39] Outro: Thank you for listening to TIP. Make sure to follow. We Study Billionaires on your favorite podcast app and never miss out on episodes. To access our show notes, transcripts or courses, go to theinvestorspodcast.com. This show is for entertainment purposes only. Before making any decision, consult a professional. This show is copyrighted by The Investor’s Podcast Network. Written permission must be granted before syndication or rebroadcasting.