06 July 2023

Clay Finck chats with fan favorite Ian Cassel about a wide array of topics, including the role of mentors in his development as an investor, the three characteristics of a business that lead to “Lightning in a Bottle”, and unconventional methods he uses to understand a business better than nearly all other investors.

Ian is a full-time microcap investor and CIO of Intelligent Fanatics Capital Management. He is the founder of MicroCapClub.com and co-founder of the IntelligentFanatics.com. 

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  • The role networks and mentors have played in Ian’s development as an investor.
  • How Ian recommends going about finding and developing a relationship with a mentor.
  • How the microcap landscape has changed over the past 20 years.
  • What countries Ian is finding his best microcap ideas.
  • The three characteristics of a business that lead to “Lightning in a Bottle.”
  • How investors can source new investment ideas.
  • The investment filter Ian has recently used to discover ideas before other microcap investors.
  • Unconventional ways that Ian analyzes and better understand a business.
  • On-the-ground due diligence methods that Ian uses.
  • How Ian performs maintenance due diligence after purchasing a stock.
  • Why you shouldn’t “coffee can” microcaps.
  • How Ian finds companies that are positioned to grow during any market environment.
  • Why Ian prefers to be in the first wave of discovery in microcap land.
  • What Ian’s daily journaling practice looks like.


Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:00] Clay Finck: Today’s guest is fan favorite, Ian Cassel. Ian is a full-time microcap investor and CIO of Intelligent Fanatics Capital Management. He is also the founder of MicrocapClub.com and co-founder of IntelligentFanatics.com. Ian and I cover a wide array of topics during this conversation, including the role of mentors in his development as an investor, the three characteristics of a business that lead to “lightning in a bottle,” and unconventional methods he uses to understand a business better than nearly all other investors.

[00:00:32] Clay Finck: Towards the end, Ian also talks about how he manages to find companies that are positioned to grow even during recessions. For example, during the Great Financial Crisis, Ian owned just three stocks. Two of the stocks dropped like the majority of the market, but one of his picks more than made up for the other losses and increased by 280% during one of the most difficult time periods for businesses over the past century.

[00:01:02] Clay Finck: We always appreciate Ian sharing his timeless investing wisdom with our listeners. I know you’ll certainly learn something from this conversation, and I promise that you won’t want to miss it. Without further delay, here’s my chat with Ian Cassel.

[00:01:18] Intro: You are listening to The Investor’s Podcast where we study the financial markets and read the books that influence self-made billionaires the most. We keep you informed and prepared for the unexpected.

[00:01:38] Clay Finck: Welcome to The Investors Podcast Podcast Podcast. I’m your host today, Clay Finck, and we have a very special episode teed up for the listeners today, as I’m joined by Ian Cassel. Ian, it’s great to have you back.

[00:01:54] Ian Cassel: Hey, thanks for having me back. I really enjoyed coming on here and, uh, getting to know you a little bit more through the process.

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[00:02:04] Clay Finck: Ian, I wanted to start by mentioning one of my very favorite investment books, which is a book by Gautam Baid titled The Joys of Compounding. When I read that book, I couldn’t help but notice that Gautam highlighted you and the importance of networking, as well as the importance of compounding goodwill by sharing with others.

[00:02:26] Clay Finck: Could you talk about the role that networking has played in your own life and your investment journey?

[00:02:34] Ian Cassel: Yeah, I’d be happy to. I remember, I think Gautam came to our Microcap Club event back when it was in person, so it’s probably around 2018. I got to know him really well and learned about his life story, which is an amazing one and what he has built for himself.

[00:02:54] Ian Cassel: It’s pretty incredible, and his book is a great one as well. So I’m flattered that he mentioned me even once in it. But I think networking is probably one of the most important things that we do as humans, not only in investing and business, but also in life. But focusing on investing, as a stock picker matures, their edge goes beyond just being analytical or having a slight difference in strategy. It develops into a relational edge, in my opinion. Your ability to quickly get to the truth on a stock is really, really important when you know who to go to or who to ask for specific questions, whether it’s about the company itself or an industry question. That’s a huge advantage.

[00:03:44] Ian Cassel: Building out your network helps you find the truth quickly, and for me, it’s one of the reasons why Microcap Club was started back in 2011. It had two core reasons. Number one, I launched Microcap Club in 2011 to be an idea generator. I wanted to see what the smartest investors in my niche of investing, which is microcaps, liked and why.

[00:04:10] Ian Cassel: But second, it really supercharged the ability to build out an investor network because you can see what other people like and communicate with them internally on our platform. So, building out a network for investing purposes could be huge. However, getting off the Microcap Club soapbox for a bit, you have to be proactive in building that investor network. You can’t just sit back and expect people to come into your line of sight and get to know you relationally. You have to be proactive about it.

[00:04:45] Ian Cassel: That’s why I think it’s really important for young investors too. Get out there and showcase yourself. Start a blog, present more. Let people see you and your potential. I’m a big believer that you need to supercharge serendipity a little bit. Be proactive in letting people know that you exist. Even when it comes strictly to investing, there are simple things you can do. For example, when you’re right on an idea and you like it, there are probably others who like that idea too. You can search Twitter, search Google, and form connections by reaching out to the individuals who wrote about that idea and getting to know them, sharing, collaborating, and reciprocating.

[00:05:31] Ian Cassel: Over time, networking goes beyond just connecting with investors. You start networking with management teams and build relationships with them over not just years, but decades. You build relationships with experts whom you seek advice from on different industry dynamics or the strategies of the companies you’re looking into. All these people, you’ve hopefully had positive experiences with, and you’ve added value to them so they see value in you.

[00:05:59] Ian Cassel: The ultimate goal, I believe, for any stock picker, and if you talk to any successful stock picker who has been investing for over a decade, they would say that their personal network of investors and relationships is probably their greatest asset. The high point of anybody’s network or relationships is when you are the first call they make. When someone in your network reaches out to you and shows you an idea, that’s when you know you’ve made it—when your network pulls you into great situations because they value your involvement.

[00:06:36] Ian Cassel: You know, I think that’s the sort of the goal of anybody. 

[00:06:40] Clay Finck: And you’ve once said that one of the people in your own network, one of your mentors, actually grew his portfolio from a hundred thousand dollars to tens of millions of dollars over his lifetime by focusing on microcaps. He accomplished this in just a span of around 20 years while working a full-time job to keep himself busy because he loves stock investing so much and didn’t want it to consume all of his time.

[00:07:10] Clay Finck: Could you talk more about the role of mentors and how they have played into your development as well?

[00:07:18] Ian Cassel: Yeah, I mean, I had two kinds of primary mentors, and the first one, the one you mentioned, was the second one in chronological order. The first one I had was a gentleman I met on a public stock message board back in the early 2000s. He was a prolific stock picker, a conviction investor, and he really helped me set the groundwork for my current strategy of being a pure purist, stock picker. I focus on concentrated conviction, quality, and talking to management. He instilled all those things in me.

[00:07:54] Ian Cassel: He’s also the one, quite honestly, who was a story stock investor. The story was important to him. He was a professional, not a professional in the traditional sense, but a full-time gambler. He lived in Las Vegas and had a larger-than-life personality. He had a larger-than-life radio announcer voice. He used to train brokers for 25 years at a brokerage firm. So you can imagine he had a type A personality and probably excelled in Dale Carnegie’s “How to Win Friends and Influence People.” He was one of those personalities you would like right away.

[00:08:33] Ian Cassel: One of my first trips to visit him, when I was in undergrad, was when I got to meet him for the first time. He showed me the ropes of how he communicates with management teams and taught me many different things. For the next five years, we got to know each other even more. We started investing together in similar ideas and went on due diligence trips to visit management teams. Then, probably five or six years later, we grew apart because he remained a story stock investor.

[00:09:08] Ian Cassel: And I evolved out of that arena. Then I met the gentleman you mentioned, which actually happened through a blog post I wrote on Microcap Club. This was probably back in 2014. He randomly reached out and explained a bit about himself. We started emailing back and forth and eventually had a phone conversation.

[00:09:30] Ian Cassel: And there he was, this gentleman who had a regular full-time job but managed to build a portfolio from around $100,000 in the early nineties to around $50 million by the middle of 2014. It was all concentrated in microcap and small-cap stocks. He still lived in the same $300,000 house, had the same friends, and everything remained unchanged. You would never know his wealth. He was just a genuinely good human being.

[00:09:59] Ian Cassel: For me, at that point in time, my previous mentor, the gentleman I mentioned earlier, was skilled at investing but didn’t have the best life. He was literally larger than life. He gambled every day and always had two twenty-something blondes on each arm. It may seem appealing from the outside, but being around that for more than 24 hours became unattractive. He lived his life that way. On the other hand, this new mentor lived the life I wanted and showed me that you could grow a small amount of capital into a significant sum by focusing on concentrated microcaps while remaining a great human being.

[00:10:42] Ian Cassel: Both of these individuals were paramount in my development as an investor.

[00:10:47] Clay Finck: You’ve also talked about finding the right mentor. We often discuss Warren Buffet on the show, but in reality, Buffet is in a league of his own. He manages massive amounts of money and operates in a different realm compared to many other investors, including yourself. His mindset is probably quite different from that of many others, and he is in a unique life situation. What advice would you give to someone who wants to find, connect with, and develop relationships with a mentor?

[00:11:20] Ian Cassel: Yeah, it’s a question I like to ask people too, is like, who are their mentors? And you know, a lot of people mention Buffett or Munger or these people that are on the Mount Rushmore of investing, but they don’t really have a personal relationship with them. And that’s what I really mean by a mentor, you know?

[00:11:44] Ian Cassel: And so, I know when I think of a mentor, it is, you know, kind of look out 10 years and visualize who you want to be, but not a hundred years or not 5 billion of net worth later, but look out 10 years, visualize who you want to be, then go find that person today and learn from them. But one of the things I learned with my first mentor is the way you attract a mentor is to show value to them first.

[00:12:18] Ian Cassel: You can’t just reach out to somebody and be like, “Tell me everything,” you know? My first mentor that I had, that I met on a public message board, I tried, I think I emailed him or messaged him on that public message board five or six times and didn’t get a reaction from him. It was only after I decided to be more proactive and actually do a lot of work into one of his investments and dig into it and get some exclusive public information that I knew he probably didn’t have.

[00:12:56] Ian Cassel: And I actually posted that on the message board that I knew he was watching, that I kind of pulled him in to want to connect with me. You know, I had to show value to that person before they would reciprocate. And I think that’s important for anybody looking for a mentor. You know, there’s, find a unique way to show value to the person that you admire, that you would like to learn from, and what you’re ultimately doing when you do this is reminding that mentor themselves, you know, and if they’re a good person, they will be intrigued by that and they’ll want to get closer to you and see you succeed as well. And so, they’ll start reciprocating a little bit to you, and that’s how relationships start. The good ones. 

[00:13:50] Clay Finck: I really like that. I’d like to transition now to chat more about investing and, more specifically, your process. You’ve researched Microcaps for over 20 years now, and I’m curious about what sort of changes you’ve seen develop over the years and how you’ve had to adapt to the changing investment landscape.

[00:14:11] Ian Cassel: I would say, you know, the biggest thing that I’ve noticed over the last 20 years is that it’s becoming more and more important for microcap investors, at least here in the US, to be more global in their approach.

[00:14:27] Ian Cassel: And you know, it’s true. The reason for that is, here in the US at least, there are fewer small companies going public as small companies. I mean, yes, you’ll always have maybe 50 companies doing a $10 million or $20 million IPO that are trying to raise money for a phase one or phase two trial for a life science company.

[00:14:52] Ian Cassel: But I’m talking about, you know, you don’t see many real businesses going public, small ones, at least here in the US. And you know, a big reason for that, I’m going down this rabbit trail, but a big reason for that is a lot of the stuff that occurred about 12 years ago. One of the primary ways small companies went public was actually through reverse mergers.

[00:15:19] Ian Cassel: And it still is. Back in the late 2000s, like 2007, 2008, 2009, there would be 800 reverse mergers done a year. When you compare that to the baseline of 8,000 public companies in the US, having 800 going public every year is a significant inflow into the markets.

[00:15:39] Ian Cassel: However, what happened then was there were a bunch of fraudulent companies that went public, some China fraud companies that went public in 2010, 2011. And when it became known that they were frauds, it kind of destroyed that method of going public for a lot of small companies because nobody wanted to be associated with a reverse merger.

[00:16:02] Ian Cassel: And so, the number of small companies going public, at least through a reverse merger, went from 800 per year down to 100 per year. This has a lot to do with the headlines you see about there being fewer public companies in the US over the last 10 to 20 years. What’s not really talked about is the effect of the lack of reverse mergers, because going from 800 down to 100 a year is a significant difference.

[00:16:34] Ian Cassel: Therefore, I think it’s important for a US microcap investor to become more international and focused. In the mid-2000s, around 2012, 2013, 2014, we saw this shift on Microcap Club as well. Many US investors started looking north to Canada because they have similar accounting rules, are geographically close, and their filings are in English. It’s an easy leap to make. At that time, Canada mainly focused on resource companies, which meant there was a lack of interest in non-resource small companies. As a result, you could find companies growing 30% to 40% a year and trading at single-digit price-to-earnings multiples. There was a two- or three-year window where a flood of US investors targeted those non-resource companies.

[00:17:21] Ian Cassel: Then you saw the arbitrage gap close as, after three or four years, they started trading at similar levels to US microcaps. After that, there was a movement towards Australia or Europe. That’s primarily where my focus lies too. My sandbox of investment is not just the US, but also includes Canada, Australia, and Europe.

[00:17:43] Ian Cassel: Because mainly in those other areas outside the US they still have real businesses going public that are small. They still have 10 million IPOs of a company that’s growing and profitable, you know, that goes public. And so it’s, that’s the reason why it’s important to be global. 

[00:18:00] Clay Finck: So it seems to me that US companies are going public later, so there might be slim pickings in terms of quality small businesses.

[00:18:09] Clay Finck: And the other piece that probably ties into this is valuation. Do you think both of those factors play into finding the right hunting grounds in Canada, Europe, and Australia?

[00:18:21] Ian Cassel: Yeah, I think so. There is a misperception, I think, and you know, I want to be honest with people. Just because a company is small and the stock is illiquid doesn’t mean it’s undervalued. There are plenty of illiquid, small microcap companies that are fairly valued or overvalued. You still have to do some valuation work. It’s just that here in the US, if I focus solely on the US, I could still, I think, do very well. The new ideas in the US are mainly companies that have been around for 20 years as small public companies. A new management team takes over the business, provides a capital infusion, and refocuses the business on a new area. It becomes almost like a new company, but in the old vehicle that was there before. So, you have all these transformations that are kind of the new companies here in the US. That’s predominantly what I’m looking at, as well as old ideas that transform into new ideas with a new management team. That’s primarily how it’s different.

[00:19:33] Clay Finck: I’ve been loving some of the pieces you’ve been writing lately. One of the most recent ones is titled “Lightning in a Bottle.” You talk about the three characteristics that you found that lead to this alchemy of lightning in a bottle.

[00:19:49] Ian Cassel: Yeah, no, it was a fun article to write. It’s something that’s been in the back of my mind for a couple of years. The term “lightning in a bottle” actually came from the Leyden jar. The Leyden jar was invented by a scientist from the Netherlands around 1746. It was the first version of a capacitor, a jar that could store electricity with positive and negative charges.

[00:20:17] Ian Cassel: A few years later, Benjamin Franklin learned about the Leyden jar and acquired one for his own experiments, including his famous kite experiment in 1752. During the experiment, he flew a kite with a key attached, and when lightning struck the key, the electricity traveled down the wire and into the Leyden jar, which stored the electricity. This discovery led to further innovations in the field of electricity.

[00:20:44] Ian Cassel: I was inspired by the idea of holding Earth’s greatest phenomenon, lightning, in the jar of your hands. That’s where “lightning in a bottle” came from. Through my experiences with investing, I noticed that some of the biggest winners, the most explosive situations, were like these “lightning in a bottle” stocks. They had three primary components.

[00:21:06] Ian Cassel: First, they started when they were small, often as microcaps with market caps below $100 million. This is because small, great businesses go through a discovery process. Retail investors are the first to discover these companies because they have smaller amounts of capital to invest, making it easier for them to acquire shares. Institutions come in next, followed by less informed retail investors. When you invest in a sub-$100 million company, you’re in that first part of the discovery process.

[00:21:38] Ian Cassel: The second component is a business with a high organic growth rate and/or high operating leverage. High organic growth rates attract the attention of investors, including institutions. It’s important to find companies that are profitable or very close to profitability, avoiding cash-burning companies. If you buy them at a reasonable price, your forward return should align with the organic growth rate, even if the multiple remains consistent over time.

[00:22:06] Ian Cassel: The third component is having few shares outstanding, preferably fewer than 20 million, or even better, less than 10 million. I appreciate scarcity. A company with a low share count is attractive because there aren’t many shares available for acquisition. When someone buys shares, the only way for the price to go is up. I drew a comparison to Pablo Picasso, who produced around 1,900 original paintings during his lifetime. Today, he’s one of the most famous artists, and most of his paintings are owned by private collectors and museums. Only a few paintings come up for sale each year, and they fetch tens of millions to over a hundred million dollars in value.

[00:22:51] Ian Cassel: And that’s because of scarcity. There’s just a lack of supply and unlimited demand, and that’s the same thing with an illiquid stock, a company with few shares outstanding. And even if you want to take scarcity to another level, great businesses, in general, whether it’s large-cap or micro-cap, trade at a premium because there’s a scarcity value to them.

[00:23:15] Ian Cassel: There aren’t many of them that exist, you know, and that’s why they trade where they do. And so that’s also an element of scarcity that I find attractive. So when you combine all three of those things — a small company, unique, one-of-a-kind business with a higher organic growth rate or a highly leveraged business combined with not very many shares outstanding — it creates very explosive earnings per share growth. And that’s what I’ve seen over 20 years: those companies that can go from zero earnings per share to a dollar or $2 per share in like one or two years, that just captivates, mesmerizes the investor base.

[00:23:59] Ian Cassel: And you institutions are just drawn to them like a moth to a flame, you know, and that’s where you get 10 baggers, 20 baggers in a couple of years from those situations. So that’s primarily what I wrote the article on, kind of drawing on some of my past experiences. I always wanted to talk about Benjamin Franklin and the kite experiments, so I kind of drew that into it as well.

[00:24:28] Clay Finck: The interesting piece about that, you know, it kind of caught me off guard, is the share count. You know, there’s a saying: it doesn’t matter how many different ways you slice a pizza, the value is, you know, what the value is of the business, but you make the important point that institutions don’t wanna buy what they, you know, maybe refer to as a penny stock.

[00:24:55] Clay Finck: So if a stock’s $10 instead of $1, and you know, they may be flooding into the $10 stock, which I find quite an interesting dynamic there.

[00:25:06] Ian Cassel: Yeah, and that’s more specific to the US. But here in the US, the term “penny stock” is defined as a stock that trades under $5 and sh. So to have a stock that’s over $5 is a big deal.

[00:25:22] Ian Cassel: You’re kind of naturally, at least, visible to larger pools of capital that can acquire your shares. So, you know, I think here in the US specifically, share structure is probably more important than in other areas. Like Australia, for example, you actually find companies that trade for 5 cents, that have 4 billion shares outstanding.

[00:25:44] Ian Cassel: You know, that. It was basically a small cap that trades at 4 cents. It’s actually not that odd, you know? But here in the US, it’s a benefit to have few shares outstanding and to have a higher stock price.

[00:26:01] Clay Finck: I wanted to transition to some of the content you guys have been putting out related to researching microcaps. You have what you call your FAIR framework. It stands for Find, Analyze, Interact, and Research. So starting with Find here, which relates to finding companies to then research and dig deeper on, what are the four ways investors typically find an investment in? I’m curious, which of the four you have sourced the most ideas, or which you put the most focus on?

[00:26:34] Ian Cassel: Yeah. This is a presentation I’ve been meaning to do for a few years. I get asked quite a bit about, you know, where do I start? Kinda as a question, whether it’s for subscribers that are kind of new to investing or new to microcaps. And I’ve always wanted to create some content around, okay, here’s at least a one-hour presentation that’s free.

[00:26:59] Ian Cassel: And you can search YouTube for any of the listeners. You can search “A Beginner’s Guide to Researching Microcap Stocks” and find it. But, you know, a quick, kind of like a quick and dirty tutorial that gives you a baseline of knowledge on how to appropriately attack researching a microcap company. And, you know, you talked about, you mentioned the FAIR research method and the first letter “F” in FAIR is “Find”.

[00:27:29] Ian Cassel: And what I primarily have found is that when it comes to finding companies, it’s predominantly three ways, you know? And then there’s kind of a fourth umbrella way of doing it. So it’s kind of brute force screening, networking, and then kind of this umbrella term would be curiosity. Because I don’t think you can do any of those three without a certain level of curiosity.

[00:27:55] Ian Cassel: Wanting to find the truth and wanting to find something, but the first way is brute force. And you know, the key with brute force is the only way, you know, you aren’t missing something is to look at everything. And you know, Michael, Lou, and I recently did this in the UK with the London AIM Exchange, which is sort of like their smaller NASDAQ version in London.

[00:28:23] Ian Cassel: And we literally went through a thousand public microcaps on the London Exchange, you know, A through Z. And we actually try to do this every other year on the OTC markets here in the US. You know, literally go A through Z through the entire list, because that’s the only way, you know, you don’t miss anything.

[00:28:46] Ian Cassel: And I also know other investors that literally look at every single press release of every company under a certain market cap. You know, it’s the way they kind of spot something changing or something that could be actionable. You also see a lot of different ways that people just kind of use this brute force, and it sounds tedious, but it’s all about trying to find those crumb pieces of what could be a promising investment.

[00:29:17] Ian Cassel: You know, basically, the advantage of brute force is that few others are gonna go through that effort. You know, just me saying this, people will probably start to fall asleep thinking about going through a thousand companies. You know, it’s just, it’s not fun. It’s not tedious. Yes, you too, Clay.

[00:29:38] Clay Finck: I wanted to ask for brute force. How quickly do you disqualify something? Is it five minutes? Is it an hour? Talk a little bit about that. 

[00:29:47] Ian Cassel: You know, when you’re going through it, a lot of times you can take 10 seconds. Sometimes you go through it and what you’re doing is you’re kind of going through that quick overview, those ten-second ones, da da, da, check ’em off or cross ’em out, I should say.

[00:30:07] Ian Cassel: Then anything that looks half interesting, you kind of highlight, and then you go back through, you take that thousand down to 70. And then the ones that are half interesting, you might spend five minutes on. Well, you know, 80% of them go away, so you’re down to like 15. And then you might spend 15 minutes on those. So it takes time, but it’s not an exorbitant amount of time. It sounds worse than it is, and especially as you kind of grow as an investor and you gain experience and you know what you’re looking for, it’s easier to say no to things.

[00:30:49] Ian Cassel: So I think brute force, again, you know, the pro is that you don’t miss anything. The con is it’s tedious, but I think that’s also the advantage of brute force because you’re able to look through this mountain and ocean of uninvestable ideas is sort of an advantage because few people will want to do that.

[00:31:12] Ian Cassel: The next one we talked about was screening. And you know, there are a couple of different ways you can screen for companies, and all screening is doing is you’re taking the investment universe, you’re plugging in some financial parameters or other parameters, and you’re trying to take that ocean of stocks down to a pond.

[00:31:34] Ian Cassel: That’s kind of what screening is. And a lot of folks use more of a targeted approach using mainly specific financial parameters. But the problem with that is there are a bunch of other investors doing that exact same thing. And so you’re all staring at the same list of, you know, 30 companies.

[00:31:56] Ian Cassel: Because everyone’s gonna put in, “Well, I’m looking for something that’s growing 30% that has 80% plus gross margins, that has 20% operating margins, that has debt-to-equity of this or ROI of that.” You know, you’re staring at the same companies as everybody else is. You’re looking at a bunch of probably fairly valued to overvalued situations.

[00:32:19] Ian Cassel: I like to use more comprehensive screens, and Michael, who works with me at the funds that we manage, does a great job of this. One of the screens that we do is for insider buys over a certain amount, and that’s kind of globally. And the reason we like to do that is there’s oftentimes, as we mentioned before in this interview, here in the US, a lot of times it’s an old situation where a new management team comes in, provides a capital infusion.

[00:32:53] Ian Cassel: And so that’s triggering us to potential transformation when we’re screening for large insider purchases. If somebody’s putting in a half a million dollars or more into a small microcap business, they obviously think that the stock’s gonna go up. And so it doesn’t mean that it will, but it’s enough for the spidey sense to go off that we should probably dive into this situation.

[00:33:20] Ian Cassel: And so that’s predominantly the type of screens that we do from that perspective. And then, you know, networking, we kind of already hit on before, but that becomes less of an asset in the beginning of your maturity and then just keeps growing. Probably 10 years into building out your investor network, it’s by far the most important part of finding ideas is through that investor network.

[00:33:47] Clay Finck: Jumping to Analyze and the FAIR acronym here, you’re pretty big on looking not only at a company’s filings and their earnings calls, but you’re also really big on diving into the non-traditional methods of doing research.

[00:34:00] Clay Finck: You know, you want to understand the company better than anyone else out there, practically. Can you talk a bit about how important that non-traditional side of your research is and which methods of non-traditional research have been most helpful for you?

[00:34:16] Ian Cassel: When it comes to analyzing, probably the first thing I do is look for red flags, which are important.

[00:34:24] Ian Cassel: You know, you’re trying to get to quick nos really quickly ’cause it’s half of all public companies are microcaps, so there’s not a lack of ideas. So you just wanna get to a quick no. And so kind of the most prominent red flags for us as investors is, you know, past associations with fraud is number one. It’s amazing how many investors and how many institutional investors don’t put each management’s name into Google with the word fraud and see what comes up. It’s uh, just simple stuff like that, which sounds insane. You’re like, “Oh, of course, I would do that.” It’s amazing how people just don’t do that. I mean, that’s like number one. Number two is a small-time auditor. So the company has an auditor that audits the financials, that basically blesses the financials, and you look into it and you realize they only audit one other public company that’s also based out of Nevada or some, you know, or Boca Raton, Florida or something like that.

[00:35:32] Ian Cassel: No offense to Boca Raton. The third thing is just a messy capital structure, just a lot of shares outstanding. Kinda the opposite of what I was saying when we were talking about lightning in a bottle. You know, a lot of shares outstanding, different classes of shares, lots of warrants. You see a lot of self-dealing from the management repricing their options or whatever the case may be. That’s a red flag. And then also another prominent one is just a lot of related party transactions where the management team is figuring out ways to enrich themselves with self-dealing, whether it’s sale leasebacks with the company headquarters or, you know, we’d be in seated. Quite a few times where the personal plane is paid for by the company that they use specifically for personal business. Mainly just stuff like that, that’s just red flags. And also, it’s one of the things that becomes less and less attractive as a quality focus. Investors are those companies that have large investor relations campaigns to really promote their stock in different ways. And so those are kind of the red flags that we first do when we analyze microcap companies. You’re trying to get it to a quick no right away. And you know, the things that really matter, and I think I mentioned, I know maybe six of these in that presentation, but the things that really matter are execution matters when you’re looking at a company. You know, and so is what the company is saying and doing matching with the fundamentals of the company.

[00:37:18] Ian Cassel: The leadership obviously matters, and I spent a lot of time on the leadership side. I’m very quality-focused, wrote, co-authored two books on intelligent fanaticism, uh, really trying to fine-tune my lens for finding great leaders. ‘Cause that’s the key, I mean, to find great companies early, you gotta find great leaders early. And so just fine-tuning that qualitative lens. And so leadership matters to me. You know, skin in the game obviously matters. Do you see a team around the CEO? In Microcap, you see a lot of hustle companies that can go from zero to 10 million, but the CEO is still wearing every hat and they don’t ever kind of let go enough to bring in a team around them.

[00:38:08] Ian Cassel: So you see a lot of that culture matters. Are the employees happy? And we’ll probably get into this later, but that’s a big thing. Are customers happy? Or the balance sheet matters. You know, all these things matter. And so that’s where you’re just trying to figure out what the truth is using traditional or non-traditional ways of getting to what the truth is within these companies that might pass your immediate framework of, okay, this could be an attractive situation. And so the way that you kind of dig in past just reading press releases, reading filings, you know, reading every interview the company has done, is you’re just going, I don’t know, just do non-traditional matters.

[00:38:55] Ian Cassel: Like, you know, I think we mentioned tracking company sales, you know, just looking at customer reviews of the products. You can track customer movements, especially if it’s a company that has customers that are also public. You can kind of dive into their earnings calls to see what the overall industry dynamic looks like.

[00:39:17] Ian Cassel: Feels like there’s regulatory databases that you can pull down: business records, UCC records. You can hire a private investigator to do background work into the management team to see if they are who they say they are, which is an interesting one to do. Which is actually not as, that might sound insane, but it’s actually, if you want to find out about somebody really quick, that might be a good way to do it.

[00:39:48] Ian Cassel: You know, going to industry trade shows, which is something that Michael and I do quite a bit, is actually going to the large industry trade shows where our companies are presenting and just kind of milling around, talking to people, see what the buzz is, that type of thing. And also just reading industry publications.

[00:40:10] Ian Cassel: So those are some non-traditional ways to do some analyzing into the companies.

[00:40:15] Clay Finck: Turning to the interacting piece, I wanted to pull in this quote from you: “95% of due diligence is analyzing if customers and employees are happy and why.” And your edge is that 95% of investors will not do this. If you want above-average returns, you need to do what average investors aren’t willing to do.

[00:40:38] Clay Finck: So what does this interaction piece look like for you? You know, when you’re analyzing a business, this is quite interesting, I think, so I’m really curious what your interaction process looks like.

[00:40:51] Ian Cassel: Yeah, I mean, this kind of gets back to, you know, on the ground due diligence is what it really means. And that can take a variety of forms. But it’s kind of going back to the Phil Fisher, you know, scuttlebutt research kind of method, and it’s kind of an attack as a way to verify what the company is saying. And really, it’s all about, like I said before, multiple times, it’s about just finding the truth of the situation.

[00:41:24] Ian Cassel: What normally this looks like from our perspective is, you know, we reach out after we do kind of a mountain of work. And that’s something else I agree with Phil Fisher, is, you know, we don’t really reach out to the management team until the business itself is attractive enough for us to be willing to reach out to the management team. And we don’t reach out to them until, quite honestly, we’re probably, you know, 60-70% of our way to a buy decision because you don’t really know what the right questions are to ask of the management team until you’ve done that type of work because you don’t want to waste their time either.

[00:42:10] Ian Cassel: You know, it’s kind of obvious when somebody doesn’t know the basics of a business and they don’t find that attractive. You’re trying to build a relationship with these management teams and you go back to networking relationships. And so you always want to put in that front-end work. And we’re not there to waste a company’s time.

[00:42:34] Ian Cassel: What normally looks like is a lot of front-end work, and a lot of that front-end work could even involve talking to some of the customers, even talking to some of the employees through expert calls and things like that, that you can set up to get a sense of what reality is, even before talking to the management team.

[00:42:58] Ian Cassel: And you know, it’s just amazing to me how many people don’t actually talk to customers and talk to employees before they invest to basically verify that what the company is doing and saying is actually reality. And so who you talk to can change from company to company, depending on what the importance is.

[00:43:20] Ian Cassel: But predominantly, for us, it’s talking to employees, talking to customers, talking to potential partners or partners they used to have. I mean, through expert networks like Tegu and other places, you can talk to ex-employees, which is always a good thing to do. You kind of already know they have a negative bent because they’re an ex-employee, but it’s a good way to uncover some things that you might not know about.

[00:43:49] Ian Cassel: The other part of interacting, which is really helpful for investing, is just simply talking to another investor who has owned that company for a long period of time. Because oftentimes, they have a knowledge level into the business, into the management team that it would take you years to acquire that amount of information.

[00:44:11] Ian Cassel: So we like to reach out to known longer-term investors to get a sense of reality. And usually, if they’ve been in it for 2, 3, 4 years, they’re not there to BS you. I mean, they’ll tell you the good, the bad, the indifferent. Before you go into the conversation with the management,

[00:44:32] Clay Finck: How do you get parties like employees and business partners interested in chatting with you and answering questions about the company?

[00:44:41] Ian Cassel: It’s amazing. People like to talk, you know, it’s actually not that hard, and it’s also going to industry events too. What we’ve found is that just going to an industry event and the company might have 10 employees manning the booth, they don’t know what they should say or not say. They’re just happy to talk to somebody who’s interested in their product or company, you know?

[00:45:08] Ian Cassel: And so that’s a great place just to meet employees. We do a lot of company visits, and so a lot of times, you know, I’ll say, “Oh, I gotta go use the bathroom,” and then veer off and poke my head into somebody’s. You have to be a little bit creative, but what I’ve found is it’s actually easier to talk to employees and find information. You have to be creative in how you do so, but they’re usually very receptive to talking.

[00:45:41] Ian Cassel: One thing I’ll mention, though, which I probably should have mentioned earlier, is that we’re not looking to find insider information. You know, we’re looking to find kind of public-exclusive information, and these are two important distinctions.

[00:45:56] Clay Finck: What is the distinction there between something that’s insider information that only executives know and something that is more public?

[00:46:04] Ian Cassel: I would say, you know, talking to employees, there’s nothing wrong with that. They’re going to say whether they like or don’t like working there. You know, a favorite question of mine is kind of like, “Well, you know, if you got offered $2 an hour or more across the street, would you move?” That’s a good question to find out if there’s a culture there. Because a lot of people, you know, if they really love to work somewhere, if somebody throws another dollar an hour at them, they’re not going to move. And so, you know, things like that, I mean, you’re fine to ask.

[00:46:47] Ian Cassel: Even when we talk to management, we’re not interested in guidance. We’re interested in what their five-year strategy is. Management teams are willing to talk about strategy. They’re not willing to talk about what they’re going to do next year.

[00:47:03] Clay Finck: Another quote I pulled from that presentation you guys did that I absolutely loved is, “If the business situation isn’t really exceptional, then you don’t go any further.” And I just really like how you’re really strict on knowing what you want to find and knowing what you’re looking for.

[00:47:23] Ian Cassel: It’s probably something I haven’t really gravitated the most to until probably the last five years. I mean, I think as investors, we all overemphasize certain areas given our maturation as an investor. So most people start out investing as value investors. So they’re just fundamentals, cheap stocks, book value, you know, you’re overemphasizing.

[00:47:45] Ian Cassel: Then you kind of start caring about the qualitative aspects of investing. You know, I’m going to find an outsider, I’m going to find an intelligent fanatic. I’m going to find somebody that can basically run a billion-dollar company out of a strip mall, that pays themselves nothing, that buys stock every month. You know, it’s like these, these sort of, uh, this vision of this gritty kind of entrepreneur, and you can overemphasize that because you start being so attracted to the quality of that individual overshadows the actual business they’re overseeing. You know?

[00:48:23] Ian Cassel: And so, in your maturation as an investor, you tend to overemphasize whatever you’re learning about and getting better at. And so it’s important to kind of step back and view investing that, you know, business comes first. The people obviously are a close second, but I want the business qualities to attract me into it because oftentimes those business qualities are also the result of a good operator there.

[00:48:51] Clay Finck: The last point in your fair method is research with an emphasis on the re, which essentially means continuing your due diligence after you purchase shares or also referred to as maintenance due diligence.

[00:49:03] Clay Finck: Talk to us about maintenance due diligence. 

[00:49:07] Ian Cassel: I I think maintenance due diligence is the most important part of any conviction investor because when you think about it, you know, you’re doing a lot of front-end work before you make an investment, but it shouldn’t stop there because these companies are evolving.

[00:49:24] Ian Cassel: As soon as you make that investment decision, especially with a small company, they’re kind of like teenagers. You don’t really know how they’re going to turn out. You have an idea, but you kind of have to watch them. And so the maintenance due diligence and research is really important, I think, for microcap and small-cap investors, just because these companies are small and they’re evolving, and quite honestly, most times they’re not going to evolve in good ways. It’s going to be bad ways.

[00:49:59] Ian Cassel: A lot of the maintenance due diligence is the same type of work you’re doing when you’re making your initial investment. It might be reaching back out to that expert or contact. It might be continuing to have those conversations with management over time. The ability to, you know, a big thing for me is we’re pretty high touch with our management teams. And so just the ability to kind of journal and keep track of how they answer questions, even their tone during a conversation.

[00:50:33] Ian Cassel: That’s something I learned probably 12-15 years ago, is just the repetition of talking to management can be a huge advantage because you can spot the changes in just a tone difference with the management team over time. And a lot of times, it’s those subtle soft cues that, you know, looking back, you realize, “Yeah, 99% of the time I should probably have sold that,” when I just sensed that something was off. And you don’t have that unless you’re putting in those consistent reps on the qualitative side.

[00:51:09] Ian Cassel: So a big part of the maintenance due diligence is continuing to have those qualitative relationships, whether it’s with the management team, whether it’s with experts that you’ve used before, getting an idea of how the industry is tracking, how strategy is changing, how competitors might be entering the market.

[00:51:29] Ian Cassel: And just realizing that microcap investing will never be a coffee-can type of thing. You know, it’s not a coffee-can type of thing. I mean, if you want to go broke, you’ll coffee-can a bunch of microcap companies. I mean, I think I know what I’m doing, and I’ve been doing it for a long time. And if you were to ask me, you know, how many of the companies that I owned five years ago do I own today? Or how many companies have I owned over the last five years? I probably have owned 40-50 companies, and I probably own three from that period of time. So that shows you, you know, this is a higher turnover type proposition.

[00:52:17] Ian Cassel: I go into every purchase with the intention to hold forever, but very few companies will earn that right. So you want to continue to own the companies that execute over time. You let them get into bigger portions, bigger positions of your portfolio, and they’ve earned that right when they go up. It’s kind of like a major league baseball team where you’re always scouting for your younger talent. You know, you’ll bring somebody up from the minors to play. You put them in a game-time position, and they’ll either succeed or not succeed. If they don’t, you boot them back down. And that’s kind of what my portfolio looks like. It’s concentrated, but there’s a lot of activity under the surface in the smaller positions because I’m trying to find that next breed of veterans that will deserve that playing time and become a larger part of the portfolio.

[00:53:18] Clay Finck: Related to the maintenance due diligence, I think that one of the most difficult parts of the overall investing strategy is thinking about a company that’s growing at a relatively fast pace. And once that growth, as you referred to it, has a hiccup or a misstep or an earnings miss, then the stock can really get punished when a bunch of these momentum investors and traders just kind of bail on it and a lot of the tourists are gone.

[00:53:50] Clay Finck: You’ve talked about in the past how you want to be able to sense when that growth is going to slow and get out before the stock gets punished. So, I imagine that has to be one of the most difficult parts of it.

[00:54:08] Ian Cassel: Oh, it is. It’s very difficult because every one of these companies, especially the successful ones, you know, we talk about bull and bear markets in the macro economy, but each one of these companies has a bull and bear market in it, even within the construct of a macro bull and bear market.

[00:54:29] Ian Cassel: So, like, each one of these companies will go up into the right, and then they fall 30 to 50%. Usually, investors in the winners, their expectations get too high. They stub their toe, they come back down, and fundamentals backfill into a lower valuation. Old shareholders leave, new shareholders enter, and they start over again, going to make a new high. It’s the same thing. Eventually, two years later, they stub their toe, come back. But over time, it just looks like this.

[00:55:03] Ian Cassel: And just being aware of the type of investor that you are, like, do you want to try to play the game? Trying to pick tops and take 20 or 30% of your position off the table? Or do you believe in the five-year, ten-year trajectory of the business, and you’re not going to waste your time trying to trade in and out of a portion of your portfolio? Are you better off using that time to find another one?

[00:55:35] Ian Cassel: So those are all very personal questions that, you know, the right way for me to do it might be the wrong way for you to do it, and vice versa. That’s something where you have to figure out your own temperament and have your own principles with investing and figure out a way that feels right for you. Because I know people that do it successfully either way.

[00:56:03] Clay Finck: During one of your previous conversations with Trey on the show, you had mentioned that you wanted four things in a company. It’s a company that’s positioned to grow during a recession, has a strong balance sheet, intelligent management, and an attractive valuation. I also remember how you talked about your portfolio during the great financial crisis. I believe you mentioned you had three holdings. Two of them didn’t fare so well through the crisis, but the third one happened to increase by 280% over that time period.

[00:56:38] Clay Finck: So I’m curious how you go about assessing whether a company is positioned to grow during recessionary periods.

[00:56:45] Ian Cassel: You know, the term of finding a business that can grow through a recession probably gets some people to roll their eyes, like that’s like the holy grail or that’s, you know, some unicorn that’ll never be captured or something. But it first came about actually just I think five or six years ago, I was talking to an investor and they were complaining about the macro market or something like that. And I said, “Well, all you have to do is find a business that can grow through a recession.” We both kind of laughed and chuckled, and then I started thinking about it more. I was like, “Well, that’s actually exactly what I did through the GFC in 2008 and 2009.”

[00:57:34] Ian Cassel: That was a company, the company was Zag, and I think it was acquired a couple of years ago. But, you know, that was a company that was growing 50%, growing the bottom line a hundred percent through that recession. And, you know, that wasn’t some double-long gold ETF or something like that, that you would expect to do well in a bad environment. That was a company selling a consumer product, a low-price consumer product during a recessionary period where the overall markets went down 52%, but that company went up 280%.

[00:58:11] Ian Cassel: So, to answer the question, how do you go about assessing if a company can grow through a recession? I think a good place to start is with a small company. If a company has a great product, you know, it only has a small revenue base, it doesn’t take a lot to grow. It just takes two or three customers to have that thing grow even through a bad period.

[00:58:40] Ian Cassel: And so, I like the idea of investing in small companies in recessionary periods. And you also, a lot of the really, really good and interesting microcap companies dominate niche markets where they might sell their products into areas of the market that aren’t cyclical. And so you can find these smaller companies where not being global can benefit you.

[00:59:04] Ian Cassel: You know, either being diversified or not being diversified can help you in terms of who they sell their products to if it’s B2B. So I think for me, thinking about it that way, I’ve sort of gravitated to kind of looking for these qualitative elements in my investments. I like to combine growth and survival together, and I think that’s what forms quality.

[00:59:29] Ian Cassel: You have growth investors that, you know, we saw it in 2020, 2021. They just loved hypergrowth, and all they care about was growth. You kind of have survival, and you can put that into the deep value or value camp of people that are just looking at the balance sheet. What’s trading at book value? I like to combine those two elements, and I think that the combination of growth and survival equals quality.

[00:59:59] Ian Cassel: And what I’m looking for just happens. Like right now, I’m positioned pretty heavy in healthcare, mainly because I wasn’t seeking to invest in healthcare. It’s just that it’s an area where you can find companies that have 80% gross profit margins, 30% operating margins, founder-led, they have IP, so they have a moat around them. And oh, by the way, people are still going to keep getting injured, need wounds healed, need surgeries done, whether it’s elective or cosmetic. They still need these procedures done, and they’ll still do well through a recessionary period.

[01:00:37] Ian Cassel: So I’ve kind of found my way. Probably half of our book is in healthcare stocks, and it’s mainly not like I look to be a healthcare investor. It’s just that they have the qualities of what I’m looking for.

[01:00:53] Ian Cassel: Something that can grow and survive. 

[01:00:57] Clay Finck: I remember messaging you once about a smaller company that was close to the microcap land, and it seemed like you almost immediately dismissed it because it didn’t pass your test of being within the first wave of discovery. I’m curious, how did you come to appreciate this and value this so much?

[01:01:15] Ian Cassel: Well, I do remember that exchange, and if I remember correctly, you mentioned a larger microcap company, and my reaction was basically that I wasn’t that interested because it was a business that was already well identified and well-loved by a bunch of quality-focused investors who are more focused on larger companies. It was a well-known company. And it’s not to say that the company is a bad opportunity, it’s just one that wasn’t for me.

[01:01:46] Ian Cassel: I know that because of how I invest, I like to be involved in the first wave of discovery of an idea. I like to be one of the first to understand the business. I like to be one of the first to form a relationship with management. That’s my edge. I don’t have to be first, but I enjoy being one of the first. And I find it’s really important because that first wave of discovery is what normally takes one of these companies from being undervalued to fairly valued. That’s where the valuation gap can close, and that’s probably the first hundred or 500% move in a stock.

[01:02:30] Ian Cassel: The beauty of microcap investing is that it only takes sometimes tens to hundreds of thousands of dollars to move a microcap, millions of dollars in market cap. In microcap, discovery really matters. It’s probably the only place in the public markets where discovery matters, where being one or two investors later can mean that the easy money is gone, that first discovery phase. So I enjoy being first to an idea or one of the first for that reason.

[01:03:02] Ian Cassel: I think it’s also the reason why I think that way. I’m generally more attracted to rising star companies. You have fallen angels and rising stars. Fallen angels are companies that were, let’s just say, the high flyers of the tech boom in 2021. They were the one or two billion market cap companies that are now sub-hundred million dollars. They’re the SPACs. They’re these things that everybody’s kind of picking through or trying to find that diamond in the rough of the dead.

[01:03:35] Ian Cassel: And all these companies are down 70-80% from their highs. And you know, some people, a lot of people enjoy going through that. It’s just not for me. Like all of those companies, they’re well-known. They have five analysts covering them still. Most investors who know about them have been disappointed by them. A lot of investors have a reason to say no to that idea. That’s just not who I am as an investor.

[01:04:05] Ian Cassel: I’d love to find rising star companies, like new ideas. I like to find them first. I like to find ones that are generally new ideas that no one’s ever heard of, maybe even in the microcap ecosystem, where every new investor that hears that idea can be an incremental dollar. Those companies haven’t had enough time to disappoint everyone yet, and that makes it a cynical view of it. So you have that tailwind of perception, whereas in Fallen Angels, you have a headwind of perception.

[01:04:40] Ian Cassel: For how I invest, I like to find things first. I like to find new things first.

[01:04:47] Clay Finck: As you were saying that, I was just imagining the diamond in the rough analogy, where the very first one that’s finding it, and then when others discover it, as the business fundamentals improve, then the stock naturally gets a boost. I’m also curious that given the microcap land, it seems that you really, really need to understand the qualitative aspects of the business because you’re doing the due diligence yourself. You’re doing your own research. And given that you have thousands of companies to select from and you have plenty of ways to generate new ideas, I’m curious what your thoughts are on how difficult it is to select the best ideas and how valuation factors into that. You have your watchlist and you have your current portfolio. Do the best opportunities really stand out to you, or do you find it difficult to sort of sift through them?

[01:05:47] Ian Cassel: I’ll take a step back. I don’t think microcap investing is too much different than other investment classes where you have thousands of options to put your capital. It sounds like a Yogi Berra quote, but to find something, you first need to know what you’re looking for, and you need to know who you are. When you start out as an investor, you really don’t know what you’re even looking for. You approach things as a sponge, and over time as you experience things, you soak up everything and learn from reading and experience. Slowly but surely, you turn into a filter and start filtering things out.

[01:06:30] Ian Cassel: I actually started writing an article that I’ll probably put out at some point this year on this topic of active patience. And I mentioned in an article a few years ago that I wrote. I think if I were to define active patience, it’s knowing what you were looking for and not doing anything until you find it or it finds you. I think you develop active patience and the ability to find things quickly through the development of three steps.

[01:07:03] Ian Cassel: You first have to develop your temperament as an investor, which means determining what flavor of investing aligns with your natural inclinations so you can apply consistently and successfully over time. That’s your temperament. Investing’s greatest lessons can’t be taught in a book or classroom. They have to be experienced, so it just takes time to develop that temperament. The temperament includes your views on risk, time horizons, position sizing, and all of those broad pillars of investing.

[01:07:34] Ian Cassel: Then you have to develop your principles on top of that. Once you figure out what type of investor you are, it’s really the principles that guide you. It took me 15 years to develop my theories around those four attributes you mentioned earlier about growing through a recession, a balance sheet that can endure, looking for intelligent fanatics, and seeking an evaluation that can hopefully double in three years. It took me 15 years to develop that around scarcity, survival, tailwinds, and discovery. It didn’t happen overnight. It took 15 years of investing with different types of management teams and CEOs, speaking to them, having dinner with them, truly knowing them until I started to see patterns in their personality and character that these are the types of people that I would align with.

[01:08:28] Ian Cassel: So it just takes time. And when you do all those things, when you know what your temperament is, when you know what your principles are, then you just need to apply those things consistently with commitment and be fully committed to them. Because anything less, you’re not going to be able to see it through to the end.

[01:08:52] Ian Cassel: That’s why I don’t get too hung up over a missed opportunity that I missed because it probably wasn’t something that I would have been able to hold anyway if it went up. So that’s how you develop this active patience. And when you do that over time, you can get really quick at saying no to an idea. And you can get really quick at saying yes too. There have been times where I can get to a yes in a few days because, you know, I’m not talking about having to do six months of work into a name and produce 200 pages of notes. The best ideas, they sometimes hit you or punch you in the face. Those are the great ones because that means they were meant for you.

[01:09:45] Clay Finck: Related to my earlier question regarding maintenance due diligence, I’m curious if you could share an example of a company you sold and why you ended up making that decision. I’m more interested in the things you look for, the filters you go through, and your decision-making process.

 I normally sell for four main reasons. First, when I find something better than my seventh best idea. This happens most frequently, where I come across something superior to my weakest investment. Typically, when I replace a portfolio holding, I am essentially swapping it with a trusted relationship.

[01:10:23] Ian Cassel: Another reason is if a company or position is not performing well or is engaged in wrongful practices, prompting me to get rid of it. In such cases, a new idea must be superior to everything I currently own, or at least I need to believe so in order to make a replacement. It’s akin to having a baseball lineup with three 50-hitters; there’s no point in adding one that’s only a 20-hitter. The goal is always to improve the overall average with any new idea.

[01:10:58] Ian Cassel: The second reason, which is quite common, is when an investment no longer aligns with the initial thesis. You begin to pick up on indicators we discussed earlier, whether through conversations with management, changes in tone, or insights from experts. When you sense that something has shifted, it’s time to sell. Over the years, I’ve learned that whenever my instincts have signaled a change, waiting has proven to be a mistake. This is the beauty of experience and maturity; your gut feeling, which is a culmination of your senses and past experiences, becomes more accurate as you age.

[01:11:37] Ian Cassel: So, whenever my “Spidey sense” tingles, I tend to heed its warning. Investing requires the willingness to commit to companies but also the readiness to separate from them swiftly when the narrative changes.

[01:11:50] Ian Cassel: Lastly, there are instances when the management team makes foolish decisions, which unfortunately happens too often.

[01:11:57] Ian Cassel: And it compels you to sell because it indicates a loss of trust in the company. This is the fourth and most compelling reason to sell. It occurs when something has experienced an excessive and rapid increase, like capturing lightning in a bottle. It could have multiplied tenfold within a year or two, transitioning from undervalued to trading at a perfect price.

[01:12:21] Ian Cassel: In such cases, it’s only a matter of time before it retraces by 50% or encounters a setback. It’s an opportune moment to sell. Every time I have hesitated in these situations, I have regretted it because the 50% retracement inevitably occurs at some point.

[01:12:39] Clay Finck: Something that really stands out to me throughout this conversation is when you mentioned the “Spidey senses” or relying on gut feelings. I can’t recall if it was George Soros, but he used to associate back pain with the need for making changes in his portfolio.

[01:12:58] Clay Finck: Yesterday, I was listening to your conversation with our friends, Toby Carlisle and Jake Taylor. What truly interests me about people who are as busy as you is how they allocate their time and develop processes that ensure activities like journaling and reflecting are incorporated.

[01:13:16] Clay Finck: For you, what does that process look like? How do you engage in journaling and reflection regarding your overall investment approach, analyzing your mistakes and buy decisions? Could you provide some insight into your journaling process?

[01:13:30] Ian Cassel: I Try to do it every day in the morning, like the first thing I do, with a cup of coffee, because that’s usually when my kids are still asleep and I have time to do it before they get up. And you try to get them out of the end of school. So usually, that first hour of the day is when I journal, either creatively for writing or thinking about investing. It’s similar to, do you know who Tony Deon is?

[01:14:03] Ian Cassel: Yeah. Yeah. So he’s a really cool investor. I don’t know his, I think he’s only done one public interview. It’s on YouTube. You could search, it has like a million views on it. But I’m decent friends with him, and he goes sailing every summer for three months or something like that on his sailing yacht.

[01:14:26] Ian Cassel: And uh, he was telling me that he uses that to just think, and he’ll devote one week during the summer to just thinking about an idea, one of the investments they own, and just kind of focus on it and come up with questions or things that could go wrong, more or less that he might be missing. And yeah, that’s sort of how I do it too, where I go through periods of, you know, two or three days where I just simply focus on one investment because I’m usually having these constant repetitions with the management team.

[01:15:06] Ian Cassel: What’s interesting about that too is like, I probably talked to management teams a lot more in the beginning because it takes me more time, because you’re trying to put in those relational reps with them. It’s like dating, and then all of a sudden, once you actually trust them, the only way you trust them is actually just like you do with your spouse or any relationship, living life together.

[01:15:34] Ian Cassel: You know, you have a bunch of shared experiences, the ups and downs, and then over time, you’ve seen them go through the downs, and you can trust them in the downs, which means you can trust them in the ups. And so, normally what happens is if it’s a business that I own for two or three years or longer, I probably only talk to the CEO maybe once a quarter.

[01:16:03] Ian Cassel: And probably, that time is when he reaches out to me to ask advice on something or, you know, something like that. So the actual relational reps get less when you trust these businesses. What I find is that, yeah, I mean, it’s probably consistently inconsistent, but I try to focus on each individual investment, at least focus on them a few days every quarter.

[01:16:29] Ian Cassel: And then most of that time is spent every morning, the first hour of each day.

[01:16:36] Clay Finck: Got it. Well, Ian, this was absolutely wonderful. Really appreciate you joining us on the show again. Hopefully, we can do it again someday before we close it out. As always, we want to give you the opportunity to give the handoff to any resources you’d like.

[01:16:54] Clay Finck: Of course, Microcap Club, your Twitter, and anything else, like your blog. 

[01:16:59] Ian Cassel: People can find me on Twitter. My handle on Twitter is my name (@iancassel). You can also find me on Microcap Club. I still post regularly on there, along with 300 of the smartest Microcap investors on the planet.  You can find me on microcapclub.com. And yeah, I mean, I think Microcap investing is not for everybody.

[01:17:22] Ian Cassel: It’s not without risks, but I think it’s an area of the market that is underdeveloped and underappreciated, given the fact that most of the best investors of all time started in Microcaps. Most of the best-performing companies ever came out of the Microcap ecosystem, and I think 83% of the best-performing stocks in the last 10 years have come out of the Microcap ecosystem.

[01:17:48] Ian Cassel: So it’s a vetted investment landscape. But you just have to be willing to lose money when you start, you know, because that’s how you learn. So thanks for having me on. 

[01:18:01] Clay Finck: Yeah. Thanks so much, Ian. 

[01:18:03] Outro: Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by The Investor’s Podcast Network and learn how to achieve financial independence. 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 re-broadcasting.


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