Ian Cassel (02:48):
I think what makes it unique, what we’re going through the last 9, 9 months, 12 months even, is the euphoria in the markets was mainly larger companies, and it was mainly larger technology companies. Most were small caps or mid-caps or even large-caps. And when you look at the universe, which I’m sure you do and others do, you know have Shopify down 80%. Even Netflix, who’s a very mega cap company, down 62% year to date. Even the SPACs, the SPAC boom that we had, most of those were majority small caps or larger when you’re looking at a market cap spectrum. And even the meme stocks, whether it’s GameStop, even though that’s down from whatever it was, down to whatever it is, I think it’s still a 7 to $8 billion market cap. And so those aren’t microcaps. And so I think it got overheated a lot more in the larger tech stocks, which is why the NASDAQ, I think, is down 30% year to date compared to the microcap indices, which I think the iShares Russell Microcap is down 25-ish. You mentioned 18, but it’s down less than the NASDAQ overall.

Ian Cassel (03:52):
And so I think that’s one of the reasons. And I think another reason too is we haven’t really seen, at least I don’t think quite yet, maybe we will in the future, haven’t seen the recessionary effects of this draw down. The overall market’s down, but we haven’t seen some significant down ticks in the overall economy yet. And I think if that hits in, you’ll see maybe another lower in microcap. And I think maybe another reason is microcaps as a whole, depending on where you invest, and the biggest benefit to being a microcap investor is you are a stock picker, you can choose your spots and you can choose what companies you want to invest in. A lot of these companies are domestic. They have domestic manufacturing, domestic employment, domestic markets, and so they might not be susceptible to the geopolitical headwinds that we face or macroeconomic headwinds that some global larger companies may face. And so sometimes, being some of these small caps that are domestic is more of a defensive posture as well.

Ian Cassel (04:53):
And I can’t say that’s in general, the overall landscape of microcap. But I think those are maybe three reasons why we might, as a whole, have outperformed even the NASDAQ year to date.

Trey Lockerbie (05:06):
That’s a very interesting point, that last one. The first one you made though, am I understanding correctly that you were saying it’s almost defensive. And the fact that it’s down less than, say, the bigger caps, was it because it was underperforming to begin with? As things got frosty up top, microcaps were buzzing along but not as dramatically, and so therefore-

Ian Cassel (05:25):
Yeah.

Trey Lockerbie (05:25):
… the downside has been less as well?

Ian Cassel (05:28):
No, exactly. I remember having conversations a year, year and a half ago with investors saying, “Why would I want to bother investing in microcaps when I could just buy a large-cap compound or make 35% and have less draw downs over year after year after year,” which is what we’ve experienced over the last six or seven years, so yeah.

Trey Lockerbie (05:46):
Of all the downturns you’ve experienced to date, and I know there’s been quite a few since you started doing this, how does the current market compare?

Ian Cassel (05:55):
I think this is the worst it’s been that I’ve seen since 2008, 2009. We aren’t yet level of fear that I remember from that time period. We all thought the world was ending. Like what I said in the earlier answer to your question, we haven’t really seen the economic hits, or on at least here in the US, the domestic business climate quite yet. You do in maybe housing and real estate, but not so much. I still go out to the restaurant and it’s full on a Tuesday night. You’re still seeing the consumer out and spending money. So it doesn’t mean that it’s not going to get worse, and it very well could, but I do feel like it is probably as bad as I’ve seen since oh ’08, ’09. But it’s certainly not quite as bad.

Ian Cassel (06:35):
The hardest part about dealing with draw downs is it makes you more and more short-term instead of pushing out your time horizon. And so your portfolio drops 20% and you’re excited to buy more, then it drops another 10 or 20%. You’re like, “Well, wait a minute.” Then all of a sudden, you’re on the phone with management asking them the same questions you just did the month prior because you just want to get that verification that everything’s okay. And then you buy more, and then all of a sudden, you just run out of dry powder to buy more. And then it drops another 10 or 20%, and you’re just frozen.

Ian Cassel (07:06):
And nothing’s worse… Draw downs are the most painful when you don’t have the cash and take advantage of them. And so that’s one of the lessons that I went through in the last two or three recessionary environments that I went through. It was it always feels good to at least have some cash up on the sidelines, even if it’s just a little bit, even if you’re just buying another 1% of a position somewhere. Over time, at least it makes it feel emotionally, mentally, psychologically like you’re taking advantage of the situation. And what tends to happen too is the lower things go, the more you turn yourself, at least for me being a stock picker, the more I start thinking about the macro market inflation, interest rates, Elon Musk, whatever the case may be, things that are distracting me from the micro focus.

Ian Cassel (07:51):
And so everything just gets you thinking more short-term. You can’t mentally handle being down another 10 or 20%, so you just tap out. And so it’s important to just stay in the game, stay in mentally and emotionally.

Trey Lockerbie (08:04):
You brought up Elon. I have a quick question there about that. There’s been a lot of signs, let’s say, about what the top was of 2021, and it seems like we ran up all the way to the end of the year. But around November, December timeframe, Elon sold about almost 7 billion worth of Tesla stocks, something he said he’d never do. You had things like people, NFT selling for 69 million. You had the meme stocks as you pointed out earlier, 600 or so SPACs IPO-ing. Looking back, was there anything that signaled a definitive top in the microcap market specifically?

Ian Cassel (08:37):
I think it was just a combination of all those things. I think people point to, whether it was Elon Musk selling, or point to Chamath from the SPAC boom that took place. And maybe the SPAC boom was maybe a better gauge, because generally with the SPACs, you had 100, $200 million revenue businesses that were growing 100% but also losing 100 to $200 million a year. And it’s just like, “How is that sustainable?” And I don’t want to hit on SPACs as an investor’s vehicle or anything like that. But I think it was a combination, I think, of everything. And it’s hard to disconnect from that type of environment, stay rational, because I was fairly fully invested then and I’m fairly fully invested now. And so you just have to step back and be okay, be emotionally neutral towards the current environment and keep to that kind of 3, 4, 5-year investment time horizon looking out.

Trey Lockerbie (09:27):
As investors, we’re always trying to do that, be emotionally neutral as you just said, and keep a stoic approach to investing. Almost as if we’re sharpening the skills in preparation for times these, right? I feel like a lot of discussions I’ve had in the last few years have been like, “Okay, but when the time comes, we’ll be ready.” But what tools have you used to keep you calm through the current storm we’re going through?

Ian Cassel (09:50):
I’m a concentrated stock picker. I’ve always been. I was more concentrated than my youth, but I’m still probably barely concentrated now. I’m primarily looking to invest in the best, sticks to 10 companies I could find. And to do that, you have to do the work and build the confidence to own these things through any type of volatile environment.

Ian Cassel (10:11):
I’m not a big fan of saying that you must be stoic or you must lack motion or you must get rid of your emotions. This is a very emotional game that we play. I’m investing my family’s livelihood. I have 70 other families that have given me some portion of their capital to invest with me alongside. I take that seriously. I didn’t make that money. They gave it to me. I take that trust seriously. And so I think a certain degree of emotion is good because it gets you up at the start of every day and keeps you focused on what you need to do to get the job done.

Ian Cassel (10:41):
And so I know for me with draw downs, the way I stay emotionally neutral is understanding what I can control and what I can’t control. And even the things I feel like I can control, I can’t. I’m not really in control of the outcomes. So what I can control is the micro environment. What I can’t control is where interest rates are going or when they’re going there or inflation or whatever, who’s going to go to war with whom. And so the way I deal with that is really paying attention to the micro focus, really handling that at portfolio level.

Ian Cassel (11:12):
And I think I may have explained this in a previous interview with you, but I really have call it six attributes I’m looking at when I’m investing in a business. And it’s very particular, two top-level ones, a combination of scarcity and tailwinds. I’m looking for one of one businesses when I invest in them, not one of a thousand. Not looking for another company that’s marketing the same product or services somebody else just a little bit differently. Really truly looking for one of ones. And it’s just like Picasso in the art world, the prices go up and up with people wants. When there’s something that scarce, it’s in demand. That’s what I’m looking for. And then also obviously, tailwinds. It’s easier when there’s a tailwind in your back rather a headwind in your face. And so that’s the top level.

Ian Cassel (11:55):
But the getting back in down into the four key attributes is, I’m really looking for businesses that can grow through a recessionary environment. And there’s not very many of them out there. I’m also looking for a business that has a balance sheet that can weather the storm of a bad economic climate. Not only to weather but to be aggressive so they can acquire a competitor when their competitors really can’t because they’re either over levered or they just financially can’t do anything. Also, we talked about intelligent fanaticism, I think, before. I’m looking for those great leaders that show signs of intelligent fanaticism that put great management, build a great team around them. And lastly, obviously, looking for a valuation where it can at least double my money or at least I feel like I could double my money within three years.

Ian Cassel (12:41):
And what’s exciting about the current environment to that last point is the last 6 to 12 months, specifically in microcap and also elsewhere, is you’ve had multiples contract significantly. And so for the first time in maybe a half a decade, you see that you might be able to have multiple appreciation again, which is pretty stellar when you look at some of these businesses, especially if you’re investing in good ones. The fact that hey, we might get multiple expansion again, and that’s really how you get multibaggers. You get multibaggers from really growing earnings per share and then multiple expansion over time. And so I’m really excited about the current opportunity set.

Ian Cassel (13:18):
And then lastly, we already hit on it before, but just being able to have some cash on the sidelines to take advantage of these opportunities is really, really important.

Trey Lockerbie (13:28):
That cash component is interesting to me because it takes a certain amount of discipline and probably quite a lot of discipline to have that cash in this current moment without maybe liquidating along the way. Has this been a cash position you’ve been either holding or building over the last couple years and you’re getting some gratification from having done that?

Ian Cassel (13:47):
No, I wish I could say that. Well, maybe I don’t wish I would say it was true. I’m not a big man of holding a lot of cash. I have some good friends who are great investors too that they’ve been 30, 40% cashed since 2015. I’m talking about just even having 5, 8% cash that you can take advantage of situations. And sometimes, that cash comes in into place from selling out your worst idea and redeploying that into your best ideas. So it’s not just a static cash position, but it’s just redeployment.

Trey Lockerbie (14:17):
So you don’t have 120 billion sitting around like Buffett? I got it, okay.

Ian Cassel (14:20):
Yeah.

Trey Lockerbie (14:22):
You mentioned this defensibility. Again, I’m curious with the rates rising as swiftly as they are, you said you’re seeing an increase in opportunities. I’m also curious though if you’re seeing an increase in risk, because a lot of these smaller companies, they might be just more vulnerable. Maybe they got a strong balance sheet, but the liquidity is going away, and maybe their access to cheap debt to continue building is going away. How is that impacting the current opportunity set for you?

Ian Cassel (14:47):
I would say it’s mainly a positive outcome, the current environment. Because again, I’m mainly looking for really great businesses that are cash flow positive, that have good balance sheets. And when you look at across the ecosystem of microcaps, I think 18% are profitable. And so right there, you cut out 80% of the ecosystem right out of the gate. And that’s what I tell people for the first time they’re looking at microcaps. I think it’s easy just to look at the next story stock that doesn’t revenue, but I try to caution people towards that. You can do that later on. But to start out, I would tell people to look at the income statement, what was in the profitable business are out there. And that probably cuts out 95% of the issues. You’ll have the best in the space.

Trey Lockerbie (15:31):
You mentioned having companies also that thrive through a recession, which is really interesting. I’m curious though with the investors you have now. Are you resetting expectations even further a little bit, saying, “Hey, we had this basket of stocks but they’re going to grow a little slower over the next couple years,” and what that’s going to do to performance? Or do you feel like this is actually going to propel some of these companies forward?

Ian Cassel (15:52):
I think the way I presented with investors is every investor that invests alongside me, even when they were coming on two years ago during the height of the bull market, it was, “The market’s going to draw down 30%. We’re going to draw down 40. And that’s just the way it’s going to be. You’re scared by that.” And obviously, it’s easy for them to say, “Oh yeah, I can take a volatility,” when you’re in that moment. But I think you really have to guard against people having irrational expectations. And so I think for the investor’s standpoint, I’ve warned them. And I think I have a great group of investors. They’re mainly small business owners, to be honest with you. And they understand the complexity of small business because that’s what we invest in, and it’s a bit of benefit there.

Ian Cassel (16:32):
With regards to the companies, very few, if any, have seen a decrease in growth rates. A couple of them have seen an acceleration of growth rates. So that’s why it gets really, really attractive. Not to be too simplistic, but if I think of business is going to grow 25% a year over the next three years, which is basically a doubling of their revenue over three years, and the multiples investors are currently willing to pay for that stock or historic lows, I know that probably the return on that investment will match the growth rate of that company. So I would expect to, hopefully, the stock would double over the course of three years. But if the multiple actually starts to expand again, that’s where you get the leverage on that and that’s where you can get 2, 3, 4x on your money over a course of three or four years. And right now, it’s a very opportunistic time because you’ve seen the multiples contract, 50, 60, 70% in some cases, for businesses that are profitable that are still sustaining high growth rates.

Trey Lockerbie (17:27):
You mentioned this was the most similar to 2008 that you’ve experienced, and I didn’t really get the opportunity to invest in 2008. I wish I did to some degree. I know it was a very painful experience, but gosh, there were a lot of opportunities that came out of it. And not a lot of people, I guess, really think about this, but it took quite a long time for it to bottom out. It took almost a couple of years. And so if that’s what’s ahead of us, I guess what’s throwing me a little bit, and I’m curious on your take here, is that everyone seems to be bearish right now. And I know that maybe in the markets and in the professional arena, that was the case in 2008. But on Main Street, I don’t remember that being so much the case, just people not being so privy to what was happening exactly in the market.

Trey Lockerbie (18:11):
So now that I’m more inside of it, I am just looking around being like, “Wow.” Well, you always hear this idea that the herd is not always correct and you got to go against it. So when I see everyone as bearish as they are now, it somewhat gives me pause even though this time it’s probably correct where people are just seeing all the same signals and it’s going to play out similarly. Have you been experiencing something similar to that in any degree where you’re looking around saying, “Hey, this looks… I’ve seen this movie before.” But does it give you pause at all? I’m just curious.

Ian Cassel (18:37):
No, it is. And I think you’re right. Usually, the loudest voices are bears and that’s just how it is. It’s how it’s always been. And compared to 2008, 2009, so many were ways for people to have a voice, whether it’s podcasts or whether that’s social media or what have you, and so it does seem louder. It does seem like everybody is bearish, and it does get me excited about the opportunity set. And I think what also, just because the overall markets go down more from here potentially, it doesn’t mean that some of the equities that you’re invested in, they might not go down. Some of the small cap and microcap stocks on my watch list, a lot of them hit their lows May, June, and they’re still 30, 40% off the lows. So it doesn’t mean if the stock market goes down another 10%, that everything else needs to go down 20 or even make new lows.

Ian Cassel (19:23):
So you always have to be looking at where’s this business going to be in three years and just keep to that timeframe. It’s so easy to just get caught up in what’s next quarter going to look like. Probably the worst environment that I saw was actually during Q4 earnings for last year, because that would’ve been March timeframe. And it was just, that was the worst earnings period I think I’ve ever seen where companies would come out and they would beat estimates and our stocks were down 10% the next day. If they met estimates, they were down 20%. And if they did not meet estimates for brand analyst, they were down 40. That’s when you saw these huge draw downs in some of the mega caps. And that was just an awful time period. You were just, it’s like you were juggling dynamite as an investor going into the yarding’s call because you didn’t know how bad it was going to be. You just knew it was going to bad. So a lot of ways, it felt worse earlier in the year.

Ian Cassel (20:10):
I guess maybe just the point I would make is just because the market may go down, it doesn’t mean that the stocks that you own will go down, especially if they’re higher quality. And that’s what I realized through the ’08, ’09 time period. I was mainly in three companies, and one of them was down 62% peak to trough. But it troughed in late ’08. And I think by late 2009, it was already back to its highs. And six months later, it was doubled from there. And so what you see is a lot of times quality bounces back first and I think it usually bottoms first, because people want to look at quality first to dip their toe back in the market again. And that’s what I experienced back in ’08, ’09.

Ian Cassel (20:51):
The other thing I experienced the obviously benefit of microcaps was even in that environment, there were still larger investors and larger pools of capital that were interested in owning things that were growing rapidly, earning more money, not diluting that they didn’t own. And so there was still bit support and undiscovered profitable, growing businesses.

Trey Lockerbie (21:13):
Speaking of dipping their toe in, something we’re seeing right now which is interesting is private equity taking an interest in the public markets. You had Brookfield allocating around 110 billion. What is the implication of this? And do you think we’ll start seeing a lot of, I guess, an increase in companies going private maybe in the next year?

Ian Cassel (21:30):
I wouldn’t be surprised by it. If you think about it, I think there’s usually a 6 to 18-month lag between private valuations and public valuations. So public valuations get hit first, and then it takes another year or so for private valuations to catch up. And in the interim, people racing to raise capital to take advantage of public equities being lower. And you saw that. You mentioned Brookfield raising 110 billion. Historically in MicroCapClub, we’ve had… I think we’re up to 880 companies profiled by our members since 2011, so over 10 years. And I think about 18% have been acquired, which seems like a big chunk of companies and it is, but I think it tends to ebb and flow more with the valuations overall. So I would not be surprised to see a lot of M&A activity really spark up and get more robust over the next 6 to 12 months. And I think that’s what you see in Brookfield, $110 billion raised mainly focused on Canadian public companies, which is interesting.

Ian Cassel (22:27):
And to give you an idea of the size of $110 billion, we all know what that is and means. But there was a paper written by Dr. Perritt of Perritt Funds, I think it was back in 2008, 2009, called The Microcap Advantage. And I remember reading that, and it was halfway through that white paper, he talks about just the size of the microcap ecosystem in the United States. And back then, this was obviously 12 years ago, I think he said it was around 300 billion, the entire microcap ecosystem in the US. And he went through it and said, “Okay. Well, let’s just say a third of these businesses that are microcaps are insider held, and let’s say the other third, let’s just say is somewhat owned by the large holders or institutions. So that means that basically for $100 billion, you could buy the entire float of every microcap in the United State for $100 billion, which I don’t know if Apple or Berkshire has that on their balance sheet.” But it’s funny to think about. So that gives you the size of what a $100 billion could do even today.

Ian Cassel (23:25):
And I think when I ran the numbers three or four years ago, I had a buddy at Bloomberg, I had him do some of the screening and figure it out, I think it was around 500 billion was the microcap ecosystem here in the US. So it’s similar. There’s five companies probably today that individually have a market cap over 500 billion, and that’s pretty much the size of the entire microcap space I sell. Or I read an article the other day, and actually, as I see an ant walk across my floor right now, it talked about ants. And if you were to combine all of the ants on earth into a ball, the entire mass of all the ants on earth is actually larger than all mammals’ and all birds’ mass put together, which is incredibly… Think about it, the entire mass of the ants versus of all mammals and birds. For sure, just how many ants there are in this world.

Ian Cassel (24:15):
I compare that to microcaps. There’s just a lot of microcaps out there. It’s 55% of all public companies in the US, it’s 70% of all public companies in Canada, and similar percentages around the globe. And most people haven’t heard about any single one of these companies, but they have a big influence over the economy, over everything. Here in the US, I think I looked in and it was, I think they support close to 3 or 4 million jobs in the US. It’s probably 10 or 15% of the job market in Canada. It’s a big impact that microcap has.

Trey Lockerbie (24:46):
I love that. It’s interestingly enough, I’ve heard that ants are the most like humans. They’re the most social creatures. They go to war with each other. Really fascinating. You don’t think about it like that because they’re so small, but they have, man, a lot of similarities here. I’m curious about your portfolio, a couple of things here. One is you mentioned having a strong balance sheet, but I know that you focus a lot on the founders and having them involved in the company, and sometimes that’s an important check mark for you. Are you seeing founders doing something similar? Meaning they’ve got capital, they’ve got some dry powder of their own, and they’re buying back shares. Have you seen any of that start to happen or is that something you look for?

Ian Cassel (25:23):
It is. Nothing’s better than seeing a founder or management team put skin in the game supporting the equity. And you are seeing that more and more, especially with businesses that at the business strength and the balance sheet to be able to take advantage of this environment. Because if you’re a management team and you just saw your equity go down 50, 60%, your best ROI for that cash and a balance sheet might be just buying your own shares, eating yourself. Cannibals, as you would say. And you are seeing more and more of that. And that’s, I’m also a very attracted to that as well as it relates to my portfolio.

Ian Cassel (25:58):
And again, getting back to draw downs, what I find too during draw downs is it really forces you to think deeply about what you own and why you own it. And I tend to get more concentrated during draw downs because some of the things that you have, you have two or three things in the portfolio, you’re half convicted, all those things go away when you watch things drop. You don’t have time for things that you’re half convicted in. And the best thing about this draw down too in particular is there was some violence with a draw down depending on what you were in, is a lot of times the losers in your portfolio, meaning the things that you would like to sell are down just as much as the winners, which are the things you want to buy more of. So it’s allowed you to upgrade your portfolio through this.

Ian Cassel (26:43):
And that’s what I’ve seen in my own portfolio over the last called six to nine months, just getting more and more concentrated and upgrading the portfolio and really cutting the portfolio back to those positions that you truly, truly believe in that you can’t live without. I was listening to an interview with Rick Rubin. And Rick Rubin, he’s one of the greatest music producers of all time. I think he worked with, was it BC Boys, Eminem, Metallica, Adele, Aerosmith, Dixie Chicks, Jay-Z, across many, many genres, just an amazing producer. And part of the interview, he talks about how he believes less is more. In music, it’s easy. You want to keep building upon the music, adding things to it. When in reality, a lot of times you should be cutting it away. So when he hear each individual thing and bring them together, you can actually hear each one.

Ian Cassel (27:33):
And he talked about how he builds a successful album, and he talked about how he usually, if you want to have a 10-song album, what they’ll do is he’ll work with the musician to work on 25 songs, and then they’ll cut it back to five or six songs. And then they’ll only add the ones that make it better. And I compare that way he builds a hit album to how you should be building a hit portfolio. And that’s what I’ve done over the last 6 to 12 months on my own portfolio, is really just take it down from where I was at 10 positions down to 6, where the ones I really truly believe in. And then from there, I’m only going to add something that makes that portfolio better. And so we’ve added maybe one position over the last three months during this draw down, this environment.

Ian Cassel (28:13):
And I think that’s a good lens to look at portfolio construction, at least for me being a concentrated stock figure. It’s not for everybody the way I invested. I don’t say everybody should invest like me. I would hope you wouldn’t. But that’s a way I think about it.

Trey Lockerbie (28:26):
With the idea of stripping away, you’ve added one position. Have you taken any way? Have you stripped down the portfolio yet as you mentioned there?

Ian Cassel (28:33):
Yeah. No, absolutely. No, that’s what I meant. We were at probably had 10 positions going into the end of last year. Probably stripped down about four or five positions and took it down to the bare minimum, ones that I really, really loved. And then now, adding as we see opportunity. And the one position we added is a company that I’ve followed for 10 year. I Just happened to inflect on some things where the valuation made sense and excited about the opportunity. So yeah, I stripped it down from 10 to 6, and now looking to add. But I’m fine with the portfolio being the way it is. I really am excited about what we owe and why we own it.

Trey Lockerbie (29:09):
Did you see a fundamentals shift that gave you pause in your thesis?

Ian Cassel (29:14):
Yeah, I think that’s one of the businesses that we end. Just to show you some of the volatility, one of our largest position we bought at, let’s say $10 per share, we initiate a position in early 2020, and then it hit 50 by the end of 2020. And then it went down 50% from the end of 2020 to the middle of 2021, and then it’s just meandered a little bit. And now, it’s probably slightly higher than what it was a year ago. Even though we’ve gone through the smart environment, I like to say, “Well, that position went down last year instead of this year, because markets went down this year.” But that business as a whole, that was what we invested in it. It was a $15 million revenue business growing 30% a year, and today it’s a $40 million revenue business growing 40% a year with 90% gross margins.

Ian Cassel (30:03):
And so from a multiple perspective over anything, it’s a lot cheaper than when we initiate the position in it. So you’re buying… That’s what I mean with the opportunity right now is you find some really good situations that the multiples have contracted down, they’re growing into them, and eventually that equity is going to take off again.

Trey Lockerbie (30:21):
That Rick Rubin fact is interesting about building a record or an album. And his studio Shangri La is interesting because there’s apparently no art on the walls. He keeps the walls blank so that the artist doesn’t have any impressions. The artist is able to create with no influence, if you will. But I’m curious. As a portfolio manager, we’re all looking for some influence. Is there something you’ve been using as of late to guide you and help inform you as you’ve been going along? Is there something that influences you or some resource that you build on maybe outside of MicroCapClub?

Ian Cassel (30:54):
Probably the biggest asset I have is the relationships I have with other investors. And some of that is fostered through MicroCapClub because it is a place where people at least online can meet and greet and that type of thing. But just some of the relationships that I have with other investors that invest differently than me too. You can always learn a lot about yourself when you kind of meet Bizarro Trey or Bizarro Ian, where it’s somebody that does the complete opposite of you but is successful. You can usually learn something from somebody like that. For me, it might be looking at a deep value investor, seeing how they invest or whatever it may be.

Ian Cassel (31:25):
But I really am fascinated by learning from other folks that are really successful that invest differently than me, because there’s usually one or two things that I can pick up or I thought I can apply to my investing that will be beneficial and creative to me and my investors. You don’t need to make these huge changes. A lot of times, investor maturation isn’t about making these huge step changes. It’s about little tweaks in the fringes, and that’s where the alpha’s made.

Trey Lockerbie (31:50):
Well, I imagine that was some of the impetus for starting the MicroCap Summit, and I’d like to talk a lot about that here because you just recently held this. It’s the seventh year you’ve been doing this, and you had 19 investors come and speak about strategy and even stock picks. I’m curious. Just off the top here, what were some of the big, maybe headline takeaways that stuck with you?

Ian Cassel (32:12):
Yeah. No, thanks for bringing up the summit. That just concluded last week, and this year was virtual once again. And really, what the goal of the summit is, it’s called the MicroCap Leadership Summit, it’s really to do three things. You want to have an event that educates and inspires folks, you want people to learn something, you want people to hear good investment ideas, and you also want to provide the opportunity for them to meet other people like them. And a lot of that’s easier to do in the physical form. And so this is our seventh summit this year. This was our 2020 what, third in a row that was virtual. But virtual for us had its benefits too because we’ve been getting more and more global as a community. And even when we had our event in Chicago physically in 2019, about half of the attendees flew in from overseas. So it’s a very international group. It’s getting more and more global.

Ian Cassel (33:04):
This year, it was a two-day virtual event. The first day, I tried to handpick 15 to 20, this year was 19, 19 of the best stock pickers in microcap that I knew to give short presentations, 20-minute presentations. The first 10 minutes on their process, their strategy, what made them unique, and the last 10 minutes on their favorite microcap at the current price. And so we had a wide diversity of types of microcap investors that presented from different areas of the world. And it was the first time we ever did something like this at the summit and everybody seemed to enjoy it. I always look at it as, “Okay, I’m pretty experienced in this space. What would I want to pay attention to from 8:00 AM to 5:00 PM?”

Ian Cassel (33:46):
And this is pretty cool. And so we had a really big variety of investors and ideas, and we had deep value investors, the story stock investors, and everything in between. And we’re actually starting to publicize some of those on our YouTube channel, on MicroCapClub’s YouTube channel that we’re pushing out right now. So people want to just listen in on some of them, you can do so. It’s free. But it was a great event. So that was day one.

Ian Cassel (34:09):
And then day two, tried to hand-select a dozen unique microcap companies that were very global. And so even though we only had a dozen companies, that we had seven different countries represented from Finland’s, Denmark, the UK, Australia, obviously the US, Canada, Belgium, and it was 10 million market cap companies and 300 million market cap companies. You had story stocks, value stocks, you had diagnostic companies, companies tried to build an airline company. It was a full variety. And that’s one of the tough things is, people that tune into our event, not everybody invests the same. So you’re trying to get a company or two or at least the entertainment value to where you can keep people interested in these presentations throughout the day. And I think we did that. I was really excited about the lineup we had this year. And so it was a great event. It just ended. It’s like planning a wedding every year, so I’m glad it’s over for now. But it’s always fulfilling.

Trey Lockerbie (35:06):
Were you experiencing through that summit more of a bullish or optimistic sentiment than compared to the bearish one we were just talking about?

Ian Cassel (35:15):
Yeah. No, it is. I think there’s opportunities everywhere. I know for me, I don’t know if it’s a contrary to me, but through what’s going on over in Europe, I’m more intrigued with what’s happening in Europe from an investment standpoint, what opportunities are there. And so I really tried to get some companies that were in some areas in Europe that might not be as susceptible to some of the challenges that other areas of Europe might be. So we had a company from Finland where 50% of their energy consumption comes from uranium, and so they’re not quite… It’s not like Germany where things could get really bad or things like that.

Ian Cassel (35:46):
So I tried to get some really interesting microcaps that were in some interesting countries that I knew nobody would’ve heard about. Very few people probably in those countries have heard about those companies, but they happen to be publicly traded on those local exchanges over there. And I think we showcased some of the better or a couple of the better microcap companies that are over in that area as well. So I know for me, I tried to have a global focus and also trying to understand a little bit, that, “Everybody was running away from Europe. Let’s try to showcase some European microcaps that are doing things differently.”

Trey Lockerbie (36:19):
I think I know the answer to this one, but I have to ask because something that stood out to me was a lot of these investors that spoke, they weren’t solely, or let’s say a few of them weren’t solely microcap investors. They had a strategy that would dip into micro, but other things as well. No one pitched this, but when you see companies like Google or Alphabet, for example, today trading at a PE of 18, do you ever get tempted? You’re a microcap investor, but you see some of these major caps or large-caps getting fairly cheap by historical standards. Was that a topic of discussion at all? I’m curious.

Ian Cassel (36:53):
No, we actually make sure that we don’t talk about that. No, just kidding. Only microcap-centered. No, I understand. I think there is opportunity at large-caps, and there’s even quite a few fund managers that presented on our day one of the event where they own 100 million market cap alongside Google in a portfolio, and that’s completely fine, obviously. You don’t have to be just a microcap investor, I think. To anything, everybody’s goal should just try to find the next great undiscovered company, whether that’s a billion market cap or 10 million. It doesn’t matter. Who cares? Just go find it before somebody else. That’s our marching call with our MicroCapClub.

Trey Lockerbie (37:32):
Beyond the stocks that were pitched at the summit, you featured the guests I just mentioned, that a lot of them had very unique strategies, which is I imagine the appeal and why you invited them in the first place. But were there a few strategies that stood out to you or interested you, maybe even surprised you, from their presentations?

Ian Cassel (37:50):
I’m probably somewhat biased, but there was a couple of… Well, and all of these will be public shortly on our YouTube channel. There’s one that I really enjoyed. Harris Kupperman’s was really good. People enjoyed his communication style and people would enjoy his presentation, which was just released. More of a macro type of investor that takes big swings, and he does own a microcap and that’s the one he presented. Another really great presentation was from Jason Hirschman, who’s a good friend of mine. He’s a full-time private investor, imagine his own family office, and doesn’t really have anything to sell anybody per se. But he gave his presentation itself on his process. His strategy was just really, really unique, and he’s a phenomenal investor.

Ian Cassel (38:30):
That’s the interesting thing about microcap investors and investing in general. Some of the best investors I know aren’t necessarily hedge fund managers or professional investors. Sometimes, they’re small business owners. And the best investors, really the key attribute is you’re trying to find out the truth on a company. That’s if I boil it down for its principles, that’s what it is. You’re trying to find the truth, whether that… Obviously you go into every situation reading filings, reading press releases, listening to earnings calls, reading earnings transcripts. But that’s all information the company has put out for you to read or hear or absorb. You really need to get out there and dive deeper into the situation to find actually what the truth is behind a company and where it’s going and where it’s positioned. If I’m going to find out about you, Trey, obviously I’ll talk to you. But if I really want to find out to you about you, I’ll talk to your wife, I’ll talk to your best friend, I’ll talk to your business associates. And that’s what it takes in the microcap world to find out what’s really going on.

Trey Lockerbie (39:25):
All right. You mentioned Harris Kupperman. He’s also known as Kuppy. A lot of people call him Kuppy for short, and I really liked his stock pick that he presented. You just released this along with a few others as you mentioned. For those who are unfamiliar, we interviewed Kuppy in April. It was episode 428, and he pitched this so-called Lee, L-E-E, and Lee provides local and regional news and advertising services in the US which might sound like it’s just a melting ice cube at this point, but actually, there’s this digital revenue portion silo the business that’s growing quite rapidly, and the biggest contributor to the EBITDA. The enterprise value right now is around 600 million. The market cap is 100 million, as you mentioned, growing revenues and free cash flow. This is a really interesting stock, and the annual volatility is around 50%, which stood out to me.

Trey Lockerbie (40:14):
But you know what, almost every stock we’ve talked about or that was pitched, it seems, in the microcap world has a volatility of around 50%. It seems to be par for the course there. So not a major asterisk, but something to be familiar with. I just found it really interesting. I thought that was something to maybe explore a little bit further. But another presenter was Paul Andreola, and Paul appears to be the best performing investor in the club. His stat is almost 10x. It seems like anybody else that’s on the platform there. How would you describe his strategy and what was it like to learn from him?

Ian Cassel (40:48):
Yeah, no. I’ve been friends with Paul for a lot of years. And the way our ranking system works at MicroCapClub, which is what you’re referring to, is every company that you profile, we collect it, see what the starting stock price is, and then you get points based on the performance of that stock pick. So if I had profiled something at a dollar and it goes to $2, you get 100 points. If it went to $3, you get 200 points. So the percentages are basically the amount of points you would get. And it’s the tractors too. If you profiled something at 10 and it goes to 5, it works in the opposite direction.

Ian Cassel (41:20):
And so he happened to be the one that profiled Expel a long, long time ago. I think it had 30 cents and it went to $100 dollars per share. And so that’s been the main driver of that return profile. Ironically enough, Jason Hirschman who I talked about earlier about paying attention to him when his presentation comes out, he actually owned 5% of that company from a dollar to 100. And so he’s the GOAT of holding that company. He’s an incredible investor. So yeah, I think that Paul, he is really, really good at finding these small, high growth profitable microcaps in Canada. That’s has been his focus for the last 20 years, and he is really, really good at it.

Trey Lockerbie (41:57):
And it only takes one, it seems like. That’s quite impressive.

Ian Cassel (42:00):
It’s already your point about Harris and Lee, and not specific to that company in general. You see that quite a bit in microcap where you have a business where one part of the business is declining, another one is going, is accelerating. Overall, it’s showing that the company’s not growing at all, maybe even declining, when in reality, there’s a smaller part of the business that’s growing rapidly. And it might be a business like that where it’s newspapers as well. So you’re going to go, “I don’t want anything to do with that. It doesn’t screen well because it’s not really growing.” So you find things like that, and it’s why it’s also important to dig below the surface of the financials on all these businesses, because you can find some hidden gems that are about to break through and hopefully be found by a majority of investors. And a lot of that means you just have to do the work to read through the file, leads to find out those situations. And that’s a big part of what we do as well.

Trey Lockerbie (42:53):
Now, did you present at the summit? Or did any of the MicroCapClub founders present? Because I imagine people want to hear from you as well.

Ian Cassel (43:01):
I imagine they would, but I was the emcee for the entire event, so I was exhausted. And I would much rather put other people at the pedestal rather than myself, so I just played host the whole time.

Trey Lockerbie (43:12):
Fair enough, fair enough. If you were able to see the future a little bit and you knew we were going into another year or two of a bear market, would you do anything else to hedge? And I guess what I’m asking about is maybe not hedging in the stock market, but do you look to other asset classes outside of microcap stocks just for your general portfolio?

Ian Cassel (43:30):
I don’t, but I’m not advising that. Microcap investing is the only thing I’ve been doing since I was a teenager. It’s the only thing I feel like I have an edge in. And every time I’ve tried to get into other things, I’ve got my hands slapped. So I just focus on this niche of the market. And if I knew the US was going into a recession for the next 6 months, 12 months, however long, I probably wouldn’t do anything differently than what I’m doing right now. And I don’t hedge strictly long only in the concentrated portfolio buyer caps. And my way to hedge is just being in the most unique, best companies I can find that are growing rapidly, that great balance sheets that can endure a recession and take advantage of what. And that’s the way I try to hedge out my risk. It doesn’t mean that the portfolio will not be volatile. It certainly will be. But in the long term, you always keep to that three to four year, five-year time horizon.

Trey Lockerbie (44:20):
Sid Grover from Canterbury presented TDW at the summit, and that raised a question for me. Given everything we’re seeing in the market, did a lot of people come out with energy opportunities? Or was that a bit of a theme? Or was he alone in that space?

Ian Cassel (44:36):
No, he wasn’t alone. I think we had maybe two or three investors. I believe Michael Melby who’s going to be coming out shortly, he runs Gate City Capital. That’ll be another one to pay attention to. So Michael Melby runs Gate City Capital to hedge fund. He’s mainly deep value, which everyone in deep value up until the last six months have gotten decimated, as you know. But I think he’s up 700% in the last nine years compared to 200% of the S&P and a deep value strategy. Maybe that’s somebody you pay attention to. So he pitched an idea, I believe. His was energy. And then Josh Young as well presented, and his was obviously energy too because he’s energy-centered. I think there was three energy ideas.

Trey Lockerbie (45:18):
Beyond these summits that you’ve been putting on, how do you currently spend your time building your knowledge? Are there books that you’ve been reading or currently reading? And do you stick to fiction, non-fiction? How else do you influence yourself as the artist we were speaking about earlier?

Ian Cassel (45:33):
Yeah, I mix it up. Right now, I’m reading Crime and Punishment. I’m going through a novel phase. I’m just a guy to go with loose novels. From a pure investment book standpoint, after you read a hundred books on investing, the value gain from an incremental investment book goes down and down. And so most of what you learned from that point forward is through the experiences that you get as well. And so a lot of my reading is, well on the pleasure side, would be more novel related. And then on the investing side, it would be reading obviously on individual companies and industries. So it’s mainly focused on those two areas.

Ian Cassel (46:08):
And I used to spend probably an hour or two every two or three days just doing art, charcoals and stuff like that. I do find it’s beneficial to stretch the other side of the brain because what we do is very quantitative. It’s good to cut it. And that’s why I think I’ve into this novel phase, lets the imagination go a little bit. And a lot of times that’s where your creativity is fostered too. It gives your brain some gaps to form ideas. And so it’s important for me. It’s part of the process. But right now, reading Crime and Punishment. Will probably read another novel after this one.

Ian Cassel (46:38):
The investing books that I read, obviously I like William Green who’s host on The Investor’s Podcast. I read his book. It’s amazing. But primarily, it’s industry or company-centric reading on the investing side. Probably the best book that I’ve read for investing in microcaps is a book called Sleuth Investor by Avner Mandelman, and it’s all about sleuthing and how to try to find information on companies. It gets back to the point I made before about the key to this is just finding the truth. And that’s a great book on how to sleuth and try to find non-public public information on companies, the best way to put it, unique public information. That’s probably the best book that is the most applicable to microcap investing. I think having the skills of a financial journalist or any type of journalist type will do really well at microcap. Just digging, digging, digging

Trey Lockerbie (47:32):
Very cool. And with Crime and Punishment, I’m curious, is that one of those things where you spent years or decades even reading all these non-fiction class, and now you’re finally getting able to go back to the classics that you never got around to? Because I’ve experienced that for myself as well.

Ian Cassel (47:47):
Yes, that’s exactly right. You hit the nail on the head. Suddenly, I got a stack of books I’ve been meaning to read for feels like 20 years that I’m finally getting to, so you’re exactly right.

Trey Lockerbie (47:56):
Yeah, I have to agree. Fiction is almost more important than the non-fiction in some ways. There’s a lot of research that goes in. And definitely, you can learn almost as much or more sometimes. I’m not as good though about reading fiction. I got to be honest.

Trey Lockerbie (48:08):
Well, Ian, it is always such a pleasure to have you on the show. I always look forward to these discussions. Before I let you go though, I’d like to give you an opportunity to hand off to the audience where they can learn more about you and MicroCapClub, the summit. Any other resources or books you want to share, we’d appreciate it.

Ian Cassel (48:26):
Sure, no. And thanks for the opportunity to come on the program again. It’s been a pleasure. People can find out more about me at microcapclub.com. You can also find me on Twitter. That’s @iancassel is my handle. I do run some outside capital and that website is www.if.capital.

Trey Lockerbie (48:45):
Now, can anyone join the MicroCapClub? What is it? What are the qualifications and/or requisites?

Ian Cassel (48:52):
Sure, yeah. Anybody can join in two different ways. You can either become a member or a subscriber. To become a member, which means you can participate on the forum, you write a two to three-page investment thesis on your favorite microcap stock, and we usually get 20 to 30 of those applications every month. At the end of the month, all our members vote on each one of those applications. And if you get enough votes, you get in as a member. And if you don’t, you don’t. And usually, about 10% of people get in. It’s usually the hurdle rate. And so that’s one way to join and that’s free, kind of a get in on merit. And you can also join by subscribing, which $500 a year, and that’s view-only access of the forums and the conversations that we’re having internally on microcapclub.com.

Ian Cassel (49:36):
And so internally, it just looks like a message board where somebody profiles company X, Y, Z, they write up a thesis, and that starts the thread and that starts the conversation. And since 2011, we’ve had over 800 companies profiled on there, buyer members for the last 10 plus years. It’s a great way to find ideas. It isn’t a guru service. It isn’t a, “Here, take in these 10 top picks and go make money.” This is strictly, “I want to find out what a bunch of smart people in this space of microcap investing like and why,” and then it’s up to you to make up your own decision what you want to do with that information.

Trey Lockerbie (50:12):
Well, I really encourage everyone to check it out. And especially these summits, these are unbelievable resources you’re putting on. I appreciate you actually distributing and disseminating the presentations. And for free, you can check these out on YouTube. And they’re 20 minutes long. They’re packed with amazing information from incredibly smart people. So I highly encourage you to check it out, everybody.

Trey Lockerbie (50:31):
All right. So with that, Ian, I really appreciate the time, and I hope to do it again soon.

Ian Cassel (50:37):
Thank you. Thanks for having me on.

Trey Lockerbie (50:38):
All right, everybody. That’s all we had for you this week. If you’re loving the show, don’t forget to follow us on your favorite podcast app. And if you’d be so kind, please leave us a review. It really helps the show. If you want to reach out directly, you can find me on Twitter, @TreyLockerbie. And don’t forget to check out all of the amazing resources we’ve built for theinvestorspodcast.com. You can also simply Google TIP Finance and it should pop right up. And with that, we’ll see you again next time.

Outro (51:01):
Thank you for listening to TIP. Make sure to subscribe to Millennial Investing by the Investors’ Podcast Network and learn how to achieve financial independence. 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 broadcasting.