Newsletter - April 6th, 2024

Dear Reader,

Attached is our latest list of stocks passing value screens (low P/E, below net current asset value, etc.), which don’t meet our investment criteria - and our reasoning.

This may help you avoid some ‘value traps’, and stocks that aren’t sufficiently attractive compared to opportunities available today.

For reports of stocks that pass our quantitative and qualitative standards:

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Micro-cap Growth: Cassel

Cassel is a concentrated micro/small-cap 'growth' investor. Except for the size of companies we look at, his professed style is very different from ours but there are some useful points in the interview below:

31:45 Process

• "Scarce" businesses that are publicly traded - dominant in its niche

• Small growing profitable businesses

• Good balance sheets to endure and capitalize on recessions

• "Great" leadership

• Double money in three years based on fundamentals

• Partnership relationship with management

46:15 Related party red flags

Related party transactions are particularly prevalent in smaller companies. Watch out for transactions with insiders (e.g. office rentals, consulting services, purchases of materials, etc.) at the expense of minority shareholders - to rate management fidelity.

49:45 Disconnect price from value

Formulate your own opinions on the value of businesses - and exploit price/value discrepancies in the market. If you let Mr. Market dictate value, you're probably in the wrong business.

52:45 Dilution

Look for small profitable growing businesses with little dilution. Growth is worse than useless if your ownership stake is disproportionately diluted in the process via equity capital raises.

58:45 Bad news

Most small companies evolve in "bad" ways - chances of disappointment are high. These could be adverse changes in business dynamics, loss of trust in management, etc.

It's important to stay vigilant when investing in smaller companies.

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Wish you an excellent week ahead.