Ian Cassel, founder of MicroCapClub and author of Stock Picker, joins Jeff Malec to walk through the underfollowed world of micro cap stocks, tiny, illiquid public companies where most 10x winners are born. He shares his journey from blowing up a dot‑com era portfolio to rebuilding it with XM Satellite Radio, explains why structural inefficiencies and lack of institutional capital create opportunity, and breaks down how he evaluates management, survives volatility, and finds small, profitable businesses that can self-fund growth.
Along the way, they compare micro caps to private equity and venture, discuss global markets from Canada to Australia, and explore why serious stock pickers and small business owners are increasingly drawn to this overlooked corner of public markets. SEND IT!
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From the Episode:
Stock Picker (Book): Amazon | MicroCapClub
RCM Golf Clinic Sept 25th Sign-up
Follow along with Ian and MicroCapClub on LinkedIn, and be sure to check out microcapclub.com to learn more about what they are up to.
Check out the complete Transcript from this week’s podcast below:
Zigs, Zags, and Finding Micro Cap Winners with Ian Cassel
Jeff Malec 00:09
Welcome to the derivative by RCM Alternatives. Send it. Hello there. Welcome back. You’re listening to the Derivative, brought to you by RCM Alternatives, where most of us are Bears fans here in Chicago. Excited for the season to get started. We’re also excited to be hosting some events in and around the President’s Cup here in Chicago. Head on over to RCMAlts.com/golf if you’re in the Chicagoland area to sign up. On to this episode, where I have to admit I didn’t know a micro cap from a micro brewery, even though we’re a Microsoft shop, and I sometimes look at my water in a microscope to see if there’s any micro plastics. So I got Ian Castle on a microphone, who’s made a career out of working the pink sheets in the OTC markets to find needles in the haystack, diamonds in the rough, whatever you want to call them. So we get into all the micro details. Send it. All right, everybody. We’re here with Ian Castle. Ian, how are you?
Ian Cassel 01:11
I’m doing great. Thanks for having me on.
Jeff Malec 01:13
And it’s Ian, not Ian.
Ian Cassel 01:16
That is correct. It’s Ian. I
Jeff Malec 01:18
can’t remember if I said this. We had Ian Weiner, defense tech on the pod earlier this year, and I was telling the story. I think of my wife had this girlfriend who had her boyfriend, and every dinner party, he’s like, “No, it’s Ian. I’m like, “Well, that’s just too hard. I’m just gonna call you Ian. I’m like, “How do you spell it? He’s like, “I A N. Yeah. So I’m glad it’s just Ian. And where where do you live? You’re in East Coast.
Ian Cassel 01:47
Yeah, I’m in Lancaster, Pennsylvania. It’s about an hour hour and a half drive west of Philadelphia. So call it you know southeastern Pennsylvania.
Jeff Malec 01:56
Are you a Phillies and Eagles fan and all that?
Ian Cassel 01:58
I am. Yeah, we’re going to a Phillies game on Sunday when they play the Braves, so it’s great.
Jeff Malec 02:02
We might have to stop the pod because you’ve overtaken the Cubs now for the top Wildcats. I was paying
Ian Cassel 02:07
attention to the Cubs, yeah, the Cubs and the Braves the last couple weeks. Yep.
Jeff Malec 02:12
And last, yes, last night we banged up Misrowski and then still lost the game. We got him pushed out and still lost. I’m like, come on, man! But that’ll be fun. I was just listening to another sports podcast. The if it’s Phillies, if the Cubs can do one and the Phillies two, it’s Bears. Eagles come and play the Bears on I think Monday night, and then that series would be Tuesday, Wednesday, Thursday.
Speaker 1 02:37
Oh wow!
Jeff Malec 02:38
All so we’d be overrun with Philly people in Chicago for four days, which isn’t the end of the world. So, what happens in Lancaster? How’d you end up there?
Ian Cassel 02:49
Born and raised in this area, I mean, Lancaster. We’re kind of known for the. We have the largest Amish community in the United States, maybe the world, right here in Lancaster. So that’s kind of what we’re known for is Amish. In fact, I think it’s like number two in industry here. So it’s a Lancaster is a very, as you could imagine, rural agrarian, conservative Bible Belt type of county. Yeah, and it’s kind of pinched between like Baltimore’s an hour south, Philadelphia’s an hour east, and then Harrisburg, at the capital of of Pennsylvania, is like 30 minutes north, so we’re kind of like pinched in between there. So, and we still have a train that can take us to Philadelphia, a train that can take us to Manhattan. So I’ve always kind of liked it here. I hated it while I was growing up when I was a teenager because it was boring. But yeah, it’s kind of like there’s like once you move away and you’re boring’s good
Jeff Malec 03:38
now. Yes,
Ian Cassel 03:39
exactly. Yeah, everything flips amazing, like so. The
Jeff Malec 03:42
I’ve always been amazed in the Northeast. Like you get a little bit out of outside of New York, Philly, and you’re in the country super fast. I’m like, right? Except for New Jersey, which paved over everything for 100 miles. Not really, if you go to Princeton, why not? But right, like how did the Northeast figure that out? Where all these right? If you go to Denver, you go to all these new cities that just keep building, expanding outwards. Who knows? That’s for a different podcast. But it always amazes me of like someone had good foresight to say, no, we’re going to keep this somewhat rural, and not just pave it all over. So micro caps, you might as well have it tattooed on your head. That’s your world.
Ian Cassel 04:30
That is my world. That’s all I do.
Jeff Malec 04:32
I know nothing of micro caps, so we’re gonna have a little education session here. I’ll start with. I’m assuming they’re smaller than small caps because they’re micro. So I’ll I’ll let you take from there. Give me the the what they are first, then we’ll dig in.
Ian Cassel 04:46
Sure. Yeah. I mean, so micro caps. You know, if you looked at the universe of stocks globally, you know, 60,000 public stocks globally across all markets, about half 30,000 are would be. Considered micro caps, so micro caps are in every market on Earth that there is a market, and it’s simply, quite honestly, it’s just a small business with a ticker symbol attached to it. It’s usually what they are, but the definition here in the U.S. would be market caps sub 500 million market cap, you know, and and that can obviously go down to 10 million market cap and 50, but everybody kind of defines it as 500 million or less, and so it’s a it’s a big bunch of it’s a lot of companies, especially here in North America. You know, kind of the U.S. and Canada. It’s about 10,000 microcaps that trade in the U.S. and on Canada. It’s probably about 60% of all you know public stocks, and you know, really the the opportunity set here is and the structural advantage in micro cap investing is that these are small companies. They have illiquid, you know, currency, which is their stock, which keeps institutional investors away. And that structural advantage has been in place for 100 years. You know, and all the most of all the greatest stock pickers from Buffett to Lynch to Greenblatt all started in micro cap, and they started here because this is where the inefficiency of this landscape is, and it’s kind of a it’s kind of a gated city where all the institutions are kept on the outside. They can only buy these stocks once they perform, go up, become more liquid, and allows kind of greater pools of capital to participate. You know, once they become small caps, and so that’s kind of the advantage of a of kind of the small astute, even private investor is this is a world where you can gain an advantage because the institutions are kept on the outside, even in today’s market with ETFs. I mean, you’re still talking about companies that trade $10,000 USD a day, you know, and so it’s just too hard for anybody managing north of $100 million to care about this ecosystem, but most of the best performing stocks originate out of micro cap. You know, so that’s the other thing.
Jeff Malec 06:52
Are we talking like pink sheet stuff? Yeah, I mean the figures are too small. That be NYSE listed on it. Yeah, I mean the figures I gave you
Ian Cassel 07:00
include the OTC on that, but the top two tiers of the OTC, which is a majority of them, I mean, they still have the same regulatory constraints as the NYSE or Nasdaq. They still have to file quarterly filings. They’re 10 Qs, 10 Ks, all those things. They’re just an OTC listed company, so the OTC is is definitely a big chunk of the U.S. percentage of microcaps trade there, but
Jeff Malec 07:26
and what does that look? If I’m on Robinhood, can I pull up some OTC symbol and trade? I don’t know
Ian Cassel 07:30
if you can on like I don’t have a Robinhood account, so I’m not sure if you can on the OTC. I’m I’m not sure. There’s because of Finra, especially it’s gotten really hard here in the U.S. to be a micro cap investor, and for the micro cap companies that are U.S. focused, because Finra has kind of come down with a hammer, and they’ve kind of labeled everything sub $5, whether you’re on the Nasdaq or OTC as penny stock, and a lot of those, a lot of the the firms and the clearinghouses just don’t want anything to do with small micro cap, specifically U.S. listed micro cap securities. We don’t have that same type of headwind in other markets like Canada. It’s a pretty fervent market. Australia, things of that nature. You know, kind of gets us to another conversation of like, do companies still go public small? Yeah, and yeah, they do. Yeah, and or they do still.
Jeff Malec 08:25
Yeah, stick a pin in that one for a second. Are the like my brain was going to is this the new private equity or is it the old private equity or something? Right of like private equity’s gotten so big and they’re buying these things before they maybe in the old days would have gone public. Like, what’s your compare and contrast with private equity, which is sort of doing the same thing, right? Small, sub $500 million companies.
Ian Cassel 08:49
It is. I mean, I kind of divide up the the small business investing universe as kind of venture capital, private equity, and then micro cap. And the irony there is those first two silos are glorified by the financial media. You know, all you hear about is how great they are. The last one, which is ours, we’re the ugly stepchild of the bunch that nobody wants to talk about. We’re just kind of perceived as penny stocks in the slimy, sleazy wasteland of uninvestable securities, and yet we all are just small businesses. That, and quite honestly, ours are at least audited, and you can see the financials, unlike the other two. So it’s a, it’s what does that look like in terms
Jeff Malec 09:26
of funding into like that pie chart? Is it? I’m sure it’s like 80% private equity, maybe it has 15% venture, 5% micro cap.
Ian Cassel 09:38
Yeah, I mean to give you to give you an idea of just how big and small the U.S. public microcap ecosystem is, if you were to take all of the microcap companies in the U.S. and kind of roll them up into a ball, the total market capitalization would be probably around 600 billion.
Jeff Malec 09:55
You know, and just like what Nvidia makes in an afternoon, and it’s yeah, or. It’s like
Ian Cassel 10:01
there’s like 20, yeah, probably 20 companies now that have individual market caps more than 600 billion. You know that trade, so you know, and so that just shows kind of how small it is, and also probably a big reason why we there isn’t much attention brought to this space because institutional capital, there was no reason to arm wave it, you know, on anywhere, you know, but the but the same structural inefficiencies, you know, that were around 50 years ago when Buffett was slinging cigar butts is still here, you know, today.
Jeff Malec 10:27
What what’s that mean? Slinging cigar butts.
Ian Cassel 10:30
Well, like he was a yeah exactly. Everyone’s still on the golf course, but yeah, yeah. But it’s a it’s it’s it’s an area that I got, I got into when I was like 20. I guess I would say 2021, and it’s all I’ve ever done. And yeah, I just think it’s an awesome place to invest in. It’s obviously has risks associated with it, and you you kind of learn by losing money.
Jeff Malec 10:55
But like all good things in life, yep. The so what did that path look like? So you were right out of college and said, “I want to be a micro cap investor.
Ian Cassel 11:04
Well, it’s
Jeff Malec 11:04
odd path. There was no guidance counselor that pulled you back.
Ian Cassel 11:07
Please, what’s wrong with you? Said no, be on private equity. You need to be on medicine. What’s wrong with you? I mean, it it kind of it started. Maybe a story worth telling. It all started when my parents, when I was a sophomore in high school. So this would have been ’96. So kind of in the start of the.com bubble, technology bubble, they kind of sat me down and said, “We save for you $20,000. You know, and this is all you’re getting. You know, we just want you to know that now, so you can make the adequate decision you want to make. And quite honestly, they didn’t they didn’t care if I went to college or not. They probably preferred I didn’t because I came from a family business. They would have wished I would have just worked for the family business instead of going to college. But I decided that they gave me control over that amount of money, and and I could have easily incinerated that on a brand new Eagle Talent or something like that back then. I had the
Jeff Malec 11:56
Mitsubishi Eclipse, which exactly the same car, right? Where they? I remember
Ian Cassel 11:59
thinking about it. I remember thinking about it. But they they allowed they open up a brokerage account with their financial advisor and put the money in there and put in my name. And wasn’t long until I was starting to get snail mail from it. And they were talking about technology stocks. And you know, a month later, I’m like, oh, buy $5,000 of that one. And of course, it doubled in like two months. And you know, look at this. Yeah, this is just is easy. Like, why isn’t everybody doing this? And then bought another one, and another one, another one, and so that was like when I was a sophomore. And then by the time I was a junior or senior, it was probably 70,000. And you know, I’d gotten bit by the greed bug, and I’m like staring at this money. I’m like, I could spend all this going to a private college at F and M here locally, or I could go to the community college and commute from my parents’ place and get a part-time job and not spend any of it and just continue to invest because it’s making money is easy, right? So that’s what I ended up doing. I ended up going to a local university, working for as a branch office administrator for an Edward Jones office in town. So it kept me attuned to the markets. I was basically a receptionist there, and then I went to school full time. And then the.com bubble peaked out 2001. My portfolio. Yeah, I was about
Jeff Malec 13:11
to do a narrator voice. Little did he know the.com bubble was around the corner,
Ian Cassel 13:16
and it was. The portfolio hit a peak of 120,000, and then it went down, and I went and hit a low of eight, eight. So yeah, went down 20 to
Jeff Malec 13:27
120 to eight,
Ian Cassel 13:29
120 to eight, and obviously learned lessons during that as well. But one of the other lessons I learned, you know, before that, I thought my next what I was going to do was going to be become a financial advisor, and then just dealing with the emotions of clients down the.com bubble downdraft, having to answer the phone and stuff like that. I was like, I don’t want to deal with clients or customers. Like, it’s hard enough dealing with my own emotions with investing, let alone other people. Yeah, I don’t want to do that anymore. And so, basically, all those small cap tech names became micro caps. They got baptized into the the underworld of of microcaps, and that’s where I got introduced to it. And I was probably 20. I would have been 21, you know, right around that time.
Jeff Malec 14:11
And there, like, what part of you is like, I’m gonna go be a dentist or something, right? Like, was there a part of you of like, this is stupid? Like, no, just I got wiped out.
Ian Cassel 14:21
It’s it’s weird. Like I’ve been reflecting on that, and you know, a lot of people say like the biggest educator, looking back on their careers or whatever, is the losses. I would still point to that first win, even though it was 110 luck, was probably the biggest biggest difference maker in my career. Even looking back today, because it it just proved that I could make money. Whether I whether I did it with luck or skill was one thing, but I I already proved myself I’d made money before. I had enough misplaced self confidence even after losing 90% of my money that I believed I could make it back again because I already made money before. So what was the name of that first stock? Do you remember? The first stock that I looked at in earnest was XM Satellite Radio, which would later merge with Sirius, and now it’s in every car. But back in 2001, it was a story stock, which just means it had no fundamentals. You know, they just launched a couple billion of satellites into space, and it was actually a stock that was 42% covered by shorts, so it was like a huge short position in it. People were betting it going to zero, and it was a 180 million dollar micro cap. It was a story stock, but obviously I didn’t care about fundamentals because I was looking at this thing. But I saw that the the CEO is going to be presenting in Manhattan at a small cap event, and I was a again a sophomore in college, and I called the conference organizer, and they said small
Jeff Malec 15:45
cap, not micro cap, small cap event. It
Ian Cassel 15:47
was a small cap event, probably because it already XM dipped too low by the time they got invited. But yeah, yeah. So I ended up convincing them to let me come to their event, and I ended up taking a bus from Lancaster, Pennsylvania, to New York City, and I couldn’t get a one-on-one meeting with Hugh Panera, the CEO. But I was able to listen to his presentation, and I followed him out the back of the room and into his one-on-one institutional meeting area, and had a 10-minute conversation with the CEO. And I don’t know, I don’t remember. I don’t remember what I said. I was just like, my eyes were as big as saucer. I’m talking to a public CEO here, you know. Anyway, I ended up taking that $8,000, buying XM at $1.78 per share, and sure enough, luck you know hit twice. They signed, they refinanced their debt the next week. They signed another OEM agreement the next week. Huge short covering rally went from $1.78 to 34 in 14 months, and ended up making all the money back from the.com bubble crash. And that’s kind of what started my love affair with micro cap investing. You know, from that point forward was, and yeah, was the fact I made money then again. But it was more so that an idiot like me could sit across the table from a CEO and feel like I could gain an informational edge, you know, and that sucked me into the. And that’s even that first experience. It’s why I’d probably put as much emphasis as I do on management teams and quality of leadership and meeting management, talking to management, visiting them as much as I do today with my investment process,
Jeff Malec 17:22
and then something you mentioned on the way, like things becoming micro caps, does that that scares me? Right of like, oh, I’m catching the falling knife on the way down, right? Is it like the micro cap is a necessary step before they go bankrupt? Like, what does that look like? Of like the odds that any of these are kind of a go to zero play, also.
Ian Cassel 17:44
I mean, I would say a decent. I don’t know what the percentages would be that ultimately go bankrupt, but you know the the odds aren’t in your favor of of catching a falling knife in micro cap, especially if it’s a a money burning business, are not in your
Jeff Malec 18:00
favor. Yeah,
Ian Cassel 18:00
correct. Yeah, it’s not not in your favor. So, and all of that would, and it’s kind of weird because I got I kind of got started investing similar to XM, where the next five years I would kind of concentrate all on story stocks again, no fundamentals, you know, and and that’s what I would hitch my sidecar to, and is like trying to find the next story, the next thing I thought was going to take off because of the story, less about fundamentals, and I would really only start caring about fundamentals, you know, seven, eight years later. And in those early years, met a couple mentors. Back then, all the activity on these small micro cap companies, because no analyst covers them, no institution owns them, is was on public stock message boards, so Yahoo Finance and Raging Bull, Investors Hub, Silicon Investor. That’s where retail investors congregated to talk about that. They they were the discords of 25 years ago, and so that’s that’s right. Ultimately, went and met some a few people that would become mentors to me and showed me some things about investing and and things like that, and so is there an index, a micro cap index? There is. It’s not a very good one. So iShares has the IWC is the symbol. It’s the iShares Microcap ETF, and it’s just not like a lot of things. the The title of it isn’t exactly what it is. You know, there’s several. I mean, there’s I think it’s I don’t know 1,400 stocks in the ETF, and maybe half of them are over a billion microcap. There’s some that are 10 billion. You know, it’s not really the correct representation.
Jeff Malec 19:41
But it sounds to me like you’re saying you wouldn’t even if you could, you wouldn’t want to own all the microcaps.
Ian Cassel 19:46
No, I think I think the worst way the worst way to get exposure is to own all of them,
Jeff Malec 19:51
for the reasons we’re talking about. A lot of them don’t have a real business, or they’re on their way down. Yeah, like
Ian Cassel 19:57
even if you even if you looked at the historic. Like since inception of IWC, the iShares, which I think goes back 1518, years, you know, it it underperforms, you know, by a lot. And I mean, it’s 78% unprofitable companies, which in today’s market works, but not in every market. And so it’s just a it’s kind of a cesspool of most mainly unprofitable companies, you know. So the the key to micro cap investing successfully is trying to find actually these small businesses that are real, that are growing revenue, profits, and they don’t need to raise any money. You know that that’s something I would learn later on.
Jeff Malec 20:36
And what is that? Right, that it almost disqualifies them from being a micro cap because all of a sudden they’ll raise money or do a deal and get right launch and have more revenue and quickly move out of that out of that. The goal, you
Ian Cassel 20:50
know, it’s hard to it’s hard to get the escape velocity. Microcap keeps trying to pull you down. You know, it seems, but you know, but but the key really is is finding those situations that have good businesses. You know, they’re not just a good story. You know, finding a good story with a good business that can actually earn money, that can self fund their growth. Ironically, ironically, it’s the companies that don’t need to access the markets. They don’t need a bank to raise them money. They just they just churn higher. I mean, in my world, especially these small micro caps, you know, just a company, and it sounds so small, but just a a micro cap that can grow revenues from $20 million, which is small, obviously for a public company, $20 million and earn half a million, to 60 million in revenue, earning five. Like that’s a 10 bagger in my world. It doesn’t sound grandiose, but that’s the beauty of micro. Like you don’t need to find the next Google. You just need to find the next small business that can grow revenues and earnings without diluting you.
Jeff Malec 21:46
And what? Give us some examples of some of the stuff some of these companies are doing. Like, is it boring, like manufacturing type stuff? Yeah, I mean,
Ian Cassel 21:54
pretty much all the industry types that you find in, you know, small, mid, large. You know, you find down here. I mean, yeah, you’re not going to find as many utilities as a microcap, but pretty much everything else, or airlines too, probably. But everything else, you’ll see all of those different areas from industrial, you know, aerospace defense, you know, all those areas are are represented down here in the microcap realm. Obviously, a lot of med tech, healthcare resources, some of the areas that are more prone because they need to raise money might have a higher percentage weighting than what you would find in you know a mid cap ETF. But for by and far, you’re you’re getting a pretty good mix across the board of of different things. And so, honestly, some of the best micro cap investors I know are just quite honestly small business owners, you know, and they they have an area of expertise in a niche of an industry, and they can dive into you know the five or six in micro cap and gain an edge there because they have an understanding of what it is because of their own business or one they used to own or a business they sold, and so that sounds a lot like private equity, right? Yeah, exactly. It is.
Jeff Malec 23:02
Yep. And then, how? Why do they go public, right? If they’re just cruising along, they’re not very big. They don’t need the banking. They don’t need the influx of capital. Like, why did they go public?
Ian Cassel 23:14
Well, they probably went public originally because they did need to raise capital.
Jeff Malec 23:19
Okay. You know, and
Ian Cassel 23:19
that might have been five years ago or 25 years ago. So the original intention usually was to raise some some amount of capital. I think the reason to remain public, and I spoke at a small business event, and like nobody ever thinks about going public as a small business anymore. But you know the reason to think about it, which none of them think about, and this is what I was presenting on, was that example I gave you. Like I could, I gave, I can give you like 10 examples of just these small, boring companies. Like you could, you could make toothpicks, and if you can grow revenues 20% the bottom line 40 or whatever, and just not dilute, you know, you’re going to trade at a 15 to 20 multiple. You don’t have to sell to private equity for four times. And so, like, if you believe in yourself and you believe in your small business that you can grow it sustainably. I mean, micro cap investors, which you know are the good ones, are very smart. Like they’re craving for actually real businesses. Right. So it’s not just
Jeff Malec 24:17
like these things out in the vacuum. There’s investors, real investors, real money, looking constantly and trying. Especially,
Ian Cassel 24:23
especially in today’s day and age, where as you know, like the world’s opened up. So, like a lot of European investors now looking to invest in U.S. microcaps, and we have. I started a community called MicroCapClub.com back in 2011 when I was a full-time private investor. And you know, today it’s you know there’s like probably 24% of the communities from Europe, 10% from Australia, and everyone’s investing in each other’s geography now. You know because the world’s opened up, you can trade in any market now.
Jeff Malec 24:51
Um, and so how many users or what’s that look like? Has that been a fun project?
Ian Cassel 24:57
Yeah, I mean it was. I so I became a full time private and. Just kind of living off my portfolio, and right after the GFC in 2009, and when I had again, I had an affinity towards public stock message boards because that’s kind of how I cut my teeth in this space, kind of building a reputation there the previous 10 years. I
Jeff Malec 25:15
built my own, yeah,
Ian Cassel 25:16
yeah, but it became like a cesspool over time, and and and I just you just kind of kind of get get sick of dealing with idiots. So I was just like, well, why don’t we just create a private forum where those of us that know what we’re doing can have a private forum? We can just talk about the ideas we like and why. And so that’s how
Jeff Malec 25:33
can moderate, know who’s who, make sure they’re legit.
Ian Cassel 25:36
Yeah, you don’t have to worry about. Especially back then, it was even more strict, and have to worry about you know grandma seeing what I posted and buying 100 shares, losing money, and then Finra shutting down my account because they think I made a you know was giving her financial advice on a public stock message board or something. You know, I just wanted everything closed off, and and so we started in 2011, and you know now it’s 15 years later, and I think we probably have the best brand in this niche of investment class, you know, micro cap club, and we also have two in-person events every year in Vegas and in Toronto. And so, kind of one of my long-term missions is to bring quality investors, quality companies back into this space. You know, keep it keep the light lit, so to speak.
Jeff Malec 26:18
Where was Finra when they were sending you pitching a tech company when you were 15.
Ian Cassel 26:23
Yeah, right. Yeah, like exactly. You should have listened to this. They pick and choose. Yeah.
Jeff Malec 26:31
And circling back, what like? Do you end up with a lot of biotech? It seems like those are like don’t have revenue yet, pre revenue, and then like if they find a if they get this new drug, that’s like a 1020, 30 bagger.
Ian Cassel 26:47
I think that’s connected the other question too. It’s like that’s here in the U.S. I would say that there’s still small companies going public, but they’re lesser quality than before. You know, there’s there’s very few WalMarts going public as a micro cap in 1971 or 1970. You know, you just don’t see that quality level of a real business going public small. That was
Jeff Malec 27:08
real. Walmart was a micro cap. Yeah, and a bunch of
Ian Cassel 27:11
them did when they were micro when they were micro caps back then. Yeah, you know, and so you just don’t see that. And what you do see is what you described. Like you still have the the company trying to raise $15 million as a go public for a phase one trial, you know, or whatever, and so you still have those kind of more story stockish industries that tend to go public. But you know, we need more of those higher quality ones, and it’s it’s it’s a shame because there’s other markets that it’s easier for companies to go public small and raise money, like Canada, it’s a better market. Australia, you still see actual real companies that are small that are profitable going public. And again, it just makes it more important today than than yesterday that a micro cap investor, you know, is looking at other markets, not just here in the U.S. I still see plenty of ideas here in the U.S. just because there’s so many of them that exist on our markets, whether that’s the OTC and Nasdaq and NYSE, and there’s still, and there’s 10. I mean, there’s more micro caps than that trade on the NYSE and Nasdaq combined. You know, so there’s plenty of things to sift through, and I’m I don’t need to own all of them. I just need to own 15 that I like. You know, so
Jeff Malec 28:20
what’s your stock
Ian Cassel 28:22
figures?
Jeff Malec 28:23
What’s your macro view on why the why groups are not going public sooner? Right, whether it’s as a micro cap or even as a like you’ll see SpaceX, all this stuff. Like I’m waiting till a trillion dollar valuation to go public. Yeah, I mean
Ian Cassel 28:38
because they can. You know, it’s like before before you couldn’t raise money privately that, or wait that long, you know. Now, now those private markets are opened up because you know everybody is invested in private equity. Every endowment is everybody, you know, wants to you know mark their mark to whatever they’re marked at, you know. And they like that continuous 20% up into the right that they feel like they’re going to get, you know, being in private equity. So we just can’t.
Jeff Malec 29:00
Yeah, you’re doing it wrong. You’re doing private equity with with daily marks. Well, and and and that’s what
Ian Cassel 29:06
scares everybody away. You know, when it comes to institutional too, it’s it’s like you know institutions like they don’t like it owning some companies where somebody buys $100 worth and that position’s marked down 10% and it ruins their bonus or their performance fee at year end, you know, and there’s more risk to there’s more risk to illiquidity than no liquidity. That makes any sense, I think.
Jeff Malec 29:30
Yeah, in their
Ian Cassel 29:31
eyes. So in
Jeff Malec 29:32
their eyes, but is it? Yeah. So that the whole growth of private equity and venture has led to more access to capital, which has led to less companies needing to get capital from the public markets.
Ian Cassel 29:44
Yeah,
Jeff Malec 29:45
right. Does that continue? You think like that’s here to stay?
Ian Cassel 29:50
I think it will. I think there. I think there’s going to be some point in in the future. Maybe you feel this way too, and maybe this is 20 years away. But I feel like at some point, like everything just merges, like the. Between a private and a public, just because all these private companies are are still trading on these private exchange, you know, where they can you can sell what you want, buy what you want, like second. Yeah, when is everything just kind of merge and everything’s just traded? You know, yeah, which are private,
Jeff Malec 30:16
which would be the crypto people, right? Like everything’s tokenized. Tokenized. Okay, this token is here and there, and I can see a price. But and that really, like, did that take some wind out of micro cap sales for a little while there? Of like, companies were creating tokens to raise money instead of going public as well.
Ian Cassel 30:34
I think so. But even so, it’s just like the again, it just makes you. I still find plenty of stuff in the U.S. to buy that I think are really good. Even the in the face of that, even like the data, you know, there was a there was a paper put out by Jenga Partners. They looked at every stock globally. Jenga partners, yeah, Jenga Partners out of the U.K. They did a white paper on. They analyzed every
Jeff Malec 30:57
pull out the wrong piece. Yeah,
Ian Cassel 30:59
yes, exactly. There’s their slogan.
Jeff Malec 31:02
Yeah,
Ian Cassel 31:02
yeah. They did this research paper where they they studied every they looked at every stock in the global markets. They looked at only the companies that went up 10x or more over the last 10 years. So I think it was 2012 to 2022, and there were several 100 companies that 10x or more across global markets, 87% originated out of the microcap ecosystem, and then. But the other interesting thing was 91% of those were profitable. You know, they weren’t some story stock or yeah. So, you know, and then then you can pull up the CRSB data and it shows like the bottom decile, which is the smallest decile in market cap, has outperformed for the last 110 years by 300 basis points. You know, and then you have Roger Ebertson. He looked at illiquidity as a factor in outperformance, and he studied all stocks from 1970 to the present, and he showed there that like actually illiquid micro caps are the best performing by like 200 basis points from the from the next area in the matrix of like large, large but liquid, large but illiquid, that type of thing. So you kind of like even put the empirical data together, and you want to be in smaller the better, the more illiquid the better, you know, and the less institutionalized the better, you know, as a starting and profitable. So and didn’t
Jeff Malec 32:24
Ibbotson’s didn’t that data get flipped on its head like two three years ago? Like the right, you could argue private equity had an edge because the illiquidity there was a discount because yeah, liquid, and then that got so much money that it actually traded at a premium, which is to what you’re saying, like those people who don’t want to get fired and want to get their quarterly boat, they’re like, “Hey, I’ll pay up for this because it’s unmarked. And so that is curious if you run the data over the next 20 years with the premium.
Ian Cassel 32:54
It would be interesting. Like it, yeah. I thought I thought the other the other interesting thing there was actually the other side of it was like what the worst performing one was, and so the worst, the best performing was illiquid microcap. The worst performing was liquid microcap, and I have a theory on why that’s the case. You know, and I I had some experience. Yeah, I had some experience with this. In just let
Jeff Malec 33:18
me interrupt you. What’s the difference there between illiquid micro cap and liquid micro. I think it’s are they all trading? They’re all trading,
Ian Cassel 33:25
but like I think it’s I think I’d have to look at his white paper how they defines liquidity. It’s like you said
Jeff Malec 33:31
of only $10,000 trades a day or something. That I think it was like what
Ian Cassel 33:34
percentage of the float trades per day or something like that was the was one of the I think was the metric, but
Jeff Malec 33:41
so not if you can trade it of or not that it’s tradable on an on a yeah they all trade they all trade can you technically trade it yeah
Ian Cassel 33:50
yeah they all trade but if you’re comparing a you know a 200 million market cap to another 200 million market cap and one trades a million shares you know at 10 and the other one trades 10,000 shares at 10, you know. It’s it’s probably how. So I think it’s. I think he was using a percentage of the float that traded daily, but it showed that the liquid segment performed the worst. And during 2008, 2009, during that that crisis period, I was invested in three companies because I was super concentrated, and one of the companies I invested in was a company called Zag. And a year prior, the new iPhone came out that Steve Jobs had. And then after people had an iPhone for the first time, they realized they needed to protect the screens on this iPhone. So when the second generation iPhone came out in June of 2008, you know people are like, “Oh crap! Well, this Zag company made screen protectors for basically cell phones, and I went and visited them in Salt Lake City, and the and the the founder and the CEO in August of 2008. This was a 65 cent stock, about a 15 million market cap, and they were profitable. And they were out of Utah. They were out of Utah, yeah. And actually, the family there-they’re the ones that created the Del Sol apparel line. You might have saw Dell Soul like in cruises or Caribbean, like the one that changes color, the shirt when you go out in the sun. So they were going to use the same strategy, which was online first means selling the product online, then mall kiosk second, and then retail third. And so they ended up doing the same thing with Zag, and the thing just took off. You know that second generation iPhone just they went from they went from 5 million in revenue, which is like nothing. This is publicly traded 5 million in revenue in ’07 to 19 million in ’08, and went from one penny in earnings in Q2 of ’08 to five cents in earnings in Q3 of ’08. Basically, it’s a 20 cent run rate on 60. Meanwhile, everything else is going. Everything’s cratering, so it took a while for people to pay attention and institutions, but ultimately they did, and they zagged, yeah, into into zag, and so yeah, they zagged into zag, and the basically peaked a trough during the GFC when the S and P was down 42% Zag was up like 300% and it taught me two things. Number one, even in that type of market environment, institutions were attracted to fast-growing, profitable businesses that they didn’t own. You know, it still got institutional inflows in that awful market environment. The second thing it taught me was even
Jeff Malec 36:32
in the when it was still micro cap,
Ian Cassel 36:33
even when it was micro.
Jeff Malec 36:35
Yeah,
Ian Cassel 36:35
and getting back to the point about liquid micro caps underperforming, I think the reason it did well was because no institutions owned it, you know. There was nobody there to sell it. And what happens in those liquid micro caps and small caps, as you’re well aware of, probably is like as soon as the markets get jittery, everybody takes risk off, you know, and they take risk off risk off assets, which are basically small cap, micro cap, and so those institutionalized micro caps,
Jeff Malec 37:00
yeah, and small cap risk just builds that as a yeah bid whack time,
Ian Cassel 37:06
bid whack time, and they just like it, you know, and so they’re constantly getting bid whacked. These small ones, those ETFs and institutions don’t own them, so they don’t own them to sell them. So if you find like a good company that’s growing revenue and earnings, you don’t have the the same amount of selling pressure or headwind in that market environment, as you would if it’s even a larger micro cap. So that that’s one of the reasons my theory is why they the performance has been so bad. You know, in that liquid micro cap kind of quartile or whatever he was showing his matrix compared to other ones,
Jeff Malec 37:38
which seems to if it’s liquid, if it’s trading a lot of money on both sides, there’s people wanting to get out too, right?
Ian Cassel 37:45
Yeah, exactly.
Jeff Malec 37:46
Unfortunately for Zach, I’ve moved to no case on my phone, no screen protector.
Ian Cassel 37:51
I don’t use one either. I mean, Zagat Zag ultimately so went up. It ended up going from 60 cents to $16 in like 18 months, and then it ultimately got acquired. Not until like five, six years ago, though, 2020.
Jeff Malec 38:14
What’s your process look like? You’ll get out along the way. Do you have a profit target, or do you
Ian Cassel 38:20
wait for some event like that of like once they go over out of micro cap space, I’m getting out, or once they get acquired, I’m getting out. Well, there’s a few different buckets there, but I’ll say like probably the first reason I would sell is if I feel like my thesis is broken, which happens. That’s probably number one reason, you know, because it’s these are still fragile small businesses, and you know that just the shelf lives on them are shorter than kind of the larger cap companies, you know. And so, like a lot of times, the the winning these even the winners have winning seasons. They’re not necessarily winning decades. You know, it’s a small company getting a big contract, and all of a sudden they’re growing 40% year over year because of this one contract. You know, and it shows amazing growth for four quarters, but management wasn’t good enough to replace that contract with another one, let alone two of them, so they can grow for the second year. Or it’s you know, so a lot of times, like these winners in micro cap are kind of they win for two to eight quarters, the 10 quarters. There’s very it’s hard to find ones that can grow sustainably over a decade-that’s the goal that I’m trying to find. But I’m trying to find those types of situations. But there’s a successful micro cap investor is it’s it’s a very high turnover strategy. I’ll put it that way. Yeah, like you need to be on top of yes. And are they mainly like one-trick ponies, right? If for sure, right, because they’re not big, diversified conglomerates that could survive different things with a bunch of different product lines. You’re you’re on the same, yeah, exactly. Like there’s these smaller businesses, just like the small private business down there. They’re just filled with concentration risk, you know, key man risk. They probably. Have a few customers, probably selling a few products into a few jurisdictions or wherever you know. So it’s like just the volatility of outcomes, you know, is just wider, and and usually bad outcomes. To be honest with you, so you just have to be cognizant of that. That selling is a big part of being a successful micro cap investor. Is trying to keep your nose to what the business is doing and telling you, and not staying around too long as soon as you believe that your investment thesis is cracking. So,
Jeff Malec 40:31
and how how are these founders and whatever execs at these companies in in communication? Right, like it seems like they’d almost be too small to have the investor relations that other groups, analysts would you know rely on to get the the data and the communications.
Ian Cassel 40:49
Some of them, some of them have no investor relation. I mean, again, wide spectrum from you know nothing to they do have an external IR firm or an internal person handling IR, so you see everything in between. I think for me, what attracted me to the space was my experience with the XM Sally Radio, you know, CEO 25 years ago. Is just I could even access it. May I use course of means to do so, but yeah, I could access them. And I think in general, the microcap CEOs, they they’re fine talking to people as long as you know they’re not asking dumb questions. That they did they did their work, you know. It’s just like put yourself in your shoes. If you’re a small business owner, it’s like you’re okay talking to somebody if they want to ask you questions, but you know don’t ask me what I do or you know it’s just like come prepared. You know, and there’s enough information out there on these companies through their financial filings and their website and different things, especially in today’s day and age with AI, you can you can come with some good questions.
Jeff Malec 41:49
And why why isn’t PE buying these things, or are they? Are they like stopping up? Yeah. So right, just full pull the whole thing out. Yeah, take it private.
Ian Cassel 42:00
Yeah, we see a lot of that. Like to give you an example, I think it was. I’m trying to remember the numbers. I’ll tell my head. So even a micro cap club. So the way you get into it is it’s free, you know. But you have to submit an investment thesis on your favorite micro cap stock, like a two to three page investment thesis. And if you get enough votes from the members to get in, you get in. If you don’t, you don’t so over over the last 20 yeah over the last 15 years there’s like 1500 companies so like that that first post is like the the first post and then the discussion happens from there below it so we have like 1500 of these companies on there we track the performance of all of them from when they were posted and we have a member ranking based on you know how how many companies a a member profiles and their performance, you know, of everything they profiled. So we look at that data too. But on those, create
Jeff Malec 42:48
your own index. Exactly.
Ian Cassel 42:49
Yeah, we have we’ve done that before. And so the so when you look at how many were acquired out of the 1500, I think it’s like up to 380 or 370, something like that. It’s it’s a it’s not a it’s not an immaterial amount of M and A, and it’s usually coming from from private equity,
Jeff Malec 43:08
right? Not a larger a small cap buying it, right? So do you get to travel a lot and go meet with all these groups? Like how how often you’re on the road, and where are these? You’re saying Australia, Canada, all over. Yeah, I mean, I
Ian Cassel 43:21
for some, you know, just like there’s such a variety of companies and industries, same as up in large cap. Same thing for the investors. You know, like we have we have deep value investors, we have hyper growth investors. You know, industry focus investors that only invest in oil and gas. You have the same flavors of investing down here, my flavor investing the way I invest, which isn’t the right way for everybody else, but it’s very management focused, you know. And so I do talk to management. I go visit them at their headquarters, every single one of them, you know. And I talk to them frequently for like I
Jeff Malec 43:58
don’t care what you’re doing, I care who’s doing
Ian Cassel 44:00
it. Yeah, and I well, and I feel like in today’s day and age, with AI and pretty much anything that’s publicly accessible becoming a commodity, you know, I feel like the the edge is actually what the edge always was. It was you know this, getting getting across the table from somebody, spending time around them for more than two or three hours, so that you get past the sound bites and you you get to see who they really are, you know, and that’s what I try to do, you know, with the management teams as well.
Jeff Malec 44:26
And then your oh eight story of Zag, I love that name by the way. Do you assign? Do you is your portfolio correlated to the overall market? Do you want it to be? Is it uncorrelated? Like, what? How do people think about that? Of like, this is part of my equity allocation, or this is kind of an alternative allocation.
Ian Cassel 44:48
I think if you’re looking at micro cap as a whole, you know, if you’re looking at iShares micro cap ETF, I think there’s there’s more downside when the market goes down normally, and there’s less upside when the market. Goes up, you know. Great, like as as where do I not sign up? Exactly. Hey, I have something to sell you. But I think if you’re looking at real stock pickers, the way they do it, you know, and in my portfolio, 15, it really getting back to Zag, it really zigs and zags. You know, it’s like I can I can look like a hero in a bad market, I can look like an idiot in a good market, and everything in between. You know, like even COVID, when the market was down what 32% in a month. You know, during COVID, like we were down 3% You know, and it’s just it doesn’t mean I’m like amazing. It’s just sometimes the positions zig and zag too. Keep on using that. So I think it’s just it really depends on where you’re positioned, and you know I always I I don’t pay attention to the macro too much because I feel like if I can handle the micro, which is the company level, you know, is this business one that can grow through a recession? Yeah, it’s a very high hurdle, and that’s meant to be a high hurdle. I don’t have to invest in anything. Everything, I mean, you know, do they have a a balance sheet that can endure, you know, a recession? God forbid, you know, you know, just like these qualitative kind of filters. Do they have what I believe is good leadership, which I kind of define as intelligent fanatics? Co-authored two books on that subject, you know, and so for me, pretty much the commonality across my positions, the way I invest, is the leadership side. Like the more, the most important thing I look at is the CEO, the leadership team of the company.
Jeff Malec 46:33
And what? So not necessarily correlated stocks, but is it highly correlated to rates? Like, is it right? Small caps have basically just been trading opposite rates for much of the last three, four years. Are these coming? Maybe you’re picking ones out that aren’t heavily levered and don’t have that rate exposure. Like that’s part of the puzzle for you.
Ian Cassel 46:53
Yeah, I mean exactly. Like I’m trying to to find solid enough, durable enough businesses that are also growth stories that also have a good story, that that that like increase in
Jeff Malec 47:06
rates doesn’t kill. Yeah, yeah,
Ian Cassel 47:07
yeah. Like my, the perfect situation for me is actually finding finding a business that’s in a in a tailwind. You know where that’s a theme, where that’s a technol technological tailwind, or what have you, and then finding the micro cap that is the best benefactor of that tailwind before it hits, so it proves scarcity, you know. And so it’s kind of like a fire hose of institutional interest hitting like one or two things. And I’ve done well, kind of with that theme of tailwind and scarcity. You want to find unique businesses that are high high organic growth rates because that’s kind of what Zag taught us that are profitable. You know, institutions will find them and they will overpay for them. I want to find things that are undervalued that can get overvalued.
Jeff Malec 47:55
And but what does that look like? Finding the company first and then buying into that tailwind or finding the tailwind first?
Ian Cassel 48:01
A lot of times, it’s a little bit of both, and you know the risk is you get in early. You know, and early can be wrong if you get in too early. But a lot of it’s both of that. You know, a funny story that one another investment that I had is kind of a perfect example of the tailwind side. Before Facebook went public a year before, the only social media website that was publicly traded was capasso.com. It was a it was a Spanish social. It was a Spanish social network, and it was a micro cap. It was like $1 a share, and and I knew that there would be all this buzz about Facebook going public, you know. And so that was one of those things where I bought it because there was a tailwind coming, and there was only one thing that institutions or anybody could buy, you know, if they wanted another way to play that social media trade, you know, and that and that K Passa.com, you know, 10x in 12 months, you know, just because that played out, you know. So you can you can kind of find these areas like that in different ways. I don’t really, I’m not looking really to find a fatter trend like that, but that’s kind of a good encapsulation of what I’m talking about. Like find a tailwind, you know, where there’s only one or two benefactors that are that are a high growth company that’s profitable. Like that’s the secret sauce,
Jeff Malec 49:13
right? But you’re not out of like, yeah, I can’t even think of an example because I’m my brain doesn’t work like it. But like out at the mall, no one goes to the mall anymore. But whatever, you’re in the airport and you see all the people in leisure wear or whatever, and you’re like, okay, let me find one of these small leisure wear groups, right? Yeah, Viore. Maybe Viore was a micro camp. I don’t know. It probably would
Ian Cassel 49:35
have. That would be a good Peter Lynch example. I mean, a lot of the things that trigger, honestly, the thing that triggers me the most to a situation is the management team. It’s usually a management change in a small company, and it’s usually the type of management change where you look at their their bios and you see that they had they had a lot of success in the past. These are repeat winning people joining some obscure, really small micro cap company. You know, and just leads you to believe like they’re not here to waste time and waste their money. They’re here to bring the team back together again and grow something again. And so that’s sort of a that’s one of the main things I look for is kind of management transitions with repeat winning management teams that are almost overqualified to be in in charge of this micro cap company. Yeah, yep.
Jeff Malec 50:20
Which what we did a podcast with Roadrunner, I believe, or Echo Echo Logistics or something, right? One of these backhaul booking companies, and that founder had he had a separate like consulting company that he would kind of come in. He’s like, okay, fix this now. Moving my whole team now. I’m going to come in, fix this one. Yeah,
RCM Alternatives 50:39
yeah.
Jeff Malec 50:49
You got a book coming out. Let me guess what it’s about: micro caps,
Ian Cassel 50:54
large caps. No, yeah, large caps. Tell us about the book. How this your first book? Sort of. I mean, I co we co-authored two books on that topic of intelligent fanatics like 10 years ago. So this would be like the first one I did like on my on my life and journey and and things of that nature. So and on micro cap investing. So yeah, this so I would say it’s my first book as it relates to that. But yeah, it’s it’s coming out september 15. It’s called Stock Picker. It kind of retells my story and my narrative. You know, some of the lessons I’ve learned investing in this volatile investment class over the last 20 years. So, you know, I think people have been drawn to my my narrative over the years. You know, first from the pursuit of just being a full-time investor, private investor, just living off your own portfolio for 10 years and raising a family and having the the emotions of having to pay bills in a drawdown, you know. And so I get to retell some of that. You know, and also, what is that? Does
Jeff Malec 51:56
that mess with your thesis? Because you need like distributions and stuff, right? You need money coming out.
Ian Cassel 52:01
No,
Jeff Malec 52:02
it’s or is that maybe a good thing because that forces you to exit?
Ian Cassel 52:06
I think it’s a it’s a it’s difficult. I think depending on your strategy, it could be more difficult. Like for me, oh, I think if you’re a trader, you know your your duration of your hold time is less. You know, I I don’t think it’s probably as bad because your your trade frequency kind of mimics getting a paycheck, you know. But if you’re more of a longer term investor like I am, where I don’t know if my returns coming in six months, 12 months, or 24 months, and I might have to be down 30% before I get to the other side, you know, that’s that’s where it gets more emotionally and psychologically problematic, and so
Jeff Malec 52:42
yeah,
Ian Cassel 52:43
you know, for me, when I made the decision, it was actually less about what I thought I can do with the portfolio every year. You know, like oh, I think I can do 25% for the next 10 years. It was less about that and more about what’s the pain that I can endure and not change my strategy, like the amount of money. And having gone through the GFC, you know, I kind of figured, okay, I need an amount of money where I can go down 50% and it’s not going to change who I am and the strategy. And I need to put away two years of cash of my living expenses so I don’t have to sell at the worst time. So you kind of set up these safeguards depending on your strategy and your financial situation, and listen, when I did it too, I was single, you know. And the next year, yeah, next year I got married, and then you layer layer on that, and the kind of the the increased financial burden because you know wives don’t like to rent; they like to own a house, so I had to buy a house, you know. And then you have kids, and so it just kind of waits on you more and more over time, but that’s just part of the the processes as well. So there’s a lot there to unpack.
Jeff Malec 53:45
Yeah, that’s fine. I a friend of mine, private equity in the city here, and he rented for ages, and he’s like, no, I this capital’s way better in the investments I can identify than like sitting in this stupid Chicago brownstone thing. I would
Ian Cassel 54:01
still, I would still be renting today. It was up to me. Let’s put it that way. Yeah,
Jeff Malec 54:06
right. It’s like a little. It’s like a cheat code. It’s like a portable alpha kind of thing. Like, hey, rent this capital doesn’t need to be tied up over here.
Ian Cassel 54:13
Well, it’s and it’s also like it’s a it’s an interesting, like just with my wife, her understanding kind of our situation and how that’s different. Like you know, there’s no like. Well, how do we save for our kids’ college? Like, how do we do this? And because I’m just like, there’s no such thing as savings. Like, it’s just spending, just different degrees of spending. Yeah, that’s how you
Jeff Malec 54:33
sound like Jason Buck. Did you teach him that, or he taught? Yeah,
Ian Cassel 54:37
I don’t know. I don’t know. I we’ve talked about this before. Yeah, yeah, yeah.
Jeff Malec 54:41
He’s big on that one. There’s no such thing as savings. I’m like, yeah, okay. I had the last podcast was an investment advisor. I was like, you need to start telling people when they meet a girl in the bar, start saving for elementary school, right? Because Chicago’s like grade school costs $40,000 a year. It’s
Ian Cassel 54:58
ridiculous.
Jeff Malec 54:59
Yeah. You know to start saving when the kid’s born, but you need to even before that.
Ian Cassel 55:04
Kids are expensive. Like my buddy who lives in Chicago, his his kids into hockey, and I was like, oh god. He’s like Ian. He’s like, he’s like, I think I spend like $20,000 a year just on hockey. I’m like, it’s just ridiculous. It’s like the most blue blue collar sport that you would think would be the cheapest is the most expensive. You know? No,
Jeff Malec 55:20
those sticks are now like 600 bucks or something. Like they break all the time. My my buddy’s like, oh, there we go. I see him in the stands, the stick breaks. He’s just like, um. And so in the book, do you go into like how much you think people should like? What’s your what’s your end goal to get people into this space? Like you should be putting 5% into it, 1050, or just like who cares if you get one guy who’s like I love this space and let’s let’s rap about it.
Ian Cassel 55:48
Yeah, I mean I think the well first of all the purpose of the book was just to retell my story, tell people more about investing. I think people are generally interested in full time private investing. I think people are are generally interested in finding small companies before they become big, so I think it’s a, and I think I lay it out pretty well. Like, this is not an invest like me book. This is not a guru. Look how smart I am book. This is more me retelling my story so people can see how I attacked some of these things, and then hopefully that without
Jeff Malec 56:16
having to go from 120 to eight, they can exactly without without having
Ian Cassel 56:20
to do that, although you know a lot of times you know those are the most informative and educational or the painful lessons too. So yeah, they serve a purpose too.
Jeff Malec 56:31
But what’s your answer to that? If if someone wants this in their portfolio, a how do they get it, and b or can’t they? It’s just like no, you’re either in this stock picking world and you’re a stock picker, or forget about it. Own the SPY, call it a day.
Ian Cassel 56:44
You know, I think if you want to be an active stock picker and you’re willing, not willing, you have to do your own work. You know, because these companies that are small, there’s no analyst covers, there’s no safety net there of institutional backing. Like you have to do the work yourself, and if you’re not willing to do that, you know, don’t expect to outperform by subscribing to somebody by, you know, getting somebody’s next greatest picks. Because, you know, if you’re trying to outperform by by doing that, you’re just not going to do it. It’s going to end a disaster. But I think there is a certain percentage of people that do want to be in control, and they do enjoy the process of investing investing and doing primary research, and I think for them it makes a lot of sense. But you’re you’re also going to lose money along the way, and that’s that’s part of the that’s part of the journey. But for when it comes to allocating to micro cap, like I have a fund now, so I can’t call myself a full time private investor. Launched a fund in 2019, and that’s where all my money is, and about 60 partners in there. But what I tell people for that is, and I’m genuine, like I’m not looking to invest all of your money. You know, this should be like 5% of your investable portfolio because this is a volatile and a very volatile investment class. That you know, when the S and P does this, we’re going to be doing this, you know, and you have to position size it accordingly to have the duration to get to the other side of outperformance, you know, on this investment class because there’s years that you’re going to look like an idiot, even though the market’s outperforming, you know, and all those things. So, so position sizing, you know, is important, and for, but for me, you know, even in the fund, like we’re we’re not an institutional fund. You know, it’s like what I found is the best investors, like for my fund, are small business owners. You know, they gravitate to this type of investing because it reminds them of the businesses they own or owned. You know, and it’s
Jeff Malec 58:38
almost right, like, hey, I’m killing myself making this thing profitable, if I could get access, what if I had 10 of those? Yeah, yeah, without actually having to have 10 of them.
Ian Cassel 58:46
They just have an affinity for for the space, and they understand volatility with small business because they ran one before. You know,
Jeff Malec 58:52
but do they are they wanting to know too many details? Like, what’s this company doing? What’s their
Ian Cassel 58:57
they? I think manufacturing their widget X. Yeah, I think I think the a lot of them, I mean, they can become really good assets to the fund manager because there are certain these individuals, you know, small business owners that have some expertise and knowledge in a specific area that can be an asset to to me. So I do use them kind of as assets, you know, when doing research or diligence, and you know, not all of them want to get in the nitty gritty details. They trust me to do that, but but I I tend to I tend to think that and believe and know that they’re just a better investor for my type of investing. You know, because they naturally do the right thing instead of the wrong thing during drawdowns. You know, during COVID when we were down, you know, with the market before we bounced back, you know, nobody was calling, screaming at me for being down. It was is now a good time to add, you know, because they already have that volatility mindset in their head, you know. So they’re just a better investor than an endowment looking to place 10 million. You have to worry about the CIO change. Over,
Jeff Malec 1:00:01
right, and how big could that get? Like, then you have to you have to worry about capacity there, so you can keep getting in and out of things. Yeah, so like
Ian Cassel 1:00:10
we we we’re pretty small in well by fund standards we have 40 million, and that’s a good size. You know, I don’t usually lead talking about the fund because I don’t really want to market it. Usually, people kind of self-select in, and we don’t we open up when we’re down a lot. Sometimes you know that’s that’s the right time for people to come in. But right now we’ve we kind of have a hybrid approach, the micro cap space, which has been it’s been fun because we have taken kind of a private equity plus a micro cap, buying the open market, you know, doing like kind of small strategic placements in some of these companies, providing them some growth capital, you know, as well as buying the open market. So it’s kind of a a mix between I would call private equity and and public equity.
Jeff Malec 1:00:55
Yeah, why not make why not have the fund become a micro cat. You could have a nice
Ian Cassel 1:01:02
awful. I think history history has shown that most people that like try to do, you know, whether it’s Internet Capital Group from way back in the day or that, you know, it just always trades well below NAV, and you never get a premium. So what’s the point? You know,
Jeff Malec 1:01:16
yeah. I guess like most all those Black zone and all those have traded way below. Yeah, we’ll finish it back to Philly sports. Your Mount Rushmore, your top four Philadelphia athletes all time.
Ian Cassel 1:01:39
Well, Any sport, I’ve never really been a hockey fan, so I feel bad. Like, so I’m that like completely gets out of the window. So I probably stick to, I probably stick to baseball because that’s always been. I I just like Mike Schmidt. I and because I’ve been to a few games during the 2008 years, you know, like the Ryan Howards of this world, but also the 93 Phillies. I love Lenny Dykstra and John Crock.
Jeff Malec 1:02:05
Cruck, he looks great these days. He does on the yeah
Ian Cassel 1:02:08
yeah yeah no he he does, and so yeah. I don’t know. I I it’s hard for me to say like I definitely have my favorites, you know. But it’s hard to compare one generation to the next. You know, just like everybody tries to say so and so is the next Jordan or something. It’s just that you just can’t do that, you know. Although Jordan is the best, but as you’re hearing,
Jeff Malec 1:02:25
yes, thank you, thank you. You’re welcome. Yeah, required to say that. And now you got LeBron speaking to Jordan. So yeah,
Ian Cassel 1:02:33
I know. I’m looking forward to that. Tickets are higher now, but it’s okay.
Jeff Malec 1:02:37
And gimme Eagles better worse same as last year.
Ian Cassel 1:02:44
They’re just so hard to predict. I I find it very frustrating. I’m an Eagles fan, but I’m I’m not like a diehard you know I’m going to beat you up because you have a Cowboys jersey on type of fan. But
Jeff Malec 1:02:54
yeah, that’s my brother in law. But yeah, all right, and it’s been fun. Thanks so much. Tell everyone where to get the book. We’ll put a link, but it’ll be out Amazon. Yeah, where do they get
Ian Cassel 1:03:10
it? Book the book’s called Stock Picker. It’s going to be on Amazon. You know, everywhere that books are sold, it’s going to be out september 15. Yeah, so hopefully, hopefully, go out and get it. You can find me on X, which is just my name, Ian Castle. You can find me talking about stocks and stuff like that on MicroCapClub.com. You can find me in person at our events at PlanetMicroCap.com. Love it. Cool. You need to come do one in Chicago, around all that Philly, Chicago sports action. We used to have it in Chicago. Oh, nice! Yeah, awesome. Thanks again.
Jeff Malec 1:03:47
Okay, that’s it for the pod. Thanks to Ian. Thanks to RSAM for sponsoring. Thanks to Jeff Burger for producing. We’ll be back next week, I believe. Maybe the week after that. Stay tuned. Peace. Go Bears!
This transcript was compiled automatically via Otter.AI and as such may include typos and errors the artificial intelligence did not pick up correctly.
