no_free_lunch

You could check out shadowstock: http://shadowstock.blogspot.ca Just as a warning though, lately my virus scanner has been throwing fits whenever I go there. Probably just an ad with some malware or possibly my virus scanner being silly but I thought I should warn you. There was a blog post on basically this same topic last year. If you search for shadow stock you might be able to find it. My experience with micro-caps is that they can definitely be rewarding but they require significant time to find and I am never comfortable enough to put more than small amounts into them. So I end up with all these 2,3% positions and each one takes hours and hours to find and research. However, if you are very disciplined and have time time I think you can do well. I would just run a filter on the tsx venture and exclude all resource companies.

It's not *exactly* the same but you can look at the horizon kinetics wealth master index. I don't know if it's been verified by a 3rd party but they claim that an index of individuals owning $100M+ of stock has beaten the S&P by 2.7% per year over the past 20 years. http://www.horizonkinetics.com/docs/CC_112_Jun13.pdf There are other studies you can dig up if you're curious that indicate that companies with large insider ownership tend to outperform. Now a CEO with large ownership is not necessarily a great capital allocator but if you follows siddharth's definition of individuals who benefit by increase in per share value, certainly those with insider ownership would qualify.

I know you are looking for these companies at an early stage but the proof is always in the pudding as they say. You need some kind of track record to verify their capital allocation, otherwise it's just talk. Also, a lot of the real outsiders worked into their 70's+, so no reason you can't have a 5 to 10 year track record and still make a killing. Ideally I think you want a full business cycle to test on and you need variance in their actions. Did they buy stock when it was cheap and issue when it was expensive? Or, did they take advantage of the crash to scoop up competitors and pull back at the peak? I see too many guys get called out for being buffets or john malone but their track record is only a few years long or worse, their preceding record is a long flat line.

VRX

For those who care about such things, it sounds like turtle creek had cash in '99 but have otherwise remained fully invested. From what I can interpret from their most recent quarterly report they are still fully invested today.

THRX seems a bit too complicated for me. At the high level it's an amazing story, you have Seth Klarman and GSK holding huge positions. GSK will be paying out royalties to THRX so they know the business better than anyone. Both parties have purchased shares at higher prices. You also have a spinoff to potentially unlock some value. So at that 50,000 ft level it looks great. However, when you dig into the sales estimates for the COPD drugs they are all over the map. Peak sales from $1B to $4B. At $4B it's a steal and will probably double or more, it will go down to the teens at $1B. So for someone outside of the sector it is a tough call. I guess, in either scenario it doesn't seem likely to be a 0, maybe a 50% loss assuming something doesn't go horribly wrong with the drugs. It seems you basically just have to trust the major holders to buy into it. Honestly that's probably as good a thesis as any but I generally like to have a better feel for the fundamentals. Am I missing anything?

Payday lenders / pawn shops are out of favor at the moment. EZPW seems too cheap relative to past earning level and growth.

Thanks for the link writser. That's an awesome data source. Good pick. I am going to post the seaspan section to it's appropriate forum page.

I wanted to put a post in about a canadian hedge fund manager I came across but it looks like he was already mentioned here. At any rate, I came across Donville Kent, a hedge fund managed by Jason Donville. If you read his letters he has an approach and outlook that would be very familiar to those on the board. I came across the guy as he owns a couple of other stocks I am familiar with (Constellation and Valeant). Reading through his site, I was able to add a few more holdings of his to my watch-list. This quote from the most recent report gives a good taste of his approach: http://www.donvillekent.com/pdf/DKAM-Newsletter_January_2014_Final.pdf He references home capital group in the newsletter, which apparently has been growing 20%+ for over a decade. I am going to do some digging on it but it looks like it has already run up considerably.

I agree, $8k is a hardcore budget. What country do you live in?

Thanks for all the replies. I am going to give an example, just to quantify things. The company was trading for say $1 and had a secondary offering of a stock/warrant unit. The units were sold for $0.90 and provide one stock and half of a warrant with the warrant expiring in 18 months with a strike at $1.2. So with the stock alone they are getting a 10% discount to the current price with the half warrant being thrown in for free. Given it's volatility, I think the warrant is worth at least $.20. On the other hand, I think the stock could double in 2 years. The management has an acquisition strategy and has been sticking with it to date. It is just this share issuance that has made me question their thought process. Are these good enough odds to ignore the serious dilution that just occurred?

LMCA. Malone has levers. He should be able to use them to produce some decent alpha.

I have noticed that it is quite common for small companies (especially microcaps) to have secondary offerings of their shares. Sometimes stock and options are issued as a unit. Generally the offering is below the current stock price and so you effectively get diluted. I am just wondering if this isn't a huge red-flag or if it is just a standard part of investing in micro-caps? If the stock is quite cheap but occasionally does this type of thing, would you still buy it?

prevalou, Thanks for the feedback! I knew ADT was a comp but I don't follow them, my bad I guess. You are right on the FCF as well, found it in the citigroup conference presentation. It still seems fairly cheap though given their historical growth. I know it is with acquisitions but historically the acquisitions have translated well on a FCF / share metric. The biggest issue I see is a fairly shallow moat and Malone selling a big chunk of shares. I will probably watch them for awhile longer.

No, ascent capital group. It's basically a holding company that buys home security companies. It appears very cheap on most metrics but with the recent price slide and so little news I wonder if I am just missing something.

Didn't buy it but am seriously looking at ASCMA, a john malone step child. It looks like it has about a 14% FCF yield and has been growing 30-40% per year. I am just not sure why it has plunged so much recently, I think it is down over 20% in the past couple of weeks on no news. Anyone have any opinions on it?

Turar, Those are salary rates. Consulting rates are usually considerably higher since there are no benefits or job security. You are right though, as a software engineer you probably can't make the really high consulting rates. The only time I personally have seen those numbers is for a real niche. From my experiences you need to be one of a small group of people with a ton of experience maintaining some massive and incredibly boring business app. You are getting paid not for your programming skills at all but for the years of knowledge with this one product that just about nobody else has.

Similar to argonaut I weight both by upside and downside. I have a few positions which could be multi-baggers but could also be 0's, if the odds on it being a multi-bagger seem asymmetric I have to take the bet but those are usually 4% or so. Then there are others which aren't going to double/triple anytime soon but appear to have a very high chance of appreciating and relatively low chance of going to 0 (BRK, LUK, LMCA), those are more like 10% positions as they are hard to find.

Oddballstocks, I think it just depends on the skill set and seniority you are selling. Where I am, a regular software developer using a common language with say 5 years under their belt would have a hard time getting much past $60-75/hr for a multi-month contract. As I write this I am thinking that actually sounds quite high. If you are specialized in a niche area, depending on a ton of factors it could be somewhere between $100-300, it just really depends on how specialized you are and how much competition there is in that niche. As you get more specialized you get the higher wage but you are more likely to have to travel to find the work.

I am not sure of what area in finance you are talking about but I think you are still going to be working hard. Yes, you don't have to keep up with technology but then you have to spend a lot of time networking. You can make a lot of money with software, 6-figures with a salary job is nothing special. If you get into niche consulting $100/hr is no big deal and I have heard of much higher.

Wescobrk, Pre 08/09 did C generally trade at a premium or a discount (based on earnings multiples) to BAC and the other domestic banks?

In 2007 he was pessimistic on housing and concerned with the economy. For the most part he just comments on specific stats and doesnt make broad statements but that was my impression. In march 09 he commented on a roubini piece where roubini called the bounce a suckers rally. Calculatedrisk said it was too early to call but that all evidence was that it was a normal albeit severe recession. He said you should start to see a weak recovery in 10. It doesnt sound like much but with so much fear at the time i think it takes guts to stick to an objective interpretation. He was right too. Right now he sees 14 as an okay year with government cutbacks having peaked in 13. One of his goals is to pick the next recession so until he calls it i am fairly bullish. Not to say the market wont pull back but the usa economy should be okay for 1 more year.

Not a chart, but I follow the calculated risk blog closely. It is US housing centric but covers other core US economic stats as well. I find the author to be very level-headed, and have been following it since before the 08/09 crisis. For me, with limited time, it's my one-stop-shop for economic matters. That wasn't a direct answer to your question but I thought I would throw it out there.

So,are you holding BRK right now?

When I am buying, it depends on how high conviction the idea is. For high conviction ideas, I set a limit at the asking price just to get in. What is a fraction of a percent if you think it is going to double? How easy would it be to find an equivalent quality idea if the price shoots up while you are playing around? For lower conviction ideas, when I am thinking about scalping a fractional percent that is a warning sign for me that maybe I shouldn't be in the thing. The one exception might be merger arb where those percents really matter.