YouSaid · the spoken record

David Flood

lines on the record: 46
first: 2019-11-10
most recent: 2019-11-10
sittings or episodes: 1
sources: podcast

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“People want to connect with me, they can connect to me on Twitter at elementaryvalue. I'm always on there generally, so if people want to contact me or respond, that's fine. They can do that and I'll get back to them. You can also follow me on my blog, which is at elementaryvalue.com. So I generally try and post a write up on a new company every couple of weeks to every month if I can. I've got a lot of ideas. There's probably going to be a lot more posts coming. And on that website, there's also a lot of other information for value investors, how to look for ideas and different resources that they can use. You can find me there and you can contact me there and I'll get back to you.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Spring Bod to then go and conduct research into these companies myself. And I think by reading through all these blogs, you start to get a knowledge of the different companies that operate within this space and you start to learn about all the different nuances that there are in the over-the-counter investing space.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Would recommend that listeners can try and get hold of some over-the-counter market stock manuals. There are a number that are around. There's the mergend over-the-counter manuals and there is the walkers over-the-counter manuals. Now you can pick these up on the cheap generally on Amazon from time to time. I actually ended up ordering an old merchant over-the-counter manual from the United States. I generally don't buy the most recent edition because it's nearly $1,000. So I will buy ones that are maybe a couple of years old, but generally a lot of the information is still quite relevant. And they will also follow a number of different over-the-counter value blogs. So there's some such as no-name stocks run by Dan Shum over-the-counter adventures, which is run by Dave Waters, oddball stocks, which is run by Nate Tobik. I will follow these blogs and then look at the companies that they're talking about and use that as a kind of”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And perhaps email them, contact them and discuss ideas, maybe share ideas on companies you found and ask them what their opinion is before you buy the company. That can be very useful as well.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“That indicates to me that the company has been able to continue its operations without having to dilute shareholders. I would also suggest that investors diversify so then they can limit non-market risk. They can read about this in You Can Be a Stock Market Genius by Joel Greenblatt who talks about how one should diversify to avoid non-market risk, the risk that one of your stocks blows up and wipes out your portfolio. So don't just put all your money into a couple of stocks like Charlie Munger does. His approach is very different. He's looking for companies with moats. The deep value approach is very different to that. And then another thing I'd say is to put the work in, the more work you do, the more likely you are to get market beaten returns. If you work harder than ever. I see that in all walks of life, whether it's athletics or business or anything really. And again, I would suggest people look for a mentor. So if you can find someone that's experienced in this area.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Reverse takeover mergers. So these are companies where a Chinese company has found a United States company, which is maybe a shell company. It doesn't have a business. And they will then merge with that company to get access to the markets in the United States. Now, I will generally avoid those companies because there's a much higher chance of fraud with those kind of companies. So anything that really has operations in China where I have some suspicions, I will avoid it. or I wouldn't avoid some of the much larger companies in China or Hong Kong. generally the small companies I will avoid. I will also avoid companies that have very high share counts. If I see a company and it has billions of shares, I'm not interested in that company because that suggests to me that the company has to keep issuing equity to keep the lights on. They keep having to keep issuing equity. That's a bad thing for me because I'm going to see my position diluted over time. Whereas if I find a company that's got a share count of maybe 10 million or less and it's been around for several decades.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“First thing would be to say caveat em to buyer beware. So proceed with caution when you're investing in the over-the-counter space because you will come across frauds there. But if you conduct due diligence, it's very easy to spot these and to avoid them. So personally, I will generally avoid resource stocks like miners. The old saying is that a mine is a hole in the ground with a lyre standing next to it. These things, they tend to eat up a lot of money and not really produce much of a return. So I'll avoid those. I'll avoid biotech and I suggest other people do so unless they're experts in that kind of area. Biotech stocks tend to just burn through a lot of cash in research and development. Crypto I will generally avoid as well. I have no problem with cryptocurrencies. I think they're a good thing, but I think there's a lot of small companies that have sprung up in the crypto space because they think it's a quick way to make money. I will also avoid Chinese.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“The Defence Department or various other government agencies. These long-term contracts are locked in and they provide some kind of competitive advantage for the company. Because it's a very niche product, there's unlikely to be many competitors attracted just because the market share is so small in terms of dollar terms, it's not going to attract large numbers of competitors. That acts as a barrier to entry so these companies can then build up these relationships with the government and other private sector operators and then continue to produce margin results over prolonged periods of time.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“A quarry or a gravel pit. The owner of that gravel pit or quarry has a geographical moat because a competitor that's based in another county, it's not economical for them to ship over their produce, their aggregate to a different county. It just wouldn't work out on a basic microeconomic sense. So because of that, we know that within a certain catchment area around this gravel pit or this quarry, they will have a geographical moat. And the same could go for railways. No one's going to spend huge amounts of money to lay down a railway track where a railway track already exists. So by looking at these small companies, you don't necessarily have to do a direct competitor analysis because you can find those that operate with some kind of geographical moat. Or there may be some kind of niche business. They may specialize in producing some kind of very unique product and they may have long-term contracts with military or”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Tend to approach each company on a case by case basis and I will use, I guess you would call it a microeconomic approach. So I will maybe say figure out how many employees does the company have and then can I find out how much revenue the company is generating? Can I find out what earnings the company is generating? And then I'll calculate what is it earning in terms of sales and earnings per employee and then I could perhaps compare that to another company that doesn't necessarily have to be in a similar market cap range, but I can still get an idea of roughly how competitive the company is, what its margins are going to be like. I will also look for companies that may have geographical moats. So these could be gravel pits. They could be toll bridges. They could be racing tracks, all kinds of strange esoteric investments. Now, these companies by their very nature will have a moat because they occupy a geographical space. So if we take maybe...”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Low 20s or maybe higher depending on how conservative you are with your analysis of the companies. So I think this approach works very well for small investors, small retail investors and this approach can be applied across the entire world. This is the edge that the small investor has is that they can invest anywhere in the world and invest in pretty much anything they want to. So Japan is famous for having a lot of these net net companies where they're selling at deep discounts to their tangible assets. South Korea is another one where you'll find some of these interesting companies. Hong Kong, there will likely be some companies with what's going on at the minute. The share prices of these companies are falling and the over-the-counter markets in the United States as well. And also the aim market, which is the alternative investment market on the London Stock Exchange, a lot of these kind of net nets tend to crop up there as well. So if you're willing to put in the work, you can find these companies and it can be a very successful strategy.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Companies because the non-market risk is too great, so you would spread that risk over maybe 20 or 30 companies, as Ben Graham suggested that one should do. And typically the returns on these kind of the net net approach is going to fire out the general market. My benchmark is to try and aim for a 12% return minimum because the S&P 500 returns say on average long-term 9% and then the long range inflation rate in the United States is around 3 to 3.25%. So I want to try and earn something that's going to be in excess of that. Now it's going to be very difficult to try and earn those kind of market beating returns when you're investing in very large companies. People can do it obviously. I mean momentum stocks have done very well recently but that I don't think that's going to last. But with the kind of deep value approach you are going to be earning returns which are probably going to be in the high teens, maybe the”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Net net approach, I think, still works particularly with smaller companies. I mean, you generally are not going to find net nets. You're not going to find companies that are selling below net current asset value with larger companies. You are going to be looking at these much smaller companies that tend to sell on the over-the-counter markets. And because there's less people looking at these companies, mispricing is generally a much greater. Now, things have changed somewhat in the fact that many more companies now service-based rather than product-based and they will have much less in terms of fixed assets, they may be much lighter in their structure. But there's still plenty of manufacturing firms, traditional companies that will hold a lot of assets like inventory, that will still have accounts receivable, they'll still have cash on the balance sheet. This approach with the net nets will still work today. Now, obviously, with the net approach, you're looking at buying a basket of stocks. You're not going to invest all your money in maybe two.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“And all the other current assets, you're looking at it from a very, very conservative manner. So it doesn't really take much positive improvement to see the share price really move up on these companies. So with a company like Myriad, when I bought it, they were selling at six, two times net cash. Several months after I bought it, the stock price shot up 300% because they announced that they signed a contract with 10 cent to implement their technology. So with these kind of tiny companies, you can see huge share price moves upward just because the market sentiment towards the company is so depressed and people have really given up on the company and the discount is so huge to their assets that one positive amount of news or some catalyst emerging can really send the share price up dramatically.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So, I like to use the Ben Graham approach. So, Ben Graham would look at a company and would look at its net cash position. It would look at its necrant asset value, which would be the value of the company minus total liabilities and all fixed assets. What do you have in value in terms of the current assets? And can you find companies that are selling below that value? We'd also use what's known as networking capital. And here he would be more aggressive with his discounts. So he would only value the inventory at about 50% of its stated value. The accounts receivably would typically only value at about 0.85 times its stated value. So by looking at these companies that are selling at net net networking capital or below net cash, you were essentially disregarding most of the assets and saying they have no value whatsoever to me. And if you find companies where the market cap is below net cash, you're essentially getting the entire business for free, all the fixed assets.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“A lot of ways that the value can be unlocked with these companies. Sometimes it will take years, other times it may literally be a few weeks or a few months. But with the deep value approach, it doesn't really matter about the performance of an individual stock. You're more interested in the performance of the portfolio. So if you hold a basket of, say, 20 to 30 stocks, generally there's always going to be something happening with one of the companies that will keep you occupied with your attention focusing on that company. There's always some kind of reversion to the meme taking place where these mispricings are correcting themselves.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Unlock this hidden value within the company, and that's far easy to do with these much smaller companies that are just a couple of million dollars in value. You obviously can't do this with much larger companies because the amount of capital required is too great. But then often with these companies as well, they will be companies that have been around for decades and decades and they're family-owned companies. And you may find that the director or the CEO is quite elderly and they may decide to pass on the reins to someone else, their son or another member of the family. And when they take control, they may decide to change things up. They may decide to unlock some of that value for shareholders. So an instance recently that I saw with the company was the son took over as CEO from the father and he decided to sell off their warehouse and then lease it back. And then he paid out a special dividend to shareholders, which was in excess of the share price.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“On Google, and figured out that the building's probably worth roughly a couple of million dollars. So it's massively undervalued on the balance sheet. So how will that value get unlocked? Now, there's a number of different ways that the value could become unlocked. One of those is that small value firms may find these companies and they may find them because they read your blog or they may find them on their own. And they may make an offer to buy out that company. So they could buy out that company to unlock the value. They may decide to just liquidate the company. They may decide to sell off assets. They may decide to move and then distribute the proceed from the sale of the warehouse back to shareholders in the form of dividends or share buybacks. But also what can happen is there can be shareholder activism. So a number of shareholders may get together and decide to get someone appointed on the board which can then push to”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“A company I looked at recently, which is Microwave Filter Co, which is ticker symbol MFCO. When I was looking through the financial statements for that company, I looked at the real estate and it was being valued at around $70,000. And they had pictures of the real estate on the website. And I looked at the pictures and I thought there's no way that this warehouse is worth $70,000. And then I was reading through the footnotes to the financial statements, which I recommend all value investors pay attention to the footnotes of the financial statements. That's often where you can find hidden value. And I found out that a bank called Keybank had extended credit of $500,000 against the property. Now, there's no way that the mortgage broker would have valued that warehouse at $70,000 and then offered to extend $500,000 in credit against it. I realized clearly that this building must be undervalued. So then I used a bit of research.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Approach in general is I try to be like a private investigator or a detective and I will begin to try and hunt down information on these companies to see if I can find any hidden value.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“The corporate charters for the company, various things like where the address changes or changes in ownership or legal counsel, things like that. And then I've become more interested in bankruptcy at least recently. So I use a website called PACE and you can look up the court dockets for companies that are going through bankruptcy. So I will go through the court dockets and I'll look to see if there's any kind of hidden value where I think that the common stock may receive a payout once all the debts have been paid on the company. And there you can sometimes find some very interesting value plays that not many other people are going to be looking at. And then finally, I'll also use stock message boards. So I'll look at these boards where all these tiny companies are talked about. And it's just generally a small handful of people like myself that are looking at these companies. So I can go onto these message boards and then.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“To shareholders, so they may put them on their own website or they may mail them out to you if you contact them and request them. And then I will try and get creative and do a bit of scuttlebutting. So I'll use Google Street View and I'll look up the headquarters of the company to go and see if it's still there. I'll count how many cars are parked outside so I can get an idea of how many employees I think the company has. I'll check other websites to see if I can see the company's products being sold. use land registries so I can look up to see how much they've paid for the real estate and get an idea of whether the real estate is undervalued on their balance sheet. I can also use Google satellite images to get an idea of what I think the size of the land that they own and the size of the buildings and then I can calculate what I think the commercial real estate value of those buildings might be and then I'll also use state websites to look at corporate info so you can look up”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I call it information arbitrage. With the much larger companies like Apple, there are armies, thousands and thousands of analysts and PhDs looking at these companies. So I'm deluding myself if I think I'm going to discover something about these companies that they haven't found. So my approach is to look at companies that I know hardly anyone else is looking at. The more hidden and opaque these companies are, the better because it requires me to put in the work to find that hidden value. I'll use a number of different approaches, try and discover the hidden value present in these companies. So I will contact management, I'll email them, or I'll set up a call with them and I'll ring them and have a chat. I will try and get financial statements if they can email them to me or mail them to me. I will check their website because often with some of these dark companies that have deregistered with the SEC, they no longer file financial statements, but they will still provide”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Ideally, I like to see quite a concentrated ownership by the people that run the companies because when insiders have skin in the game, they're generally more inclined to run the company in a manner that benefits minority shareholders. Now, if they have majority control of the company, it can work the other way. They may be able to pass rules where they can pay themselves egregious salaries or they can give themselves super voting rights and essentially use the company like a personal bank account for themselves. So you have to use a bit of discretion when you're looking at these companies and look on a case-by-case basis. But typically I do like to see companies where it's family controlled company or a family-owned business because you know that they've built that business from the ground, their heart and soul is in the company and generally they will have a lot of their own net worth in the company. Their interests will be aligned with those that minority shareholders. So I typically like to look for those.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“May sell some real estate or they may sell off a division, they can then return that capital back to investors in the form of special dividends. Now, if you hold these companies in a tax sheltered account, the fact that you're receiving these dividends shouldn't be too much of a problem. And I think that having that kind of stream of cash flows can be useful to then deploy that into other companies.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“I think in some cases the dividend payment is beneficial because with some of these small companies you're going to be looking at limited partnerships or unit trusts whereas part of their corporate structure they're required to pay out the majority of their earnings as dividends. And I think investors can use those dividends, those large dividends, as a form of cash flow, which then they can use to go and deploy into other stocks that they're interested in. The other interesting thing with the over-the-counter market companies is often they'll have very, very low share prices, but then they will pay special dividends. Now sometimes these special dividends can be 50% of the share price, or they can sometimes even be in excess of the share price. They could be 150% of the share price. You would never get this with larger companies. It's just the law of large numbers prohibits it. But with these much smaller companies, they sell off some assets.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Then buy it a really cheap depressed price, and then I can capture a higher yield and I can capture the capital appreciation of the stock. Pine lawn and beaver coal company that pay high dividend yields. Another approach is to put in good to council orders which are extremely low. And one could go back and look at the long-range price charts and look at where these companies fell to in the last financial crisis. So you can look at the price charts and go back to say 2008. And you can see that these companies dropped dramatically. There's absolutely no reason why they should. Pine Lawn Cemetery is a cemetery business. The recession means nothing to the cemetery business. The business will just continue as it has in the past and it did. So one could place orders to buy these stocks at extremely depressed cheap prices and capture very large dividend yields and then also a capital appreciation in the stock. So that's the approach that I will use with these companies.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“You would wait for a post dividend period when the stock has been sold off and it's drifted down to a former new base and then you would buy at that point and then you capture the highest dividend yield possible because the stock is selling at its lowest amount and then you will also capture capital appreciation as the stock goes up in value. I'll put a good till cancelled low ball offer so I'll put a really low offer that could be below the”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So, panel on symmetry is a very interesting company. It's one that I found when I was screening for companies which had high dividend yields. And at the time when I first initially found the company, it's what's known as DARC. So financials aren't readily available. You have to think of a novel way to try and get hold of the financials for the company, which I eventually managed to do. But at the time, I was just basically using the price chart and some other information that I'd found on the company. So I was looking at the price action of the company in relation to its dividend payments. So typically you will find with a lot of companies that pay dividends, their share price will rise in anticipation of the dividend payment. Investors will buy into the stock and the share price will rise as they take a position to claim the dividend. Once the dividend is paid, share price will drift back down as people sell off the stock and go elsewhere in search of value or other dividends.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“The entire market has essentially given up on the company. So, if you can then look through their companies and find ones that have some kind of hidden value or some prospects for change, then you can really profit from that. So I will generally go through all these deep value companies and then look for ones where there's possibly some kind of catalyst present, where there's some opportunity where I think there may be some kind of change which is going to unlock this value. Now, value is in and of itself a catalyst. So over time, the market will reprice these stocks if they are undervalued. If they remain undervalued over time, the market, as Ben Graham says, is a weighing machine and these companies will be correct the price in time as they revert back to the mean.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“In the company without really attracting much interest. Because the problem with buying a stock purely on the numbers is that a stock can look cheap based on the numbers, but it can keep falling. This is a major problem for a lot of value investors when they first start. They will buy cyclical companies that appear cheap based on some of their numbers, but then they can get much cheaper. They can get 50% cheaper. And then they're sat on a 50% paper loss and it's going to take them a while to break even before they even make any money. So by using the charts, one can gauge where a suitable entry point would be for these kind of deep value players and not get caught out where you're going to have your purchase cut in half its value. So I like to use that approach. I'll look for companies that are selling at multi-year lows, sometimes all time loads. You know when a company's selling at such a depressed price.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“That tells me that that's a good entry point for the stock. So I will use that in combination with the numbers that I will look at the balance sheet to try and find some kind of discount to the tangible assets and then use that as to find a good entry point for the stock. Also, you'll notice when a stock hits the port and begins to form one of these long-term bases, the volume will drop off completely. So as the stock has been drifting down, volume has been quite heavy because there's been a number of investors that have been throwing in the towel that have been selling the stock because perhaps things are going badly or they've gone elsewhere in search of value. Once the stock hits the base, the volume dries up and that's the accumulation period where one can then go in and begin to build a position over time without really attracting much attention. People have forgotten about the stock. They've essentially left it the dead. They're ignoring it. There's no interest there. So in that period of quiet and darkness, you can then begin to build a position.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Over the counter markets it tends to be predominantly retail investors that operate in this space so there's a lot less noise in the share price movement when you're looking at the much larger stock exchanges where all the large companies are there's a lot more noise just simply because there's so many institutional investors participating”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Yes, I only focused on small companies. I think I've got one large cap company left in my portfolio, which I'll be selling at some point. I don't really invest in ETFs or bonds or anything else. I just focus on tiny companies. Now, that isn't to say that I won't invest in these other companies at some point if the opportunity arises where there's a good price. I'll happily invest in anything if I think there's a good deal there to be had. But at the moment, where we are in the current market cycle, I'm finding the most value in the nano cap space. So that's where I'm focusing my attention.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“A little bit of caution and just build my position over time so that no other market participants find out that I've discovered that there's some hidden value there. If the stock does happen to fall down below the price that I've paid, I'm happy to average down because I'm building a position over time, I can do that. So I can actually lower my average cost price over several weeks or several months if need be. And then as I say, yes, I'll buy a basket of stocks. I'm not looking to put all my net worth into five stocks. I'll be buying maybe 20, 30 stocks. So I'm happy to have multiple orders out and I won't chase these companies. I'll wait for the price to come to me.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“I will use good till cancelled limit orders. So these are orders that you can put in with your broker that will just sit until they get filled. And you may have to leave these orders sat there for months. Sometimes even over a year. But that's fine because with my approach of deep value investing, I will buy a basket of stocks. I'm happy to have 10, 15, 20 good till cancel limit orders just sat and I will just wait and just be patient. I'm not in any rush to buy these companies. I'm happy for the market to give me the price that I want to pay for these companies. And then I will look at the offering from the ask, which is the person selling. I will look at the amount of stock that they're offering and I will keep my buying volume low because I don't want to drive the price up. I want the price to be at a price that I want to pay for the stock. So I will just buy in box. I will not try and buy my whole position in one go because that will let other investors know that perhaps there's some hidden value there. So I will use.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Then some positive news emerges or some kind of catalyst occurs so that the market reprices the stock. When the demand increases for these very illiquid companies, the share price will move up dramatically. And then that's an opportunity for you to then sell out into heavier volume as they become slightly more liquid when there's more sellers in the market and buyers. And then you can profit from these rises in the share price. So it takes a bit of patience to build a position. but then to offload a position can generally be easier when the share price starts to move up. And you can typically deploy maybe between 100,000 dollars to a million dollars in the nano cap space and maybe 10 to $100,000 per stock. So this is a perfect strategy for the small investor, the small retail investor. So in order to build a position in these tiny companies,”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“So a lot of investors that consider illiquidity to be a problem or an issue that they want to avoid. Charlie Munger's famously quotes Pascal, who said invert always invert. So you can see a problem as actually something beneficial. So the illiquidity actually puts off a lot of investors from looking at these companies, which means that there's going to be a lot less competition and there's more likely to be mispricings. The large firms just simply can't invest in these small companies, which means that the only people that are going to be looking at them are going to be retail investors like myself. So that's much less competition for me and a higher chance of the mispricings. So I typically will build a position in a company and it may take me several weeks or it could take several months, but I'm happy to wait. I'm not in a rush. I think patience is a virtue of value investing. But the interesting thing with these are liquid stocks is once you've built a position.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Companies, I will then go and look up their filings to see what they hold, and then I can look through those companies to see if I can find anything of interest. So I'm almost coattailing. I'm using those as my analysts, much like Monich Pabrai does when he looks up the 13Fs of other value firms. And then I also network with other investors. So over time, I built up a really broad group of contacts, people that I can get in touch with and I can run ideas by them on different companies I'm looking at or ask them for ideas. And once you start sharing ideas, you start to get more and more ideas sent to you. And another thing is to look for a mentor. I think it's really important to try and find someone who has a lot of experience in this area and then use them as a mentor to teach you how you would go about investing in the over-the-counter market space. So those are the things that I've applied to my own investment approach.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“With the old moody's manuals, and just go stock by stop through thousands of stocks. It takes a long time, but it's really good because you find a lot of interesting companies that are hidden. If I'm looking at things like Japan, I'll get the Japan company handbook, which I think Warren Buffett's names have on his desk, which he likes to look through from time to time. So I will use that as well. And I also follow a lot of investment blogs that cover these kind of obscure stocks. There's a lot of really good investment blogs if you search around on the internet you can find them. And then I'll also look at the 13F filings of small value firms. So most investment firms can't really look at these tiny companies just because they're too small. Their corporate charter generally prohibits them from looking at them, but the small value firms, they could be family officers and things like that limited partnerships, they will sometimes look at these much smaller”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Well, I'll use a combination of different approaches. I'll use stock screeners sometimes. And with the stock screeners, I'll look for companies which are selling below $50 million. And then I will also screen for negative enterprise value. So this generally will bring me a selection of companies which may be trading below net cash. That would be if you sold off all their assets and basically be selling for less than the cash they have on the balance sheet. the market cap would be lower than the cash they have on the balance sheet if you sold everything off. So I like to look for companies like that because when the share price is so depressed, any kind of good news is likely to send dirt. So I will do that. I will go manually through lists of stocks and I will get hold of stock manuals like the Walker's manuals, the merchant manuals, and then I will go into the over-the-counter markets and just start with the A's as Warren Buffett.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“On their website, so I use this approach because there's going to be less people looking at these stocks, and because there's less people looking at them, there's more chance that there's going to be mispricings in these stocks. So that's generally my approach.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Outstanding to be 10 million or less ideally. And then I also want to share price on an absolute basis to ideally be a dollar or less. Now there's a good reason for that. That's purely because for investor psychology, investors are far more inclined to put money into lower price stocks than they are higher price stocks, irrespective of the intrinsic value of the stock. So you're far more to see large price moves in stocks which trade at a dollar or less. It's a very peculiar phenomenon that you see. It's just part of the psychology of the market that this happens. So I try and use that to my advantage. And then I also focus on looking at what known as dark companies. These are companies which don't file with the STC. They've deregistered and they may only provide financials to shareholders who request them if they email the company or they may only put them.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Stock based upon the numbers, they can find that the stock will continue to drop, whereas if they also combine that with a reading of the price charts, they can notice that sometimes the stock will fall and then it will hit a level of support and begin to form what's called a base. So I use that approach to try and find stocks where they've kind of hit a rock bottom price and then I will buy in at that point. Walter Slosh did something similar where he would look for stocks that were selling at three, five or all-time lows. and he would buy them when they were basically extremely depressed and all their investors had kind of given up with the stock they were no longer interested in it so i i look for tiny companies i want them ideally to be a market cap of 10 million dollars or less although i will buy some up to maybe 50 million dollars push if you look interesting and then i want these companies to be highly liquid so i want the share”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Is to look at these tiny companies. I use a deep value approach, which is inspired by Benjamin Graham. I will typically start with the balance sheet and I will look at the companies to see if I can find if they have any kind of undervalued assets on the balance sheet. I'm particularly interested in the current assets like cash and equivalence, accounts receivable, inventory, things like that. But I'm also interested in undervalued real estate, which could be over depreciated on the balance sheet. And I will combine with that another approach, which is to look at long-range charts, long-range price charts. I started doing this after I found out that George Soros, Peter Lynch and Walter Schloss have all used price charts when they were looking at companies. So I've now begun to use the price chart so I can gauge where I think a stock may fall to because often when a value investor buys a stock,”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT
“Sure. So the over the counter markets are essentially a decentralized group of disparate markets. You could think of them as thousands of tiny little markets that are all kind of amalgamated together. And they're run by broker dealers who act as market makers. And they will typically carry the inventory of stocks on their balance sheet. And then they will use those for over-the-counter investors to trade amongst one another. So these stocks that are traded on the over-the-counter markets, they're unlisted companies. They don't meet the requirements of the New York Stock Exchange, so their cap may be too small or they may have too fewer shareholders to be able to float on the major exchanges. So these companies will be traded amongst over-the-counter investors and they're typically tiny little companies with low share counts. So my approach.”
2019-11-10 · We Study Billionaires · TIP268: Small Cap Investing w/ David Flood (Business Podcast) · IDENTIFIED FROM THE TRANSCRIPT