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My inclination toward investing in and covering Canada’s Emerging company segment is based on an affinity for and love of entrepreneurialism, and the ‘never say die’ spirit that embodies it. All mega-cap, multinational, blue-chip stocks began life as a startup. Without a steady flow of new companies up the economic ladder into profitable enterprises ripe for acquisition, the mega-caps would stagnate and die.
Start-ups are where all the big ideas are born. It is in start-up companies that visionary leadership ignores the naysayers in single-minded pursuit of an idea that is worthwhile, and usually a benefit to humanity.
With start-ups, I can easily reach management. In fact, I’m on a first name, call anytime-basis with probably two thirds of all TSX Venture CEOs in Canada. The financial statements are uncomplicated and no forensic mindset is required, as is the case with mega-caps, where ‘off balance sheet entities’ were born.
While it is indeed a verifiable statistic that 90% of start-ups ultimately fail, therein lies both the challenge and the opportunity.
It is only among Emerging Companies that one can light upon 1,000 percent gains. For every 9 out of ten companies that will fail, a disciplined approach to the segment can easily generate outsized returns that more than compensate for the majority of losers.
I will almost never lose more than 20% on any given issuer bet, thanks to the deployment of ‘stop-loss’ rules that dictate, if any stock loses 20% in any 30 day period, the position is automatically sold in its entirety.
When a stock price doubles (a very common occurrence, given the prices of emerging companies at the point we deem it investment-worthy, often under $1 per share), we sell half. The rest is allowed to ride until such time as a subjective assessment generates a ‘sell’ sentiment.
In Canada, as in most countries, the stock market is covered by advertising-driven mainstream financial media who seek to pursue coverage of almost entirely large and mid-cap stocks to the exclusion of the emerging stocks. In my view, this fact alone underscores the requirement for emerging company advocacy. ‘Penny Stocks’, as they are often referred to with malice, are shunned by the majority of investors, precisely because of the contempt derived from the 90% failure rate.
Yet in our society, we proclaim to value individuals who have the chutzpa to try and fail, and try again. The reality is far from this ideal. I don’t know how many times I’ve encountered silver-spoon-fed Brioni suit-clad fund weenies who smugly and condescendingly declare ‘Oh I don’t do penny stocks,’ as if they are something that one must avoid stepping in whenever possible. I’ve never met a fund manager in my life who had an original thought that he didn’t purloin from some other investment legend’s repertoire. So these are some of the reasons why Midas Letter is dead-centered on being the Journal of Emerging Companies with ‘Best-in-Class’ Potential in All Sectors.
With the incredible rate at which start-ups emerge, there is tremendous opportunity for investors who are risk-tolerant, and who perceive the opportunity inherent in a disciplined, well-advised approach to the most prolific business segment in the world, the Emerging Company space.
Midas Letter brings an non-conventional quantitative and qualitative analytic approach to these companies, continuously monitoring the entire Canadian (only) roster of sub-billion dollar market cap companies. In broad terms, we seek to invest in companies who are turning the corner, or have turned the corner, from development stage to imminent profitability in growing sectors that are able to attract capital. We seek value in companies whose market capitalization fails to price in forward earnings.
Join Midas Letter today, and participate in the most vibrant, economically important segment of the Canadian economy. Read more…
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