Calling all pink sheet/unlisted/micro/nano-cap investors

[oddballstocks]

As some readers know I like to trawl in the dark corners of the market for value.  I kept finding myself looking at pink sheet stocks and unlisted stocks (the ones where you need to buy a share and call the COO for financials).  The problem is I don't have the capital to buy one share of each unlisted company, and there really aren't any convenient tools for digging into paper reports, so I came up with a solution.

 

I decided to write my own database for unlisted and unloved stocks.  You can see what it looks like here: http://www.unlistedstocks.net (the site only shows one sample company, right now there are 20 something companies in there.  I have another 20 I'm in the process of adding, since adding is a manual process it's a bit slow)

 

I'm looking for people who love these stocks and are interested in joining and contributing financials.  I want to build up a community of investors who are deep in this unexplored space.  If this sounds interesting and you have something to contribute (beyond just an opinion) shoot me a PM, or email with what you have.  My email is my username at gmail.com

 

If you're still having trouble understanding what I'm doing, I'm trying to create a digital Walkers Manual.  There was a thread about 10 months ago that got the ball rolling on this idea: http://www.cornerofberkshireandfairfax.ca/forum/books/walker's-manual-of-unlisted-stocks-harry-eisenberg/

 

 

[Mephistopheles]

Not a small cap investor and this is slightly off topic, but just out of curiosity, what kind of annual returns have you experienced investing in the small cap space? I'm just wondering how much is the differential, if any, from those of us who like investing in larger companies (AIG, BAC, etc.).

[ScottHall]

Hi everyone,

 

Just want to let you know that I've been talking with Nate off-and-on for about a year, and he's really taken this and run with it. His site is pretty cool so far and a good way to get in to this very under researched market.

 

I have shares of a handful of OTC companies as well. Unfortunately, there's some overlap with Nate's holdings, so I can't contribute a ton more than is already there, but I have a few that aren't listed yet.

 

If you have any annual reports that aren't there, I'd encourage you to share them. It's hard to get information on a lot of these companies and I think a cooperative effort to do so would be very useful for everyone involved.

[oddballstocks]

Scott,

 

Thanks for the kind words, hopefully this will become a really useful resource.

 

Mephistopheles,

 

I have done slightly better than 21% annualized since 2006. I don't strictly buy small caps, and not all are in the US. My US small cap account is up 13.42% YTD (9/30). My account that has international small caps as well is up 28% YTD (9/30).

 

My performance numbers seem great but I've really done nothing besides buying cheap companies with a margin of safety and sitting on my hands.

 

Nate

[oddballstocks]

I should clarify, the reason I was asking for an email/pm is so I don't end up with 10 people all trying to submit financials for Ash Grove Cement.  I also need to send a confirmation code to complete the registration.

[SharperDingaan]

Long ago we had the misfortune of a 'pink sheet' investment.

 

We eventually got our money back, & then some, but we had to beat the thieves at their own game - & manipulate the system. Our counter-party broker was livid, but settled because their reputation was worth more than the payout - & their sales heads were guaranteed termination. It wasn't a pleasant experience.

 

One of the thieves eventually washed up on a beach in the Yellow Sea.

No eyes, and tounge cut out. 

[LC]

Scott,

 

Thanks for the kind words, hopefully this will become a really useful resource.

 

Mephistopheles,

 

I have done slightly better than 21% annualized since 2006. I don't strictly buy small caps, and not all are in the US. My US small cap account is up 13.42% YTD (9/30). My account that has international small caps as well is up 28% YTD (9/30).

 

My performance numbers seem great but I've really done nothing besides buying cheap companies with a margin of safety and sitting on my hands.

 

Nate

How do you go about finding trustworthy information & financials for international small-caps? It's a space I'd love to get into but am not sure where to begin.

[matjone]

 

 

I have done slightly better than 21% annualized since 2006.

 

Oddball, if you don't mind discussing it I'd like to know a little bit more about how you operate. 

 

What size positions do you usually have, or how many stocks do you usually hold?  Do you invest strictly in stocks?  Do you always stay fully invested?  Do you tend to invest more in quality companies that earn higher returns on equity, or do you buy mostly average to below average stuff?  Do you usually try to invest around BV or lower, like Walter Schloss did?

 

Hopefully you don't mind me asking you about this.  I am always interested in hearing how smaller investors have beaten the market, and I imagine there are others on here that would be interested as well.  Thanks,

[Palantir]

I invest in these, but I don't really have financials to contribute, but I can contribute investment ideas....can I read the database too?

[ScottHall]

Long ago we had the misfortune of a 'pink sheet' investment.

 

We eventually got our money back, & then some, but we had to beat the thieves at their own game - & manipulate the system. Our counter-party broker was livid, but settled because their reputation was worth more than the payout - & their sales heads were guaranteed termination. It wasn't a pleasant experience.

 

One of the thieves eventually washed up on a beach in the Yellow Sea.

No eyes, and tounge cut out.

 

Care to elaborate on this? There are many legitimate companies on the pinks, contrary to popular opinion, and I'm wondering if you had a run in with one of the frauds.

[Green King]

Long ago we had the misfortune of a 'pink sheet' investment.

 

We eventually got our money back, & then some, but we had to beat the thieves at their own game - & manipulate the system. Our counter-party broker was livid, but settled because their reputation was worth more than the payout - & their sales heads were guaranteed termination. It wasn't a pleasant experience.

 

One of the thieves eventually washed up on a beach in the Yellow Sea.

No eyes, and tounge cut out.

 

share the story please.  :D

[SharperDingaan]

Sorry. Story is sealed under legal agreement.

 

It was mentioned because the market is unregulated, & you are totally relying on the integrity of your agents. If you like to walk the wild side, you have to question whether the return is enough for the risk involved. In today's age, if you cant buy it directly on the listed exchange, why are you even looking at it?

 

 

 

 

 

[oddballstocks]

Sorry. Story is sealed under legal agreement.

 

It was mentioned because the market is unregulated, & you are totally relying on the integrity of your agents. If you like to walk the wild side, you have to question whether the return is enough for the risk involved. In today's age, if you cant buy it directly on the listed exchange, why are you even looking at it?

 

Of course there are never frauds on exchange right…what about the recent China reverse mergers?  Being on an exchange and SEC reporting didn't save any investors from loss.  Some of the biggest frauds have been exchange listed companies, just because a company is audited, or has a prestigious listing doesn't protect anyone from anything.

 

My view has been that any investor buying a share in ANYTHING needs to do their own due diligence and not rely on anyone else, auditors, an exchange, regulators.  The old expression is apt "caveat emptor".

[oddballstocks]

Scott,

 

Thanks for the kind words, hopefully this will become a really useful resource.

 

Mephistopheles,

 

I have done slightly better than 21% annualized since 2006. I don't strictly buy small caps, and not all are in the US. My US small cap account is up 13.42% YTD (9/30). My account that has international small caps as well is up 28% YTD (9/30).

 

My performance numbers seem great but I've really done nothing besides buying cheap companies with a margin of safety and sitting on my hands.

 

Nate

How do you go about finding trustworthy information & financials for international small-caps? It's a space I'd love to get into but am not sure where to begin.

 

For international small caps if the company doesn't publish information on their website, or the regulator's website I don't invest.  There might be unlisted markets in other countries (I know New Zealand has one), but to really exploit it you need to speak the language and have local knowledge, and the ability to contact the company.  So the advantage is to the local.

[Hielko]

In think in most cases you would find that it would be nearly impossible to buy shares anyways simply because you probably need to find a local broker that is willing to accept international customers, and most don't because of legal/regulatory issues.

[Hielko]

PS.

 

Something obscure that I once looked at: http://www.forfarmersgroup.eu (it's a dutch company, but they actually do have english reports). It's traded at some extremely obscure platform from a local bank.

[oddballstocks]

 

 

I have done slightly better than 21% annualized since 2006.

 

Oddball, if you don't mind discussing it I'd like to know a little bit more about how you operate. 

 

What size positions do you usually have, or how many stocks do you usually hold?  Do you invest strictly in stocks?  Do you always stay fully invested?  Do you tend to invest more in quality companies that earn higher returns on equity, or do you buy mostly average to below average stuff?  Do you usually try to invest around BV or lower, like Walter Schloss did?

 

Hopefully you don't mind me asking you about this.  I am always interested in hearing how smaller investors have beaten the market, and I imagine there are others on here that would be interested as well.  Thanks,

 

My investments really break down into three categories, special situations (spin-offs, liquidations, other strange things), net-net's & cheap stocks, a few decent companies bought cheap.

 

Like everyone here I'd love to own a few companies earning incredible returns year after year without me having to do anything.  I recognize that I probably won't discover a franchise company, and most franchises I find it's too late, the growth phase is over.  My view is also that these companies are cheap rarely, and come around infrequently.  I have purchased two bonified moat companies over the years, and a number of franchise niche companies.  A franchise niche is a company that can earn impressive returns on equity, but the market is constrained.  They're not a Coke where they can convince most people in the world to drink it.  It's more like a specialty glass company, or a scale manufacturer.

 

The second category is what keeps me busy, the cheap stocks, the net-nets, low p/b, low p/e, the fun things.  I've done well with these sorts of companies, but usually returns are limited.  So maybe 50-100% upside, maybe 200%, but that's usually it. There are a lot of junk stocks that'd qualify for this category, I try to find ones with a margin of safety.  I'm more concerned about losing money then finding the next eight bagger.

 

The last category are the special situations.  I usually bump into these while looking at the cheap stocks.  A cheap stock will be in the process of liquidating, or is a spinoff or something.  Spinoffs have been good to me, but they seem overheated right now.  I've found a lot more success in picking international spinoffs.  There's a lot of research that shows that buying spinoffs is a good strategy, the stuff I've seen on Europe is different.  Spinoffs there are usually divestures of junk divisions, so they're really ignored, and hated by the market.  Finding a compelling one can be a big winner.  Most recently I've done well with Treasury Wine Estates.

 

While all this is great, it's really just a system that works for me.  I like cash as well, my goal is to have 5-10% in cash at a minimum, in the past year I've been up to 15% in cash.  I do have bonds, but they're in a 401k account.  My 401k is funds, I have 80/20 stocks/bonds, and about 50/50 US and international.  The 401k performance isn't included in my numbers above, I've determined the asset allocation, but I'm not actually picking any stocks.

 

I don't know if what I do could work for anyone else, it works for me because it fits my personality.  I think that's key, find something that fits your personality.

 

I should also mention, for all the gains I've had some considerable losses as well.  I've made stupid investments, bone headed investments, and misguided investments.  Each year I start the year looking at my holdings and wondering if they'll do anything.  I'm actually astonished at my own performance, I really don't deserve it.  I don't have any special ability not available to all investors, I'd venture to guess 95% of this board is much smarter than I am.  The thing is I just keep buying cheap companies with a margin of safety, where I figure my risk of loss is low, and good things just happen to a lot of these companies.

[Palantir]

^ Could you go into position sizing? Roughly, how do you decide how much you put into a position whether it is a franchise/netnet/special situation? Do you prefer to buy baskets of netnet stocks or do you make concentrated bets in them?

 

 

Currently I equal weight my holdings, so a microcap like RSKIA has the same weight as a franchise like PH....but I may reverse that plan....

[oddballstocks]

^ Could you go into position sizing? Roughly, how do you decide how much you put into a position whether it is a franchise/netnet/special situation? Do you prefer to buy baskets of netnet stocks or do you make concentrated bets in them?

 

 

Currently I equal weight my holdings, so a microcap like RSKIA has the same weight as a franchise like PH....but I may reverse that plan....

 

I never initiate a position bigger than 5%, but I have positions bigger than 5% due to them growing.

 

I usually will buy something in the 1-2% range, if it falls or I really like it I'll continue to accumulate. Right now I have 50 positions. I wish I had some rule or something but position sizing seems to be a gut thing.

[MrB]

Oddball,

1. Where do you prefer we discuss specific stocks?

2. I'm doing a quick scan through your list. Ash Grove Cement. Have you looked at Heracles Cement in Greece? 0.3 times book and currently trading at EUR2.10 with a EUR 0.98 capital return in November?