Microcap Investing, the Ian Cassel Way

Note: This interview was published in the November 2015 issue of our premium newsletter, Value Investing Almanack. To gain instant access to more such interviews and other interesting stuff on value investing and business analysis, click here to subscribe now.

Ian Cassel is the founder of MicroCapClub.com, which is an exclusive forum for experienced microcap investors focused on microcap companies (sub $300m market cap) trading on the US and Canadian markets.

Ian has been investing in microcaps for 15 years and has been a full time microcap investor since 2008. Ian looks to invest in great management teams running great businesses with a moat. He tries to invest in the best 5-6-7 companies he can find at all times.

Ian founded MicroCapClub in 2011 to be a place for “real” and experienced investors in the microcap space to share ideas and learn from one another. When Ian isn’t researching stocks or administering MicroCapClub, you can find him reading, golfing, or shopping at Costco with his wife.

Let’s now jump straight into the interview.

Safal Niveshak (SN): Could you tell us a little about your background, how you got interested in investing and also about your wonderful blog microcabclub.com?

Ian Cassel (IC): I’m 34 years old, married, and have a daughter. I live in the United States in Lancaster, Pennsylvania. Lancaster is a rural community mostly known for our Amish people. I am not Amish 🙂 I’m a full time private microcap investor, which is a fancy way of saying I only invest my own capital (no family, friends, or clients) and only in small public companies called microcaps.

I started investing in 1997. My parents had saved me approximately $25,000 for college. This was all I was getting, so they felt they should let me know before I started applying to Universities. At the same time, I was getting more interested in the stock market. I had met my parents’ financial advisor who was telling me about exciting technology companies. After much deliberation I decided to go to a local less expensive University so I could also work full time and pay for my tuition as I went. This way I could invest the full $25,000 in these exciting tech companies. I was going to get rich!

In 1999, I went to Millersville University (Major: Economics), and worked full-time for a local financial advisor (I answered the phones). When the tech bubble burst in 2001, I lost 80% of my money; however, this wasn’t the biggest lesson that I learned. The financial advisor I worked for had over 1,100 clients, and when the tech bubble burst I literally heard from all them. EVERY DAY for months I would go into work, the phones would start ringing and clients would yell, scream, cry etc. I was a human punching bag.

After a couple weeks I grew numb to their emotions. I also realized at that very moment I didn’t ever want to manage other people’s money. Investing is hard enough dealing with your own emotions let alone those that don’t have the mental/educational constructs. My goal was to become a full time private investor. I just needed time to allow my capital base to snowball.

In 2001-2002, I started looking at smaller and smaller companies and ended up in the microcap space. I stumbled on a microcap company called XM Satellite radio in 2002. I tell the full story in detail here.

Short version is I met with management, invested the little money I had left at $1.78/share, and in 14 months the stock went to $34/share. It was 99.99% luck, but my love affair with microcaps was born.

From that point on, I started focusing on microcaps. Soon after, I started visiting microcap companies doing physical stock research. I felt microcaps were the best place to gain exclusive public information that could give me an edge.

I graduated from Millersville University in 2003, and went right into an MBA program at Villanova University. When I wasn’t in class I was talking to management teams and other microcap investors. I learned by losing my money over and over again. I graduated from Villanova University in 2005 and started working for a firm that advised microcap companies. After six months I quit and started my own advisory firm. You can learn more about that experience here. Advising microcap management teams gave me first-hand experience on what management teams go through from an investor-capital markets perspective. I enjoyed advising, but the goal was to quit as soon as I had enough capital to be a full-time private investor.

In late 2008, in the middle of the great recession, I quit advising and became a full-time private microcap investor.

I now invest primarily in North American microcaps under $300 million market cap. There are approximately 11,000 microcap companies in North America, so there are plenty of rocks to turn over.

Let me now talk a bit about MicroCapClub that was founded in 2011 and was formed to be an exclusive forum for experienced microcap investors to exchange ideas, collaborate on due diligence, and learn from each other. Our focus is quality over quantity in everything we do. We only have 140 members. Over the last four years, members have profiled 50+ companies that have doubled or more. Our goal is to find great companies early. Due to demand from those that don’t have the ability and/or time to apply, we are launching a subscription product offering later this year.

We also recently announced the first MicroCap Leadership Summit, which will be focused on creating better investors and finding great companies early. I’m honoured to have Sanjay Bakshi, Paul Lountzis, Chris Mayer, and others speaking at our inaugural event. On our MicroCapClub Blog, myself, my partner Mike Schellinger and a few other experienced microcap investors post educational content on microcap investing. The goal with our blog is to inspire, motivate, and educate others on microcap investing.

You can find me on Twitter. My mind tends to think in 140 characters. I enjoy saying more with less words and sharing my thoughts on life and investing.

SN: What a wonderful story that was, Ian. Thank you so much for laying bare about yourself and your past. You are a microcap investor now. So, what’s your broad investment philosophy, and how has it evolved over the years?

IC: Warren Buffett, Peter Lynch, Joel Greenblatt and many others started their careers investing in microcaps. Some of the best performing public companies ever, including: Berkshire, Wal-Mart, Amgen, Netflix, etc. started as small microcap companies. I’m sure you have many other examples of this in India, but the key to outsized returns is finding great companies early.

If I could sum up my investment philosophy in one sentence, it would be – My goal is to own the smallest, most illiquid, least institutionally owned, best businesses I can find that are run by intelligent fanatics.

I’m a long-only, quality focused, concentrated investor, investing in the best 4-5-6 companies I can find. I will hold my position as long as the management executes. I believe in deep qualitative analysis and constant maintenance due diligence so that I always know what I own.

My edge is knowing my positions better than most. This gives me the conviction to hold multi-baggers and the ability to see when the story changes so I can sell before the masses.

The key to outsized returns is finding great companies early, when they are small companies. When you are evaluating small companies, often times they don’t have a long operating history (3 years or less). The best performing companies in North America over the last five years include companies like BioSyent (170-bagger), Xpel (243-bagger), and Where Food Comes From (93-bagger). These companies are still microcaps today. Hindsight is 20/20 and it’s easy to think, “Yeah I would have bought these companies five years ago.” I highly doubt that. If you were to look at these three companies five years ago you wouldn’t have touched them. These companies were literally trading at a $1 million market caps with little fundamental value. Reading their financial reports gave you very little foresight into the future. They weren’t obvious.

With many microcaps you have to place your bet before you have full conviction. Earlier in my investment career, I would buy a full position all at once. This works when the company works, but you can lose a lot of money if you are wrong. The biggest change in my strategy is I now prefer to buy a full position over time as my conviction grows and as management executes. My biggest winners were companies where I was constantly averaging up.

SN: That’s a wonderful strategy indeed – averaging up on quality stocks as your conviction builds up. Anyways, talking about microcap investing, how are the dynamics here different from say midcap of smallcap investing? Also, what excites you and worries you most in being a microcap investor?

IC: Illiquidity is a big driver of outsized returns. It just so happens that most small public companies are illiquid.

The main reason for this is larger pools of capital, mainly institutions, can’t invest in small illiquid companies. Even for smaller institutions managing $10-50 million, it is problematic buying a meaningful position. Many small microcaps trade $5,000-10,000-20,000 of volume per day. In addition, taking a $500k, $1m, $2m, position in a company might not move the needle for an institution.

Warren Buffett started investing in microcaps but quickly grew out of the space and was forced to look at bigger companies. Now Buffett admits, he can really only look at the largest 200 companies in the world because it’s the only way to move the needle. The microcap space is always losing its best investors, as they have to invest in bigger companies. Larger, smarter, money can’t invest in microcaps and this creates inefficiency.

Accessibility to management is what got me hooked on microcaps. You can’t access management of larger companies. Evaluating microcap management teams are important for two reasons.

First, the smaller the company the more you should focus on management and qualitative analysis. CEOs of small microcap companies tend to wear a bunch of hats, so their influence is much greater than larger companies. Microcap investing is really entrepreneurial investing. So not only “can” you talk to management, but you really “need” to talk to management. I’m cautious in saying this because not every small investor should expect to be able to call up and talk to management. The point I’m making is on quarterly conferences calls, etc. take advantage of the opportunity to ask good questions.

Second, when you meet with management you gain incredible insight into how the operator thinks and solves problem. I’m looking to invest for the long-term so I need to understand the long-term vision.

I’m a concentrated investor in illiquid investments, so you can always find something to worry about. I don’t worry about illiquidity; I just worry about being right.

If I’m right the companies will become liquid. This is why it’s imperative you know your positions better than most.

SN: That’s a wonderful insight Ian, i.e., worrying about being right. Thanks for sharing! Anyways, do you believe in the concept of ‘circle of competence’ given your focus on microcap investing where every company might look like a different industry altogether? If yes, how have you built it over the years?

IC: Yes, I believe in staying within your circle of competence. From time to time I meander outside my circle of competence and the market teaches me a lesson. Investing is a lifelong education and its teacher is loss. Many of your readers remember what Tom Watson Sr., founder of IBM said, “I’m no genius. I’m smart in spots —but I stay around those spots.”

There are 11,000+ microcap companies that trade on US/Canadian markets. I personally only look to initially invest in microcaps <$30 million market cap. I don’t like small companies that operate in capital-intensive industries like mining, life sciences, and oil & gas. I generally stay away from pre-revenue story stocks. I look for companies with clean share structures and owner operator management teams. These qualitative and quantitative filters take 11,000 companies down to several hundred. You then evaluate these companies looking for good businesses that can become great. You are left with maybe 50-100. You might find one or two that you want to buy today. The others you want to know fairly well so you can wait for the right price or an inflection point. Know them better than most so you can buy them quicker than most if you have to. There are 11,000 microcaps in North America and ~120 of them have gone up 10x+ in the last five years. You are constantly looking for the best 1%. SN: Okay. So what do you look at in microcaps to ensure that they are high-quality businesses, among the best 1%?

IC: We all likely have a similar definition of quality. High quality businesses are sustainable businesses that can maintain and grow earnings without continued investment. They have pricing power and a moat.

Warren Buffett breaks it down to this simple question:

…Is this [Business] going to keep producing more and more money over time? And if the answer to that is yes, you don’t need to ask any more questions.

SN: Well, how do you answer that, especially with such small businesses that may go anywhere for reasons beyond their control? What checkpoints you have to ensure that a business you are looking to buy has a great probability of producing more and more money over the years?

IC: I have found that microcaps that dominate a small market niche that is expanding tend to drive quality down to the financials. They normally have some sort of moat, whether intangible, network effect, cost advantages, and/or even brand. The management teams of these types of businesses have proven they can create a market or gain share in a market. In some ways management’s leadership capability and execution is vetted.

Beyond this, I wish it were as easy as a simple checklist or formula. You really need to understand the business, the industry/sector undercurrents driving the business, and the ancillary forces that could impact the business.

Lastly, and maybe most important, it’s imperative to understand and buy-in to the CEO’s strategy and vision for the future. Focus on what’s knowable and important and place a bet. When you start to see the CEO’s vision start to become a reality (execution) you double down your bet. When you see the vision and execution as undeniable, you double down again.

SN: How do you assess a management’s quality, especially given that information is scarce in case of microcap companies?

IC: The only way to really assess management quality and decision-making is to evaluate them over time. Unfortunately, most microcaps are small emerging companies, so we don’t have the luxury of long operating histories on which to judge. Due to the structural way microcap companies have historically gone public here in North America, many microcap companies are undercapitalized. For example, a banker promises to raise the CEO/company $3 million and go public. The banker takes them public and only raises $1 million, and leaves the company to figure it out. So you have all these small-undercapitalized companies, and many of them will fail. They are thrown into the deep end of a pool without knowing how to swim. Many companies drown.

A qualitative attribute in most of my winners was a CEO that figured out how to swim on his/her own. They grinded it out and dug their way out of the hole. Most importantly they did it without diluting shareholders. When management does right by shareholders in the worst of times, it’s much easier to fully trust them in the best of times.

90% of microcap management teams say too much and do too little. The key is investing in management teams that focus on the long-term and let their execution do the talking. This rare breed is called intelligent fanatics. I want to invest in owner-operators that have an intense focus, integrity, energy, and intelligence. Full credit for the term “Intelligent Fanatic” goes to Charlie Munger, but Sanjay Bakshi is the one making it famous. I was so happy when I read Sanjay’s beautiful transcript/presentation on Seven Intelligent Fanatics From India. It’s exactly what I look for.

Jeff Bezos, Steve Jobs, Howard Schultz, Sam Walton, Phil Knight, and Elon Musk are most used examples of intelligent fanatics, but you don’t have to grow a company from nothing to a $100 billion to receive this distinction. Intelligent fanatics run companies of all shapes and sizes. I’m looking for an intelligent fanatic microcap CEO that can turn a $10 million business into a $100 million one. I’m slightly oversimplifying but if done right with minimal dilution, this will result in 10-20-30+ baggers.

When I think I found an intelligent fanatic running a potentially great business I start the due diligence process. If everything checks out I invest, and as management executes I buy more at higher prices. I love averaging up.

SN: You may be doing a lot of scuttlebutt for finding your ideas. What is your process for the same?

IC: I find ideas through a combination of: word of mouth, private message boards (MicroCapClub), public message boards, reading filings and press releases, screens, and serendipity. I wish I could tell you there was a one best way to find ideas but it’s really the combination of all these things. You just need to put in the work and turn over a lot of rocks.

SN: Yeah, that’s true. Let me now ask you about valuations. How do you think about them, and how do you differentiate between ‘paying up’ for quality versus ‘overpaying’?

IC: My goal is to initially invest in an undervalued company that can get overvalued. For me a great mental hurdle is limiting my investments to those I think will increase 500% in three years if I’m right and increase 100% if I’m wrong. This is my margin of safety.

To achieve maximum capital gains, your intention with every purchase should be to hold for years. You will have an edge on most investors if you make investments based on expected 3-5 year returns instead of 12-month returns. I normally “pay up” to a point to where I believe I can still double my money over the next 12-24 months.

SN: Great! And what about selling a position? How do you determine when to exit from a stock? Are there some specific rules for selling you have?

IC: Most multi-baggers will have long periods of stagnation as fundamentals backfill, old shareholders get bored, and new shareholders enter. It can often take 6-12-18 months of churning for a stock to go up 200% in 6 months. Trying to trade these cycles is foolish.

Investors tend to over-analyze when stocks are going down (fear) and under-analyze when stocks are going up (greed). ‪‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬The hardest part of investing is holding through these times, embracing boredom and inactivity, and distancing human nature-emotion from investment decisions.

When building capital over the long term you need to be good at holding winners and quickly cutting your losers. Investors love to quote Buffett’s, “Our favorite holding period is forever”. This is true as long as you aren’t wasting time holding losers.

Anyways, these are my basic rules for selling:

1. Sell when you find something better: I’m a full time private investor. I don’t manage a fund. I don’t have capital inflows where I constantly have new money to put to work. I have to sell a position in order to buy a new position. I am always comparing new investment opportunities against what I already own. A new opportunity can’t be fractionally better; A new opportunity needs to be multiples better to get me to sell an existing position that I trust. When you find a company that is significantly better than what you already own. Own it.

2. Sell when the story changes: When you see the first cracks in your investment thesis, you sell. You need to know your positions better than most so you are the first to see the cracks.

3. Sell at the first sign of management incompetence or unethical behavior: There are times when you see management make such a bone headed move that you need to sell. You will know it when you see it. Just like cockroaches, when you see one bone headed decision you know it won’t be long until you see more. Life is too short to be invested in management teams you don’t respect.

4. Sell when the company gets VERY overvalued: If a management team is executing, I’m a big fan of holding. I have no problem holding companies through the peaks and troughs, but there are times when the valuation gets way too far ahead of itself. I like to gauge quarterly performance and stock performance of my positions against my 3-5 year estimates. When expectation and reality get too far out of whack it’s good to take some off the table.

SN: Thanks, those were some really good selling rules. Anyways, do you believe in investment checklists? If yes, what are the most important points in your checklist?

IC: Yes, I do. I’ve always enjoyed Michael Shearn’s book, The Investment Checklist. I’m going to highlight some very broad points on what I look for in microcap companies and why.

Intelligent Fanatic Iconoclasts: Owner-operators with intense Focus, Integrity, Energy, and Intelligence.

Market Leaders: For a small microcap company to be a market leader they must dominate a small market. Peter Thiel wrote about this in Zero to One. I want to own businesses that dominate a small market that is expanding. This normally pushes quality attributes down to the financials.

Sustainable – Profitable – Growth: Find repeatable, sustainable, profitable growth. My biggest risk as a microcap investor is dilution. I want to find companies that are self-funding their growth.

Low – No Debt: Small companies and debt just don’t go well together. Travel light, travel far.

Clean Capital Structure: You can learn a lot about the management team by the share-capital structure. I look for low outstanding shares, all common shares, and low amount of warrants/options as a percentage of outstanding shares. You want to invest in managers that treat their shares like gold.

No Institutional Ownership: When you find and invest in great businesses that bigger money doesn’t own, the stock has nowhere to go but up.

Immediate Upside: Buy when the business is fundamentally undervalued to limit risk and to fully leverage multiple expansion. Your margin of safety is buying an undervalued business that can get overvalued.

SN: Nice points indeed! By the way, when you look back at your investment mistakes, were there any common elements of themes?

IC: I learned how to invest by losing my money over and over again. Early in my investing journey I was a story stock junkie. Even after I started focusing on finding great businesses early, I still was drawn into the occasional story stock. It’s an addiction, hence why I said “junkie”. I still attend the local support group (sarcasm).

When I first started trying to know my positions better than most, I wouldn’t sell quick enough when I knew the story had changed. I could give you several examples where waiting days, weeks, months, cost me a lot of money. It’s not just the money but the time. You can’t get that time back. It’s a double negative except they don’t cancel either out and make a positive.

My biggest losses always came after my biggest wins. After selling out of a multi-bagger, it’s human nature to get over confident. You think, “Well if I own any stock, it has to go up!” The tendency is to start investing outside your circle of competence. I’ve found the market loves to humble ego driven investors. After a big win clear your head and humble yourself.

Most investors sell their winners to buy more of their losers. Do the opposite. Cut off the dead branches and the tree will grow stronger. I’ve lost more money constantly averaging down in companies than I’d like to admit. Coincidentally, my biggest winners were companies I was constantly averaging up in.

SN: Most mistakes we make as investors are behavioural, and I am sure you would agree with that. What tricks do you use to save yourself from behavioural biases? What are the most common behavioural mistakes you make?

IC: “Show me a guy who’s afraid to look bad, and I’ll show you a guy you can beat every time.” – Lou Brock

No one wants to lose money, but loss aversion bias is a disease. I’ve spoken to a few experienced microcap investors who over time have become crippled by it. There is a big difference between being disciplined, waiting for your pitch, and not pulling the trigger because you’re afraid of losses. Scared money doesn’t make any money. This is my biggest risk as a microcap investor. It’s one of the reasons why I scale into positions. I need to continue to shoot bullets at great opportunities, wait for management to execute, recalibrate, and then shoot a cannonball and make it a real position.

I also try to stay cognizant of optimism and confirmation biases. Confidence and conviction are necessary to hold multi-baggers, but you can’t let it blind you. There is nothing wrong with falling in love with a stock; you just need to be prepared to divorce quickly. When I conduct maintenance due diligence on positions, I must do so in a mindset to prove myself wrong, not to prove I’m right. There is a big difference.

SN: How can an investor improve the quality of his/her decision making?

IC: I recently wrote on this topic. Indecision is an investor’s biggest adversary. An investor’s goal should be to make as few investment decisions as possible but making few decisions doesn’t mean making slow decisions. Successful business leaders/investors (aka intelligent fanatics) have a high mental horsepower, a deep understanding of what is within their circle of competence, and can therefore make very quick decisions. These traits allow them to outmaneuver the competition.

Here are a few ways on how to make better, faster decisions:

1. Become a Learning Machine: Great investors’ offices aren’t filled with computer screens. They are filled with books.
2. Know your Circle of Competence: It’s important you know how big your circle of competence is and then stay in it. You want to know the potential opportunities within your circle of competence so you can move quickly.
3. Invest in Great Businesses: Set a high hurdle rate and focus on great businesses. Simple businesses aren’t always great businesses but great businesses are almost always simple businesses. Great businesses always become overvalued because they are simple to understand and there is a scarcity value placed on simple great businesses.
4. Organize Your Research: Stay organized so you can make quicker decisions.
5. Keep an Investing Journal: Investing is a lifelong education and its teacher is loss. Keep a journal of your losses. When you are fully cognizant of your past mistakes you can make quicker better decisions.
6. Go with Your Gut: Your gut feeling, aka intuition, is the sum of all your senses combined with your past experiences. Go with it.

SN: Nice points Ian. But how do you follow these amidst the insane amount of noise around and the overload of information?

IC: If you want to be a better long-term investor, get rid of all distractions that promote short-term thinking. Listening to financial pundits, watching your positions every second of the trading day, and watching hundreds of other stocks that you would never own at any price are big distractions.

Focus on owning the best companies you can find. You will be amazed at how well you can focus by getting rid of these distractions. Don’t let the daily price action in your positions influence your long-term resolve. For me, this is also why I don’t swing trade a portion of my position. It promotes short-term thinking.

It’s hard to be a long-term investor when you watch your stocks every second. Retraining your mind to not care if a position is making a 52-week high or is down 10% in a day will make you a better investor. Similarly, who cares how many Apple iPhones were sold this quarter, or that the ISM Manufacturing Index hit 53, or that the Jobs Report last Friday was weak. Does any of this impact any of the great companies you own? No, not if they are great.

You know you are doing it right when your wife is telling you about what happened in the market at dinner.

Here I am reminded of what Charlie Munger said –

Just as animals flourish in niches, people who specialize in some narrow niche can do very well.

Extraordinary returns follow extraordinary discipline. This means focusing on investing. I don’t care about politics, the news, why Google became Alphabet, or why any stock that I’ll never buy is moving in a certain direction.

I focus my time and energy on microcap investing. When I say I focus I mean it. I work on my craft seven days a week. I’m up at 5 am seven days a week. You can’t expect to become above average or the best at something by doing it part time. My wife and I chose to live in a modest home in a community where I don’t have to mow my lawn or do outside yard work. This saves me 2-3 hours per week.

We recently weighed the trade-offs on cleaning our own home versus hiring someone. We chose to hire someone and it’s been a real blessing. I now have an additional 4 hours per week that frees me up to focus on my craft. I have also cut back on many other unproductive things that tended to clutter my schedule.

Goals are accomplished through hard work and great discipline. Discipline is choosing what matters most over what you want now.

SN: Ian, if I were to mention my personal best insight that I got from this interview, it must be what you just mentioned about focus and discipline. Many thanks for it!

Anyways, how do you think about risk? How do you employ that in your investing?

IC: Risk occurs when you don’t know what you own. Buffett says to focus on what is knowable and important. The key is finding and buying great businesses at fair prices and continuing to accumulate knowledge on those management teams and companies. If you buy at the right price, your risk is greatly diminished. Then you need to be aware of the risks associated to the businesses and which ones are important. Let me give you an example.

A few years ago I was analyzing a potential investment. The CEO outlined a risk that a key international market was likely to close, impacting 45% of the company’s revenues. The CEO was open and honest about the risk. I spoke with the CEO several times and flew to their headquarters to meet with management. I was very impressed with the owner-operator CEO and the opportunity. The addressable and potential market for the company’s services was so great that I was willing to take the short-term risk of this one international market closing. This international market did in fact close. The company lost 45% of their revenues and the stock went down 25% in a day. The company was growing so quickly that it made up the gap in lost revenue and a year later the stock was up 100%. Two years later it was up 300%.

Focus on what is knowable and important. Know your investments better than most.

SN: Wonderful! What’s you two-minute advice to someone wanting to get into microcap investing? What are the pitfalls he/she must be aware of?

IC: Find a mentor. Warren Buffett is great but he’s on another planet. You need a mentor that is 10 steps ahead of you, not 1,000. You need a mentor you can actually communicate with. Look out ten years and figure out where you want to be, and then go find someone that is there today. Find them, reach out to them, and learn from them. Never seek advice from people that haven’t done what you are about to do.

Start your day by reading, listening, watching something that inspires you. You will be 10x more productive. When you start each day impassioned with a purpose, you can’t help but make progress.
As I said previously, goals are accomplished through hard work and great discipline. Discipline is choosing what matters most over what you want now. Think about one discipline you need to add to your life now that will help lead you toward what you ultimately want most.

The most important investing lessons can’t be taught in a classroom. They have to be experienced. Losing money is just part of the journey. Don’t be too hard on yourself after your losses or you might be tempted to give yourself too much credit after your winners.

Qualitative analysis (talking to management etc.) can be uncomfortable when you are getting started, but it’s a must. Combat fear with preparation. Do as much work as possible before you reach out to them. Management teams are normally receptive to investors that do their homework.

In general, microcap CEOs have a tendency to over-promise and under-deliver. The ones that talk too much often do too little. Don’t fall in love with storytellers.

If you looked at someone’s bank statements, they would tell you a lot about that person. You would see what is important to them by how and where they spend their money.

Similarly seeing how the share structure of a company has changed over time can tell you a lot about how it’s been operated. Insider ownership, incentive plans, how shares were issued, etc. can tell you everything you need to know.

SN: Which unconventional books/resources do you recommend to a budding investor for learning microcap investing and multidisciplinary thinking?

IC: 80% of my reading (Focused):
I enjoy reading about great things. This encompasses great individuals and organizations. I like reading about great but lesser known investors. Microcap investing is entrepreneurial investing, so I read a lot about successful entrepreneurs. How did the entrepreneurs think? How did they problem solve? Where did they fail? How did they push through failure? I also enjoy reading and following the great angel investors and venture capitalists. They too focus on betting on jockey’s as much as the underlying product, service, or technology. What qualities do they look for in the founders they support/financially back?

20% of my reading (Un-Focused):
Fiction. For example I recently read, King Rat by James Clavell. It was fabulous. You have to exercise the other half of your brain. Let your mind be imaginative and create vivid pictures, scenes, and allow yourself to get emotional.

I don’t spend too much time reading about other subject matter. I am blessed and happy. I love God, my wife and my daughter. I don’t have time to read about the meaning of life or other broad subject matter. I don’t have the mental horsepower of Charlie Munger, who probably knows more on subjects outside of finance than the thought leaders in those subjects. I need to focus.

SN: That’s a brilliant insight for those who are lost on what to read and what to avoid. Focusing and saying no to some things, as you mentioned, is the key. Anyways, which investor/investment thinker(s) so you hold in high esteem?

IC: I gravitate to those that share my investment belief system. Investors like Phil Fisher, Charlie Munger, and Warren Buffett. They were/are focused on quality and concentrate(d) in their best ideas.

However, getting back to my mentor comment from earlier in this interview, these investors were/are on another planet. They aren’t even microcap investors. It’s important to find investors that are several steps (wealth and maturation) ahead of you. The people I look up to for mentorship are not people you would know.

For example, a gentleman had been reading my blog posts for years. He decided to reach out to me through the website. We then spoke over the phone. He is a normal person, living a normal life. His house is average. His car is average. The truth is he lives well below his means. He started in the mid 1990’s with a few thousand dollars. Today he is worth $50 million+. He is a private microcap investor who has been concentrating in his best 4-5-6 companies for 20 years. He is a very private person and doesn’t want his neighbors or extended family to know the extent of his wealth. I respect that.

At the end of the conversation, I asked him if he would be my mentor because he is exactly where I want to be in the years ahead. I too, desperately need a mentor. I need to communicate and learn from someone who is a few levels ahead of me. Someone I can get to know, not from reading books about them or by them but someone I can form a relationship with.

SN: Hypothetical question: Let’s say that you knew you were going to lose all your memory the next morning. Briefly, what would you write in a letter to yourself, so that you could begin relearning everything starting the next day?

IC: I would include the names and contact information of the best CEO’s I knew, helped, and invested alongside.

SN: Great! Finally, what other things keep Ian Cassel busy apart from investing?

IC: Outside of investing, reading, and family…I work out of my home, so I enjoy getting out and working out every day. When you feel good physically it transcends into other areas of your life. I’m an avid golfer, which I’ve been doing less and less now that I have a daughter. You can find out a lot about a person over four hours of playing golf. I don’t care about big fancy homes, but I do like cars. I think everyone should have one vice. 

SN: True, Ian! Well, thank you so much for sharing your amazing insights with Safal Niveshak readers. This interview has been particularly special for me as I gained a lot of insights into the mind of a microcap investor, and also learn from someone so kind to lay open his life and investment journey to others. So thanks again!

IC: I want to thank you Vishal for the opportunity to share my story and investment strategy with your readership. I am humbled and honored by the international attention (India specifically) that MicroCapClub and myself have received. Most of the credit goes to Sanjay Bakshi as he’s been a blessing to me and my investing journey.

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Note: This interview was published in the November 2015 issue of our premium newsletter, Value Investing Almanack. To gain instant access to more such interviews and other interesting stuff on value investing and business analysis, click here to subscribe now.