Something I've realized: posts such as the previous one ("A Conversation with USEG Management") are valuable, because they offer original reporting/commentary on a stock that's not widely followed, but they won't have much of a place on the entrepreneurship/business-oriented blog I'm starting. Post such as that have also been fairly sporadic on this blog, partly because I don't have time to follow more than a few companies that closely. So here's what I have in mind: a team-written blog focused on stocks that aren't widely followed. I just bought a nice domain name for this new blog -- one that's relatively short, easy to spell, and lends itself well visually to a logo.
Guidelines for the stocks:
- Under $100 million market cap; preferably, under $50 million.
- Little or no analyst coverage.
- Must have potential multi-bagger upside, in the author's opinion.
Guidelines for the authors:
- Write about 1 to 3 stocks, no more. If you find a 4th stock you like better than the first three, kick one of the first three off of the list.
- Do original reporting. Call the company's management occasionally and post notes on your conversations. Call elsewhere. Be a sleuth. Don't regurgitate aphorisms from Warren Buffett. Save that for other sites.
- Post as often as you have something new or useful to write about your companies, but no more. Don't just post for the sake of posting.
- Engage with your commenters and seek out the answers to their questions.
- Don't run and hide if your stock tanks. If you're still a believer, explain why; if not, explain why.
If you're interested in contributing to this new blog, send me an e-mail with "Obscure Stocks" in the subject line. Thanks.
Showing posts with label Small stocks. Show all posts
Showing posts with label Small stocks. Show all posts
Thursday, August 27, 2009
Friday, January 23, 2009
PhotoChannel in Forbes
Earlier this week, Forbes asked Stephen Roseman, the founder of hedge fund Thesis Capital, for his small cap picks ("Small Stocks Worth Buying"). One of the three stocks Roseman mentioned was PhotoChannel:
Finally, Roseman likes Photochannel Network (otcbb: PHCHF.OB[sic] - news - people ), a stock that investors might be wary of because its $45 million market cap suggests a lack of liquidity though its 54,000 average share volume suggests that there is a market in the stock.
"As the world is still migrating to digital photography, this is very much a growth business trading at a 'value' valuation," Roseman says. "They are benefiting from the recession-resistant nature of the industry (same-store sales were up 28% in the September quarter and 40% in the December quarter), and their gross margins are getting better as they do more volume--they have gone from 50% several quarters ago to over 70% in the December quarter. While they have an adequate balance sheet, they are growing their revenues and cash flow rapidly and have a bright future with strong technological tailwinds. There are only a few analyst estimates out there because the company isn't well-covered, but by my estimates, it's trading at a single-digit multiple, while growing in excess of 100% per year."
The image above comes from the Forbes article.
[Sic]Forbes includes the old, invalid symbol for PhotoChannel. The current, correct one is PNWIF.OB. Perhaps because Forbes didn't use the correct symbol, this article didn't come up under "Headlines" on Yahoo! Finance.
Tuesday, December 2, 2008
"Too Many Bullish Arguments Suffer from a Lack of Imagination"
From Tony Jackson's column in yesterday's Financial Times, "Too many bullish arguments suffer from lack of imagination":
Later in his column, Jackson questions the conclusion of Morgan Stanley economist Joachim Fels's recent essay, "Neither Japan nor The Great Depression" (which was the subject of an eponymous post here last week):
There seems to be growing support for the notion that equities have reached fair value. This raises two questions: how far it is true, and how far it is useful.
As to the latter, I described a month ago how the UK consultant Andrew Smithers, drawing on work by the US academic Robert Shiller, concluded the US market was fairly valued with the S & P 500 at 880 - roughly its level today. But as Mr Smithers also found, previous serious market collapses did not end until they were, on average, at only half fair value.
This is unsurprising. If markets never undershot, they would never overshoot either.
Later in his column, Jackson questions the conclusion of Morgan Stanley economist Joachim Fels's recent essay, "Neither Japan nor The Great Depression" (which was the subject of an eponymous post here last week):
Morgan Stanley has just produced a piece declaring that the present downturn is "neither the Great Depression or Japan". The argument boils down to saying that all previous policy mistakes have been avoided this time.
But that, of course, carries a hidden premise: that all possible mistakes were contained in those two episodes. That is, none of today's policy actions will turn out later to have been blunders.
Any takers on that one?
Saturday, July 26, 2008
Why Worry about Small, Thinly-Traded Stocks?
That question was posed by a someone commenting on the previous post ("How One Investor Found a Home Run Stock"). I initially responded in a comment, but it was a good enough question to warrant answering it more fully in a separate post.
As I noted in my comment, the reason such small stocks are worth paying attention to is that these stocks are more likely to be mis-priced, since they usually have no analyst coverage, little media attention, are ignored by most institutional investors, etc. This gives them the potential for higher returns than more widely-followed stocks. Recent academic literature supports this. See, for example, "Information Diffusion Based Explanations of Asset Pricing Anomalies", by Bolmatis and Sekeris. In this study the authors found that,
Mark Hulbert, of the Hulbert Financial Digest, wrote about this study last month in the New York Times (Strategies: "Roses among the Wall Flowers"), and fund manager Aaron Edelheit commented on this article in his blog ("This is What I Do for a Living!"). In that post, Edelheit wrote,
In addition to Edelheit, another professional investor who has achieved excellent returns by investing in these sorts of stocks is Paul Sonkin, of the Hummingbird Value Funds.
It's true that investing in such small cap stocks is risky, but it's also true that there's plenty of risk in investing in many large cap stocks, as investors who bought shares in such stalwarts as Citigroup or Motorola over a year ago can attest to. Perhaps the conventional wisdom of risk-versus-reward (i.e., large cap is less risky than smaller cap; domestic is less risky than foreign) needs to be reconsidered. If an investor is going to take on significant risk investing in common stocks, he ought to have the potential of a significant upside to compensate him for taking on that risk.
Here is another way to think about size-versus-risk. Think of a small, local business where you live, one that is profitable and that has been so for decades. If there were a way for you to buy a small piece of that business (at a fair price, of course) would you buy it? Chances are, if that small, local business were publicly-traded it would be a micro-cap. Would that, in and of itself, make it a more risky1 investment?
Another point the commenter made was that the recent paucity of comments on this blog was due to my posts about "super-obscure" stocks. He may well be right. I'd venture that for most people, reading about stocks you don't own and have no intention of buying is boring. I remember, years ago, as a trainee in a small brokerage/investment bank in Midtown Manhattan, how boring it was to read the WSJ's "Abreast of the Market" column everyday as I was instructed to do. I didn't own any of those stocks, and so I had no interest in them. Perhaps I'll add some more general interest posts in the future, but I'll continue to write about small stocks, because that is what interests me. If you are more interested in reading about more widely-followed companies, including Dow Components, Buffett picks, etc., you may want to peruse the Value Strategies & Ideas" forum on GuruFocus.
1Risky in terms of the chance of you suffering a permanent loss of principal, not risky in terms of price volatility.
As I noted in my comment, the reason such small stocks are worth paying attention to is that these stocks are more likely to be mis-priced, since they usually have no analyst coverage, little media attention, are ignored by most institutional investors, etc. This gives them the potential for higher returns than more widely-followed stocks. Recent academic literature supports this. See, for example, "Information Diffusion Based Explanations of Asset Pricing Anomalies", by Bolmatis and Sekeris. In this study the authors found that,
Stocks that have no-trade days outperform other stocks by a wide margin, even after correcting for their higher risk as captured by their larger betas. This result is expected when comparing stocks with large differences in information availability.
Mark Hulbert, of the Hulbert Financial Digest, wrote about this study last month in the New York Times (Strategies: "Roses among the Wall Flowers"), and fund manager Aaron Edelheit commented on this article in his blog ("This is What I Do for a Living!"). In that post, Edelheit wrote,
Academic studies finally back up what I have found in 10 years of investing:
No trade stocks outperform
In addition to Edelheit, another professional investor who has achieved excellent returns by investing in these sorts of stocks is Paul Sonkin, of the Hummingbird Value Funds.
It's true that investing in such small cap stocks is risky, but it's also true that there's plenty of risk in investing in many large cap stocks, as investors who bought shares in such stalwarts as Citigroup or Motorola over a year ago can attest to. Perhaps the conventional wisdom of risk-versus-reward (i.e., large cap is less risky than smaller cap; domestic is less risky than foreign) needs to be reconsidered. If an investor is going to take on significant risk investing in common stocks, he ought to have the potential of a significant upside to compensate him for taking on that risk.
Here is another way to think about size-versus-risk. Think of a small, local business where you live, one that is profitable and that has been so for decades. If there were a way for you to buy a small piece of that business (at a fair price, of course) would you buy it? Chances are, if that small, local business were publicly-traded it would be a micro-cap. Would that, in and of itself, make it a more risky1 investment?
Another point the commenter made was that the recent paucity of comments on this blog was due to my posts about "super-obscure" stocks. He may well be right. I'd venture that for most people, reading about stocks you don't own and have no intention of buying is boring. I remember, years ago, as a trainee in a small brokerage/investment bank in Midtown Manhattan, how boring it was to read the WSJ's "Abreast of the Market" column everyday as I was instructed to do. I didn't own any of those stocks, and so I had no interest in them. Perhaps I'll add some more general interest posts in the future, but I'll continue to write about small stocks, because that is what interests me. If you are more interested in reading about more widely-followed companies, including Dow Components, Buffett picks, etc., you may want to peruse the Value Strategies & Ideas" forum on GuruFocus.
1Risky in terms of the chance of you suffering a permanent loss of principal, not risky in terms of price volatility.
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