Kyle and Paul Andreola discuss evaluating smallcap stocks, focusing on profitable growing businesses, the PEG ratio, understanding capital raising, and the importance of value. They also talk about the current state of microcaps.
Paul Andreola is a successful microcap investor managing his own money for over 30 years. He's a board member for Atlas Engineered Products, Total Telcom, and Departure Bay Bay Capital. He runs Smallcap Discoveries, where he interviews CEOs of microcap businesses and shares his strategies.
IN THIS EPISODE YOU’LL LEARN:
- The importance of flipping over as many rocks as possible
- Why focus your efforts on profitable businesses that are growing
- The power of owning businesses that institutions can’t invest in
- Why you should stay away from low-growth businesses even when they are cheap
- How to use the price-to-earnings-growth ratio to help you identify undervalued growth stocks
- How to add a margin of safety using the PEG ratio
- How to use the PEG ratio to help you determine what needs to be sold
- How increasing fund flows can attract low-quality businesses in search of capital
- Why owning profitable companies can de-risk your investing
- Why you should stay away from businesses that are likely to heavily dilute shareholders
- The importance of having a board member with capital markets experience
- The hidden costs of financing
- The role of intangible assets in finding financing
- When it makes sense to use equity for funding
- The importance of buying businesses that have minor struggles that are fixable
- Why businesses that are struggling can offer significant upside
- When and why averaging up makes perfect sense
- Why you should be flexible on how much concentration you put into a position
- Why averaging down is a losing strategy
- How opportunity cost should help govern your portfolio allocation
- The positive tax consequences of holding positions
- Strategies for selling your losing legacy positions
- The one question to ask yourself about positions to make sure it’s right for your portfolio
- Why building an investing network is so important
- Why value will always do well despite overall market conditions
- Why increases in financing is a signal that capital is coming down the market into Small Caps
- What Paul likes to do when it’s harder to find good opportunities
- Why institutional capital inflows are the primary driver for increasing returns
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