One of key strategies I use to find microcap diamonds in the rough is to combine the concepts of Growth + Value. On April 11, 2016, I presented (videos at bottom) at the 2016 Microcap Conference Toronto, where I gave a speech on this very subject. More detail on this presentation can be seen at my blog, http://geoinvesting.com/combining-tenets-growth-value-find-hidden-microcap-opportunities/.

1. GeoInvesting
• Maj Soueidan (@majgeoinvesting,
@GeoInvesting)
• Bought first stock in college
• Fulltime investor since 1994, two years
post-college
• Co-founder of GeoInvesting, Launched
2007
12016 Microcap Conference Toronto

2. What We Do
• Help investors navigate a micro-cap space that consists of
thousands of stocks and an infinite number of information
sources
• Increase Awareness
• Save time performing research
• Help current micro-cap investors find underfollowed ideas
• Relate to the everyday investor
22016 Microcap Conference Toronto

3. What We Do
• Publish articles, present elevator pitches and issue
morning alerts
• About to launch a new product to help microcap
investors perform more efficient earnings press
release and SEC filing research. (Waiting list –
http://geoinvesting.com/geo-brick)
• Building a community of great investors who
contribute great ideas to our site.
• We also help institutional investors/firms with their
in-house research needs
32016 Microcap Conference Toronto

4. Playing Field Has Shifted
• Microcap Attrition
• Institutions
• Brokers
• Retail investor
• Investors are looking for “less risky” investments in large
caps or speculative quick hits to reduce “time” exposure
• Has impacted the speed at which really cheap value +
growth propositions rise to fair value and how long they
hang onto gains.
42016 Microcap Conference Toronto

5. Playing Field Has Shifted
• 55% percent of Americans are invested in stock
market compared to 62% before the 2008 financial
crisis. (Source: http://www.gallup.com/)
• Although investor participation has remained fairly
steady over time, they are choosing ETFs and funds .
52016 Microcap Conference Toronto

6. Playing Field Has Shifted
62016 Microcap Conference Toronto

7. Playing Field Has Shifted
72016 Microcap Conference Toronto

8. Playing Field Has Shifted
• Pre-2008 the retail investor accounted for 2/3 of
trading volume. Now program trading accounts for
2/3 of trading volume. (Sources:
https://en.wikipedia.org, http://etfreference.com/
• Less money finding its way into individual stocks +
less involvement in the microcap stocks = Lack of
price appreciation
82016 Microcap Conference Toronto

9. You Are Not Alone
• 2015 was one of Warren Buffet’s worst years in his history. Here
are some excerpts from a CNN Money article in December 2015
discussing Mr. Buffett’s year:
• “It’s been a tough year for most investors — including the
most legendary one out there.”
• “Warren Buffett’s Berkshire Hathaway is on track for its worst
year since 2008.”
• “This year, Buffett is lagging the market.”
• “The last time that Berkshire had a down
year and underperformed the S&P 500 was all the way back in
1999. That year, the S&P 500 gained 19.5% while Berkshire’s A
shares fell 20% and the B shares were down 22%.”
92016 Microcap Conference Toronto

10. De Ja Vu
102016 Microcap Conference Toronto

11. Separating Growth & Value
• Value - Value investors are strictly concerned with
the here and now; they look for stocks that, at this
moment, are trading for less than their apparent
worth.
• Growth - Growth investors, on the other hand,
focus on the future potential of a company, with
much less emphasis on its present price.
112016 Microcap Conference Toronto

12. Separating Growth & Value
• “Growth” investor has little regard for value.
• Value investor puts little emphasis on the future
growth of a company.
• When in reality investors just have different
perspectives on what is cheap.
122016 Microcap Conference Toronto

13. Separating Growth & Value
• Value investor is perceived to only invest in boring beaten
up stocks trading at their lows.
• Growth investor is buying in vogue speculative companies
with huge growth rates trading at highs that will grow into
their valuation.
• But sexy “growth” stocks can have tremendous value if
found at the right time and boring companies can
experience extraordinary sales and earnings growth.
• The price level of the stock does not alone define its
value. Value can be found across 52 week highs and lows.
132016 Microcap Conference Toronto

14. Combining Growth & Value
If you subtly combine these concepts you have a
beautiful scenario. One where a stock is undervalued
by your standards based on what is going on today, but
is being grossly mispriced because of what you think is
going to happen in the future.
142016 Microcap Conference Toronto

15. Common Sense
• Common Sense: Warren Buffett:
“Market commentators and investment managers
who glibly refer to ‘growth’ and ‘value’ styles as
contrasting approaches to investment are displaying
their ignorance, not their sophistication…”
152016 Microcap Conference Toronto

16. GARP (Growth At A Reasonable Price)
• Avoid extremes (Source: Investopedia)
162016 Microcap Conference Toronto

17. GARP
GARP investors seek a balance between companies that have
had consistently strong earnings growth and those trading at
attractive price valuations. (Source:
https://www.tradestation.com)
• Reasonably low valuation multiples
• Sustainable EPS growth rates
• In good hands: Peter Lynch, Mario Gabelli, David Dremen.
172016 Microcap Conference Toronto

18. Finding Your GARP Strategy
Peter Lynch
• Trailing P/E<25
• Forward P/E<15
• Debt Ratio <35%
• EPS Growth >15% to <30%
• PEG Ratio (PE/EPS Growth Rate) <1.2
• Market Cap < $5 billion
182016 Microcap Conference Toronto

19. Finding Your GARP Strategy
• I approach investing in a manner where I want to find not so
obvious mispricing.
• Looking for catalysts that will impact growth and risk profiles so that
will change the perception of what a “reasonable” price should be.
• Catalysts
• Reduce leverage
• Margin expansion
• Finding new revenue for a mature legacy product
• Acquisitions
• Reduce customer concentration
• New management
192016 Microcap Conference Toronto

20. My Mispricing Scenarios
A stock of a profitable company being priced as a
boring “out of favor stock” that is about to receive an
expansion in its valuation multiples due to certain
catalysts leading to a period of sustained EPS growth.
It’s a plus If they pay fat dividends.
202016 Microcap Conference Toronto

21. My Mispricing Scenarios
A stock that looks overpriced due to losses or meager
profitability that is being ignored by investors but is
about to experience profitable growth or a return to
profitability due to certain catalysts leading to a period
of sustained EPS growth.
212016 Microcap Conference Toronto

22. My Mispricing Scenarios
• The key to these two scenarios is that they tend to
take investors by surprise and lead to a string of
profitable quarters of growth, paving the way for
multi-bagger moves since the mispricing can be
severe.
• Basically I am trying to catch mispricing right before
the meat of a new growth cycle to capture outsized
returns
222016 Microcap Conference Toronto

23. My Mispricing Scenarios
232016 Microcap Conference Toronto

24. My Mispricing Scenarios
A stock that is severely underpriced on
current and future EPS but is ignored.
242016 Microcap Conference Toronto

25. GeoInvesting – Micro-cap Space is Thawing
• Global chaos is good for micro-caps
• Interest rates rising will impact balance sheets of
larger companies more than home-grown micro-
caps
• Micro-cap participation finally seems broader
252016 Microcap Conference Toronto

26. Reversion To The Mean
“Market reversion is painful at first, but should lead to
a scenario where active management and stock picking
become important again. Over the last several years,
value had taken a back seat to hype, leading to an
overvaluation of ‘story stocks’ and ridiculous
undervaluation of ‘boring’ stocks. At some point value
will matter again.”
262016 Microcap Conference Toronto

27. Micro-cap Investing Does Work
• Over half of top ideas + contributor ideas, have
risen by more than 50%
• U.S. micro-cap GeoInvesting top ideas + contributor
ideas that more than doubled – 50
• Number of GeoInvesting ideas that have been
acquired – 40+
272016 Microcap Conference Toronto

28. GeoInvesting
• We offer a lot of great free content
• Premium Promo code: CANADA6
• Premium Promo code: CANADA12
282016 Microcap Conference Toronto