I received so many positive emails about publishing the investment strategy of an experienced investor like Ian Cassel that I thought I would continue with this and post another strategy kindly provided by @F952i. I have personally watched Faheem learn and grow over the last few years and I believe his journey is one where every new investor can relate to. The purpose of posting these strategies is to help new investors and traders to put together their own strategy so please keep this in mind as you read the eblow.
A Bit About Me
I don’t consider myself experienced, I picked up my first book on the
I have experienced significant appreciation in personal wealth venturing into micro-caps un-diversified, growing out a 4-figure account into 6-figures. I don’t consider myself comparatively super successful either nor am I a “guru”. It is not difficult to get into contact with others who do much better than me with more consistency,
I have a high-risk tolerance compared to most, this can be attributed mainly due to my age and lack of liabilities. I don’t have kids, wife or a girlfriend and live a life with minimal debt which allows me to potentially lose it all without life falling apart. It’s far easier for me to take risks, bend rules and bounce back or be flexible in face of adversity in my 20’s before the practicalities of life
My strategy was built and designed for my circumstances. Being a Uni student with a small starting sum of money I couldn’t afford to have my eyes glued on
The past 12months
I only invest in spaces I understand well. Bio-techs & oil/gas are two spaces which I’m hopeless at, perhaps their binary probability outcomes and jargon puts me out of my element.
I generally get involved in 3 spaces and will try provide an intimate look at the strategy I adopt for each; Shells, Mineral exploration/development, growth companies/revenue generators (mainly tech).
The general rule is to get set as cheap as possible. Shells have a long opportunity cost which must be considered.
Couple red flags to avoid are shells with significant debt which will price up your EV. Shells with convertible notes. Shells low on
Other red-flags include shells that burn a lot of cash through the quarter (must AVOID) these are lifestyle companies; directors are blowing cash on luxury field trips for managing a pretty much empty company. Avoid shells where directors are over-paid. Salaries vary on many things, but I’d say over $120K is pushing it, especially if the director holds other directorships there is no need for extravagant salaries. If I had to
This is the key to playing shells. Backers come in different forms, they can be any combination of broker/lead manager (LM), Deal-Maker (DM), players in the Top 20 shareholders, directors. They will steer the ship of the company. Let’s go through each one step by step.
You want a broker that has a history of multi-bagging deals. The broker will essentially be managing the book or the allocate/organize the register of the largest holders, these shareholders are the
The deal maker will essentially be the individual or entity responsible for bringing the vend. This will be the most important “backer”. The DM can be an individual from the brokerage such as Jason Peterson from CPS Capital, a set of private individual(s) such as Corr brothers & CAZ stable that did the DMI vend now called GLN that made +800% or a director/consulting group such as Apollo Group that did the MRU deal through Middlemas directorship and took it from a $400K EV shell to $1.16B Takeover.
I look for three things from the dealmaker.
- Performance to multi-bag the stock they are on without a ridiculously long opportunity cost or downside movement. A good understanding of what the market wants and market thematic.
- Own a good chunk of shares and have vested interest themselves. You want to see them in or near the Top 10 shareholders. Some of the best deals will have the dealmaker as the largest holder. In the examples given above, two of the largest holders in DMI was both the dealmakers. In MRU, Middlemas was in the top 10 holders.
- More importantly, have the DM’s clients or friends set together. Most deal makers are already rich, so money isn’t really the biggest incentive. However, when you have the money of your clients, friends, those that have backed/believed in you and legacy on the line, this works as a serious driving incentive I feel. I will speak further about this within the T20 section below.
Top 20 Shareholders (T20)
This is equally as important as the deal maker. Often because it holds numerous clues on the deal-maker itself and the broker at the same time. This in my opinion is one of my biggest edges with shells, at least when market is healthy, and deal-flow is good. I can say with good confidence I’ve built one of the largest T20 databases that exist for Australian Nanocaps.
What you want to see in T20 is a few things:
- The DM owning a decent chunk.
- The DM friends and associates all set together within the register.
- Names on the register that know how to hold onto a winner and not flip stocks. This will suffocate the supply/free float and can lead to exponential moves.
- Large sophisticated ownership with big hitters (i.e. wealthy individuals). Reason this is important goes back to point 3. Someone worth $1M holding $100K of stock is far more likely to flip it after one bag for liquidity rather than someone worth $20M holding $100k of stock who can afford to hold it out for years without concern. The latter can also provide on market support buying.
The hardest part is usually figuring out point (2) and (3) above. Groups will always tend to get set together in good shells. The best way I have found to go about this is
The director will be steering the ship. You want directors that are proactive, not burning a tonne of company cash, aren’t being paid a ridiculous salary which will put them in no serious rush to vend and allow to juice out as much of the company’s cash into their bank account before raising cash via a vend.
I also have a database just for directors. My mentality in previous years was to avoid any director with a failed company. However, when I built the director database, I noticed almost every director across micro-caps, small-caps even blue chips have had companies go broke before hitting gold. There
This database was built to remain as objective as possible. The aim was to identify directors that have brought appreciation in share price from the time of their appointment without a huge opportunity cost waiting time. The thesis is simple; I don’t care about end outcome or where the companies end up as I don’t intend to hold into the final days regardless. I look at max upside potential with a director appointment that has objectively and statistically coincided with appreciation in
If you’re looking to take your Penny Stock Investing to the next level feel free pop in and learn more about my newly released investing course.