I have seen posts from Manucastle on some of the main boards talking about Buffett small cap discussions somewhere over here. Is this the right board?While I always have a mix of large, mid, small and micro caps I am placing an increasingly larger portion of my portfolio on thinly traded micro caps (chosen very selectively). Atrion (ATRI) continues to be one of my favorites.Is this the board Manucastle was talking about or is there another?sw
stillwater,Manucastle is referring to the Buffett Small Cap Investing board: http://boards.fool.com/messages.asp?bid=117404.ValueFocused
"increasingly larger portion of my portfolio on thinly traded micro caps "I suggest you make sure you have a lot of cash on hand as the spread will kill you if you ever had to sell such a portfolio.It might be worth seeking out mutual and closed end funds that invest in small caps like Royce.As to ATRI, I is a small conglomerate making high tech medical supplies, air mattress parts, an operating a pipeline. A very brief look at their Q3 report shows they are down to $234k in cash. I assume they have a line of credit, but if that did not work out they could be screwed.
"As to ATRI, I is a small conglomerate making high tech medical supplies, air mattress parts, an operating a pipeline. A very brief look at their Q3 report shows they are down to $234k in cash. I assume they have a line of credit, but if that did not work out they could be screwed."They have a $25 million line of credit (ten times as much as their cash on hand) with terms of LIBOR+1, which is pretty good. They spin off a lot of cash (to the point of paying a dividend). They haven't had a net loss in over 10 years. They've been consistently paying down debt. The average trading volume is nearly a quarter million dollars and the ask isn't much more than half a percent higher than the bid (one of my investments has an average trading volume of less than $3,000 and the ask is 16% higher than the bid).It's true that it's always a bad idea to be investing money that might be needed within say 5 years. While I haven't looked at the company in detail [yet], it looks like a reasonable investment on the surface.DeliLama
I have been dealing with these thinly traded small caps for 2-3 years plus now and my conclusion is that this is an area where the market is extremely inefficient. The small savy investor using intelligent buying and selling techniques can make abnormal profits in these stocks. Every time I disucss this concept with people new to the concept, this fear of illiquidity comes up. But my strong conclusion is that the market is giving these issues way too large a discount based upon this presumed illiquidity. Granted I am financially well off and can afford to wait a bit if needed for prices to rebound from temporary downturns. Of course I am also doing intense screening for quality on these issues. These are great businesses.The other reality is that in fact these stocks have "bimodal" markets.In many cases there is a very high level of insider ownership. It is this high level of insider ownership that gives rise to the low daily trading volume. So there is this thin erratic daily market, but when the owners want to sell then the real market for these great companies comes into play. In many cases the whole company is sold at a very large premium to where it has been trading in the thin daily market. My overall returns on these "thin" issues is about 35%/year with over 70% of positions yielding gains. I have had very few significant losses and have seen several take-overs (see NOLD, VLG) at significant premiums.I am not the only great investor using this type of strategy. Joseph R. Nerges who has made millions in his retirement account is another.As for Atrion, they have just completed a brand new plant and this is the reason cash is down, but it should start to grow nicely in future periods. ATRI is one of the best managed companies in the USA.
By the way the real growth story for ATRI lies in the cardiovascular and fluid flow lines. They also may be coming up with some important new products.
This post is a bit old but states the basic case for Atrion.http://boards.fool.com/Message.asp?mid=23657860
stillwater9999,SW, I would say you are wasting your breath trying to show the great benefits of investing in small caps the WB way on this board after my experiences. The volatility of these stocks is a GOOD thing because it allows us to get in at even more attractive prices when the headless chickens have finished selling.bogwan , you obviously have not been following the examples of excellent investors like stillwater, mklien, delilama and others who are succeeding admirably in the areas that WB and Munger would be looking in if they ONLY had a million dollars to invest in there search for 50% p.a. returns. Your comments about the spread are , in most cases , NOT applicable from my experience and you will find many companies worth watching on the 'Buffett Small Cap Investing' board.You have an excellent investor in your midst 'DeliLama'. How many follow his small and micro cap picks ? Very few I would say ! Delilama you are welcome to share your comments and picks on the 'Buffett Small Cap investing' board anytime !Keep up the good work SW and good luck with your new company.Manucastle :)
There is a general principle in investing that you will never make abnormal profits if you only buy when things are safe and comfortable.If you take a look at my posts on the Valley Gas board as we lived through the run-up to the take-over, you will see the same skepticism about buying thinly traded illiquid stocks. It is this skepticism that creates the market inefficiency and mispricing. Another contributor is the fact that institutions do not want to bother with these stocks in most cases. They do not want to slowly accumulate positions by buying a few hundred shares many times. But look at how Mr. Nerges is accumulating shares in IKNX, that is the way to do it.sw
SW,I heartily agree with your approach. Over the last 4 years, the majority of my portfolio has been concentrated in small illiquid companies (mainly in the Canadian market), because that's where I have been able to find the most value. It is getting harder to find value, on the heels of the large rise in small/microcaps generally over the last 3 years, but it is still microcaps that I am finding the most value. Do you have any more information on Joseph R. Nerges? Thanks,Chip
Interesting.On the subject of Nerges take a look at the IKNX 4-F filings. He owns over 10%. He was also a large owner in Penobsoct Shoe a few years back and made a nice amount when that company was taken over.His address is listed as Bundy St. in Scranton PA - apparenly a modest dwelling based upon tax records. The SEC filings indicate he is investing in his individually directed retirment account. I have heard he was an autoworker, but have no confirmation of that.earslookin was familiar with him.sw - owner of IKNX in individual or managed accounts.
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