By Thom Calandra
You know you have been around small-caps, and micro-caps, for a l-o-o-o-n-g time when:
- You’ve seen your $10 million gold prospector turn into an Internet incubator, back into a gold-co., and then to a hemp grower. What’s next?
- Your favorite Philippines carbonized rice- husk idea, the one you hoped would take biomass energy to the masses, and help pay for Cooper and Chelsea’s university years, is now a bamboo grower in Myanmar.
- Your high-risk marker on hydrogen fuel-cells publishes press releases as often as the Dalai Lama meditates. Each time you buy more “on news,” the stock gets hammered. The one time hydrogen-co keeps quiet, the stock rockets for days on end.
- You’ve been in this solar-cell technology developer’s shares since Day One. The shares reach for that star, then come back to earth, again and again. You’re bored, or you need cash. Your sale precedes by one week your solar-co’s contract news, an event that triples the stock price. About this small-cap syndrome, more at the close of this article.
- Oh yeah, and the last time you tried to figure out that 1-for-16.5 reverse split, and how many times the consolidated shares need to double and double again, before you are back in the black, well, even your 17-year-old in advanced statistics refuses the assignment.
In 35 years of reporting financial markets, and investing in them, I have met, interviewed or become close to some of North America’s orphan-stock winners: Peter Lynch, Peter Lynch’s successor, Mario Gabelli, Paul Stephens, and many more in fund management, venture capital and plain-old stock-picking.
These professionals all are considered modern-day investing benchmarks of excellence.
I also interviewed or knew at least two dozen of the investment writers who scrubbed the small-cap and micro-cap boards, long and short: Doug Casey, Jim Dines, David Tice – too many to mention.
When these asset pros and “experts” are hot, they all are hotter than an air gun at a Little Rock carnival. Bulls-eyes galore.
The companies that start with next-to-nothing become their segment’s leaders. I recall, thanks to one rabidly contrarian stocks manager, one choice reaching 20 times my own invested capital: it was a southern California genomics tools company that is now worth $28 billion-plus. I started piling in after a visit to the pioneering tools developer, when the stock value was about $500 million. (I left money on the table.)
Ditto with a Hong Kong Internet network provider that is now effectively the mainland’s telephone company. It, like the genomics company, could not have been more than a $600 million USD market value at the time I hit the purchase button. My own holding rose 30 times my invested capital, and kept on rising. The China Internet company is now worth $150 billion USD.
I can say the same about that comic-book publisher that Hollywood now marvels at.
Wait for it. When the “experts” go south? Well, small cap and micro cap companies outpace and under-pace large, established companies by miles and miles. So the devastation at least equals the glory of going north (or parabolic).
Point is, all of us, not just the experts, suffer spectacular losses. Let me count the ways:
- Company with “proprietary methodology” for counting vehicle traffic and plotting alternatives or commercial strategies for real estate development: out of business.
- Company with viper-venom treatment for brain strokes: out of business.
- Company with Internet access delivered via wall wiring: out of business (I hope).
- Company with patent-pending drilling tools for high-powered minerals exploration? (I’m still looking for the listing on that one.)
As a writer, a lifelong journalist who was fortunate enough to co-found a winning Internet publishing company, MarketWatch.com, one that sold for $520 million cash, I learned in school and at numerous publications how to present my case in deductive fashion. This style of exposition is called the inverted pyramid: big idea, the lead of the story, goes at the very top. Everything else follows. Fill in the pieces as the pyramid grows beneath.
In this article, I am going inductive. Like a Sam Spade detective novel, I guess. The punch line comes at the close. I figure small-cap and micro-cap investors are patient enough to get to the finale of a 900-word article for a proverb. Come on, we small-co hounds wait for years before we get a payout with our capital commitments. Or lose our shirts in the wait.
I referred to the punch line near the top of this piece. You know, when I am in Colombia or Panama or Bolivia, and I try to describe the word “whiplash,” I usually get poker faces. Not easy to translate that term.
Mostly, when a Spanish speaker tries to translate the meaning of whiplash, it comes out as whip-lashing, or something off-color and not proper for this publication’s audience.
We who invest in small-fry companies know what whiplash means. The ultimate insult it is, coming after years of belief in a choice biomedical stock, or Internet wonder, or solar-cell miracle, or whatever.
Let us close out with a proverb from a San Francisco broker I know. He has a saying for everything in his world. “My boy, never, ever suffer whiplash. It’s so retail.”
Gary, his real first name, is saying, ‘Go down with the ship, as long as it’s your ship. Because if it turns into a spaceship, and reaches for the sun, you will never, ever forgive yourself.’
Neither will your spouse, your kids, and everyone else.
Editor's Note: Thom Calandra: The Calandra Report / www.ThomCalandra.com
Thom Calandra of thomcalandra.com and subscriber service The Calandra Report is co-founder and was longstanding chief commentator and editor-in-chief of CBS MarketWatch.com. Also: FT MarketWatch in Europe.
Thom is an active investor and speaker and also the founder of Thom Calandra’s StockWatch, The Calandra Report, thomcalandra.com and Ticker Trax via Stockhouse.
THE CALANDRA REPORT by Thom Calandra is a global investment service. It’s $139 yearly. Subscribe to TCR: http://thomcalandra.com/joinourtcrfamily/.
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