By Robert Kraft
It’s December 31st, 2015, the final day of the year, and I’ve read every “Best of 2015”, “Worst of 2015” list, “Most Shared Instagram Photo of 2015”, etc… I thought, why not create a similar list for the MicroCap Space. So, I asked our esteemed colleagues who have written for the MicroCap Review Magazine, been interviewed in a Wall Street View and/or I’ve interviewed on the Planet MicroCap Podcast – in their opinion, what was the biggest headline in the MicroCap Space in 2015. Interestingly enough, a few contributors had similar answers, and others more specific to the sector they cover. Please note that opinions expressed by our contributors are their opinions. With that, let’s see what they had to say about 2015.
July 2015 marked the official launch of OTCQB®, America's Venture Market, when the remaining OTCQB companies were required to comply with our stricter OTCQB market standards. Today, we’re proud to say there are nearly 1,000 entrepreneurial and development-stage companies trading on OTCQB, making it the only operating public Venture Market in the U.S. today. OTCQB is the public market small companies need today to grow their businesses for the future.
2015 also marked the completion of two important parts of the JOBS Act: Title IV “Regulation A+,” which allows companies to raise up to $50 million from an unlimited number of investors without registering with the SEC (and which became effective on June 19); and Title III “Regulation Crowdfunding,” which permits companies to raise up to $1 million in any 12-month period through crowdfunded offerings (and which is due to become effective next year). Both of these new rules will make it easier for small private and public companies to raise capital – and go public – while still preserving disclosure requirements and investor protections. We’re looking forward to seeing more companies take advantage of these rules in the coming months and years.
For cannabis investors, the biggest news was the change in the government in Canada: http://www.nytimes.com/2015/10/20/world/americas/canada-election-stephen-harper-justin-trudeau.html?_r=0
There are several publicly-traded cannabis producers in Canada, including two that have dual listings in the U.S., and the news of the Liberal Party's landslide victory fueled a huge run in the leading names in the space, like Canopy Growth (CGC.V/TWMJF), Aphria (APH.V/APHQF) and OrganiGram (OGI.V/OGRMF). Justin Trudeau is pro-cannabis, and he had promised to legalize it for adult use. It is likely, based upon the appointment of Ministers, that he will follow through, though its a complex task that will require thoughtful deliberation. Additionally, investors can expect a friendlier regulator in Health Canada, which oversees the medical cannabis producers. Disclaimer: I don't own any cannabis-related stocks, including the companies mentioned here.
Anglo American's Shares Plunge to All-Time Low: http://www.wsj.com/articles/anglo-americans-shares-plunge-to-all-time-low-1449496097
While it may be painful to watch in real time, events like this – one of the biggest miners in the world hitting rock bottom – signals a turning of the mining cycle may be at hand. For a contrarian like me, who invests in junior mining stocks, this is very exciting. Anglo American slashed its capital budget, shed some assets, and laid off 85,000 people this year. Other majors are in the same boat. Glencore had a debt crisis. The chairman and cofounder of Freeport-McMoran stepped down. They've all essentially lost 90% of their value in five years. When the cycle turns, microcap mining stocks will gain the most the fastest. And that's when small fortunes are made. Disclaimer: I, Nick Hodge, do not own shares in any of the companies mentioned.
The biggest news headline in the Canadian microcap market in 2015 was the TSX Venture Index hitting an all-time low in mid-December. The TSX Venture Index is a broad measure of how Canadian microcap companies are generally performing, and the index will end the 2015 year down just under 30%. With it's heavy exposure to the mining and energy sectors, the index has been decimated by low commodity prices.
Of the 1,820 companies listed on the TSX Venture exchange, around 70% are in the mining and energy sectors. This leaves a little over 500 listed companies that have no exposure to low commodity prices. Many of these non-resource companies have been dragged down along with the carnage in the resource sector. This presents an opportunity for those diligent microcap investors willing to sift through the rubble to find the buried treasures that have a high likelihood of bouncing back strong in the months and years ahead.
Opportunities Within The Decimated Toronto Venture Exchange
The decimation of the Toronto Venture Exchange (TSXV), which is down nearly 80%, has created significant buying opportunities for oversold companies. Namely, the majority of the companies on the Venture are energy related. As oil has gotten crushed, non-related energy companies on the exchange were brought down. Being on the exchange their stories are unchanged, other than their share prices which offer opportunities for the investigative investor. The fact that the 1900+ companies on the venture exchange receive no coverage whatsoever is also an opportunity factor.
With materials and energy accounting for 70%+ of the TSX Venture exchange, the sharp decreases in the values of these sectors has helped to crush the exchange. Along for the ride are companies that have nothing to do with energy or materials. Locating these “Gems By Association” as we call them, can provide fruitful, multi-bagger returns. With their stories in-tact and their share prices changed, the investigative investor can locate significant opportunities in this space.
The dramatic weakening of the CAD due to oil and certain political moves versus the U.S. dollar has created substantial opportunities for companies incorporated in Canada that are conducting business in the U.S., and then converting the funds back. SecretCaps is specifically looking for Canadian based companies conducting business in the U.S., thus benefiting from the exchange rate.
But even during a collapse, it is possible to make money by very carefully picking your plays. SecretCaps has seen two of our TSXV picks double, while our other two long-term plays have appreciated slightly despite the TSXV's sell off, demonstrating their very solid foundations, backed by strong theses. Our latest 15-page conviction research report is on a Canadian based company. Disclosure: This post is strictly informational and educational and is not investment advice. Do not trade or invest based upon this content
Just as the 2008-2009 time period forced many small investors out of the markets, the nano-cap and micro-cap markets have done the same thing throughout 2015. It’s been a brutal year for microcap investors, perhaps one of the most brutal ever, especially as it relates to Canadian microcaps with the TSX Venture index at all-time lows with the commodity crash that has occurred. While this has created fear for many, it’s created opportunities for others.
Developing what I call the “Microcap Mentality”, something I have preached to my members at UnusualStocks, is a crucial element of long-term success in the microcap markets during such trying times. Having the right frame of mind- or "mentality"- when investing in microcaps is absolutely crucial to the success you will have with your investments. In fact, I would go as far as saying that having the right “Microcap Mentality” is the number one thing you can do that's within your control to put you in the best position possible for long-term investment success.
To conclude, it’s so important for microcap investors to use volatility to their advantage. Take advantage of what appears to be irrational sell-offs in companies you own...but only if your conviction level hasn’t changed and your investment thesis is as strong as it was from Day 1. Otherwise, you are playing a game of "tug-of-war" with yourself, and generally that’s not a game you end up winning.
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