Anybody invest in Nano-caps

[DTEJD1997]

Hey all:

Anybody else here in invest in "nano-caps"? I'm not talking about the screwball stock promoter "pump & dump" schemes...

I'm talking about companies with market caps UNDER $50MM, sometimes UNDER $10MM...These are frequently family or founder run companies and have fallen off the radar scope for all other investors. They are in boring, sometimes tedious businesses, not very exciting.

I'm finding that more & more often this is where I am investing...

Why? That is where the value is, and that is where I can have an advantage....

How I am I going to have any fresh & revolutionary insight on IBM, Apple, or Halliburton? I'm not....the MEGA cap companies already have a dozen+ full time analysts following them....

But not the companies I'm getting into. I have made profits with most (not all) of them. How about:

A). A restaurant chain that was trading for a P/E of 4, and in the intervening months, has increased it's sales & earnings, and is now doubled, but still trades for a silly valuation. They also paid a small dividend.

B). An Ohio bank that was "losing money" 18 months ago, when I bought for between $2.50 & $2.75 a share. They just reported earnings a week ago and are making $.99/share in earnings. More when you back amortization....Stock is just below $8/share.

C). A tiny retailer that trades for a P/E of 6 and a discount to book value. They own the real estate under 1/2 of their locations....Their best location's assessed tax value is worth the entire market cap of the company....

I could go on and on....but there are just some incredible bargains if you are willing to do the work and are patient. The bid/ask is usually pretty wide, so you have to be careful about that, and you have to be careful going into & out of your position.

I am finding that I am increasingly investing in these and not the "regular" market...they have almost no correlation to the larger market. I figure it is almost like buying into a partnership or business than buying stock...

Any body else doing this?

[barrytrot]

Sounds interesting, but my guess is that your typical scenario is not doubling in one year, is it?

I would assume that you have ones you paid $2 and it's now worth $0, right?

I'm definitely not doing this, but I do agree that if you can get some semi-insider info it's pretty valuable in comparison to what 100% of people know about IBM.

[DTEJD1997]

no, the typical scenario is not doubling in 12 months. A lot of these things take a bit longer to play out...maybe 16 months or so...Nothing I've ever invested in has gone to zero (at least while I've held it). I am fairly conservative in my investing...

I've had the following results:

$2.55 to $8 (not sold, stock is earning over $1/share, probably better results coming as it is a small bank) BANK

$1.45 to $2.80 (not sold, P/E is about 5, still holding as they are expanding & have certain growth strategy that appears to be working) RESTAURANT

$2.40 to $5.50 (sold 1/2 position, nice gain in 18 months, sold to get into new stuff..) BANK

$.45 to $1.65 (sold 95% of position, as this happened in 14 months, could still have a lot of room left, but 3X gain, I'm taking it) RESTAURANT

$.28 to .18 (sold out of 98% positions for losses, probably BAD company, but only 85% certain, not disclosing financials) MEDICAL EQUIPMENT

$.95 to $.90 (have held this one for 3 years, still holding, old CEO fired, I've talked with new CEO at length and I think he is going in right direction, willing to wait another year to see what happens) CASINOS

$2 to $2.55 (no sales, 7% dividend, waiting to see what happens, potentially VERY valuable real estate, have held for several years, NO DEBT, awesome dividend, I'm sticking around) ELECTRONICS

$.79 to $.84 (no sales, in position for less than a month, strong earnings, incredible real estate holdings...) RETAIL

So my batting record is not 100%, but it is pretty good these past 2 years....certainly some of that is due to luck...

I have a couple of other positions that I've initiated within the past week. There is DEFINITELY opportunity out there if you are willing to work & pick your spots...I think the small & nano-caps are generally the places to be.

There is also MOST DEFINITELY a NON-EFFICIENT market in these stocks. The restaurant stock that I bought at about $.45/share has turned things around and is making close to $.22/share in earnings....it proceeded to run up to about $1/share....stayed there for a while and THEN all of a sudden, there was selling. Price collapsed to $.21-$.30/share, less than 1 P/E. I tried to get some, but I was too slow...about 2,800k shares traded...So who was selling? Someone who was not paying attention. The stock was simply being given away at that point...Definitely not an efficient market in that particular stock.

We'll see what happens in the upcoming year.

[aaa30040]

I am certainly interested in hearing more. I have only ever bought small banks but open to other industries.

[Market Harmony]

I would like to hear more. I invested in Nano and micros in the early 2000's. I made some of my biggest gains ever in them. But, yes, you are 100% right. You have to be very careful of them. I still am underwater on a few that I just bought and forgot.

[DTEJD1997]

Hey all:

Sorry, I haven't been active here lately...I've been busy with coins, my business and the market...

I've lately been selling more than I've been buying.

For example...I purchased "Mexican Restaurants" (CASA) in November/December of 2011 for about $.45/share. This is the restaurant stock that was briefly selling for a P/E of 1. I sold it lately at $1.65/share. I just couldn't help myself! I MORE than x3 my money in less than 18 months. I sold MOST (not all) of my position. If I can get back in cheaply, I'll do it. They are making money and I might have sold too soon, but I wanted to take some money off the table...

I also sold some (1/2 position) of Birmingham Bloomfield Bank (BBBI) at about $5.40/share. I purchased various positions of this in October/November/December for just under $2.40/share. Obviously, it did not work the way I wanted it to...but I did OK. I think they are slowing down in their recovery. Also, their tax credits are now gone, and they are being taxed at regular rates. This is lowering their net income.

I sold 90% of my position in Ark Restaurants. They received a buyout offer from Landry's at $22/share. All of my sales were between $21.25 and $21.50. I have been in ARKR for at least 4 years. My cost basis is between $10/share and $14/share. Of course, I received many dollars of dividends in the intervening time...I don't think the buyout will go through...Maybe I'll buy back in the teens after the buyout falls apart. ARKR was my #2 position...No huge gain, but ARKR was EXTREMELY conservative and a "lead pipe cinch".

I sold 2/3 of my position in (NICK). They paid a monster $2/special dividend before the end of the year. Their earnings are starting to go down because of rising loan delinquencies....I sold a bit early, but wanted to invest my money into some more gold/silver. I had been in NICK for maybe 5 years. I paid between $3/share and $8/share.

I sold IBBI too...was in that for all of one week, and just could resist the massive gain. Obviously I made a mistake and sold WAY too early...

I've been buying into a retailer that owns an incredible amount of real estate. In fact, one of their locations has an assessed tax value that EQUALS THE MARKET CAP OF THE COMPANY!!!! Oh yeah, the company is selling under tangible book value. Of course, that book value is not at all accurate...it is WAY, WAY, WAY too low (appreciation of real-estate). It also was selling for a P/E of just about 6. This about a big as of a "lead pipe cinch" as I've seen in quite a while. The only question is how long it will take to realize the value. I'm going to guess 1-4 years...the youngest founding member of the company is 66 years old. They are going to want to retire and will sell out or liquidate the company to do so...

I've also been investing in "pink sheet" Chinese casinos and gambling stocks! One of them I purchase for a P/E of under 2. The other has a P/E of 5. I know you think I must be crazy for paying such a high P/E of 5, BUT THEY HAVE A TON OF CASH! So the stock is not nearly as expensive as it looks at first glance...
They also pay substantial dividends, 8% and 6% respectively.

I also bought a machinery manufacturing company in Florida. I've been watching them for years. They rocketed up in price to $2.90 a share, but have come back to $1.60/share, which is a 52 week low, so I got in. No debt, P/E of 6 and ROE of 21%. "Word on the Street" is that they have made some operationally improvements to their plant, so they will have better sales/earnings in the upcoming year. Additionally, the operational improvements should boost quality/efficiency.

So that is some of what is new with me....I'm working on some other positions.

I would be interested in hearing what all you guys are working on!