There’s only so much money to go around in the market, and now, some of that money that was finding its way to low-quality companies during the easy money days is going to continue to make its way into the higher-quality microcap universe that we play in (a trend that began in 2022). 

For well-managed, undervalued microcaps with great fundamentals and a clear path to growth, the current environment could allow them to shine as capital becomes more selective. We also think the environment is fantastic for high-probability turnaround situations, where balance sheet restructurings or small tweaks in business plans put a company back on track for growth.

At the end of last week’s trading, on Friday, we decided to close Buy on Pullback (BOP) Portfolio #11 at a final closing return of 45.04% (average peak 67.71%). The portfolio was launched on September 25, 2023, as part of our long-standing strategy that we began with BOP #1 in January of 2016, that intended to capitalize on mispriced opportunities in the market.

There’s a turnaround story unfolding at a power solutions-focused company entering the data center market segment that could help the company reignite growth and reach profitability The company has not inflected to profitability yet, but we are waiting to see if the things management is doing will allow the company to reach break-even results, anytime soon.

Last week, we were very fortunate that the company’s CEO decided to join us for a deep dive into his company’s multiple growth objectives and the pace of the company’s turnaround.

Earlier this week on Tuesday, Hindenburg Research, currently the most prominent short-seller, released a scathing report on $SMCI. The report alleged various forms of misconduct, including allegations of fraud, accounting irregularities, and related party issues. But what caught our attention most was Hindenburg’s coverage of SMCI’s quality control concerns, citing

This past week, we were able to pass along replays of the interviews I had with the management teams of three companies – $LAKE (replay), $CREX (replay) and $BKTI (replay) – that I agreed to go on record with at Semco Capital’s 4th Annual CEO Networking Event to help give them a platform to answer questions about their businesses. It certainly was a change of pace from the usual Zoom-style meetings that we hold with company execs, so there was an added level of anticipation and excitement at the prospect of in-person meetings with both the executives and peers alike.

A lot happened at GeoInvesting this past week, but arguably the big news of the week was the 55.7% move $TSSI made in reaction to the company’s second quarter 2024 results published on August 14. The delayed price reaction in the morning did not capture the essence of the bullish developments transpiring at the company. Those developments were communicated in the related earnings conference call that began at 9 AM Eastern time. It’s going to go down as a classic case study in information arbitrage.

Sam McColgan’s investment strategy centers around four key principles: Momentum, Monopoly, Margin of Safety, and Management. He looks for stocks with strong price and fundamental momentum, ensuring quicker price realization. He targets companies with a monopoly in their niche or those that are best in class, securing a competitive edge. Sam emphasizes the importance of a margin of safety, focusing on undervalued stocks to minimize downside risk. Finally, he prioritizes investing in companies with high-integrity and competent management teams, believing that strong leadership is crucial for long-term success.

During market downturns or panics, our advantage as fundamental investors is magnified. These periods allow us to identify quality companies with great earnings or high-probability turnaround companies that are overlooked due to their microcap status. That is why in our next Monthly Open Forum slated for early next week, we are announcing that Buy on Pullback Portfolio #12 is on deck and ready to be constructed, with candidates being part of that conversation.