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We hope you are having a great Easter weekend. Today, we are conveying a PodClip message recorded by Maj. It is some quick commentary on our shifting strategy and focus amid the microcap investing malaise in this somewhat languishing market, with an emphasis on categorizing our Model Portfolio companies based on certain criteria and buckets they might fall into. 

While over the past several years, it was possible to achieve great success by investing in lesser quality companies that may have had the potential to become tier one quality companies, the current environment dictates, more than ever, that tier one quality investing is where the majority of the focus needs to be.

Revenue and good stories are no longer enough ammo to push stocks higher. It’s back to appreciating companies that can generate cash flow and earnings that are in a good liquidity standing. Like many others before us have stated in times when adaptation was necessary, “when times change, so must you.”

So, it’s time to reassess our model portfolios to differentiate between the top quality and lower quality stocks, and which ones lie somewhere in between.

“…I wanted to kind of give you an idea of where GEO might be going with a few of our products, and the presentation of our screens and model portfolios. We’re certainly in new territory right now with the way the market has been performing…the new environment we’re in, in general, where I think investors are being a lot more cautious in what they’re buying. There’s a lot more emphasis put on profitability and cash flow, as opposed to just revenue growth – Something I’ve talked about before – less tolerance for business plans that are failing or not growing.

The environment we are in could really impact the way investors look at turnarounds and how much tolerance they have for turnarounds that aren’t progressing in the fashion as expected, especially in a situation where rates are going to be going up. Some of these turnarounds might depend on debt to grow their companies and execute a turnaround.

So this could lead to a situation where the stocks are not looked at favorably, because there’s going to be a higher cost of debt, the stocks could go down, and now they have to worry about doing an equity raise at lower prices, which causes dilution. So these are things we got to think about right now.

So, as times change, our strategy has to change.  As investors, sometimes we need to focus on quality more and more. But I wanted to  take the opportunity here, in the next few days or weeks to start thinking about how to take our model portfolio companies and continue to dissect them into other categories, so that you understand where our conviction levels are.

When we started the Model Portfolio idea/concept (Q1 2016), it was all about trying to give you more color on this long list of stocks that we had in our coverage universe. And we wanted to categorize them to give you an idea as to where they fit into the story here with Geo.

So the first thing I’ll be doing to that regard is basically going through the list of stocks in our Model Portfolios to see which stocks are positioned the worst right now in the market, given what’s going on, from a business plan perspective maybe not executing,their level of risk in terms of even surviving or having to raise money.

The next level of that risk assessment will be those companies where maybe the business plan is faltering, maybe due to the inflationary environment we are in, or where there are supply chain issues, but they’re still solid companies, so we don’t think there’s a chance of liquidity or survival issues. But they may take some time to really play out in terms of their growth coming back on track, gross margins perking back up again, and investors starting to embrace their stories again…more for the longer term investor.

And then from there, obviously, we will keep maybe chugging  along and try to find stocks we think are, even if they’re getting punished, still looking really good right now in terms of their growth plans and liquidity standings.

Hopefully that will help us if we use that alongside the model portfolio rankings, something I discussed in the open forum for April. 2022

We have to understand that we have to just get through this. As always in the past, the market will turn. We just don’t know when. But every day that the stocks that we follow underperform, they get cheaper for us, so when the market does recover, we should be handsomely rewarded.”

Speaking of the forum, to reiterate/echo some of the notes that were discussed during the comprehensive risk assessment review, we wanted to bring your attention to the commentary and updated notes for the below stocks in our coverage universe or recently removed premium model portfolios holdings with the most liquidity and or business plan constraints:

Talk to you soon. And happy trading next week.

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