GEO Investing

As the 4th of July Has Come & Gone, Memories Resurface

One of my favorites things to do is playing the blues on my Stevie Ray Vaughan (SRV) electric guitar. However, if Stevie were around today, listening to me butcher his version of Buddy Guy’s, “Mary Had A Little Lamb“, would not be one of his favorite things to do.

Speaking of songs and the electric guitar, Jimi Hendrix shocked the status quo when he used his “axe” to send a message to world with his live performance of The Star Spangled Banner at Woodstock in August 1969. This article discusses that moment and the message Jimmy was sending:

“Jimi Hendrix’s significant influence on the countercultural music scene also called into question issues of race and Black presence in a music scene dominated by White musicians and audience, especially since Hendrix decided last minute to assimilate and perform with an all-black band at Woodstock. The musician’s recollection of his own performance of the “Star-Spangled Banner” at Woodstock mirrors the tumultuous balance of the racial struggle that was in full swing at the time.”

Just imagine how Jimmy would have made his guitar screech today, mocking the clown show our politicians put on for us every day. Another interesting fact is that a group called Boston recorded a rocking version of the 4th of July anthem in 1997. But, you probably know Boston for their hit single, More Than A Feeling, which ranked number 500 on Rolling Stone’s 2004 list of 500 Greatest Songs of All Time.

Regardless of what songs you are listening to, the experience can be enhanced by the equipment you’re playing them through. This starts to bring me closer to the point I will eventually make in this piece to you.

The Show

If you read my last two letters, here and here, you may recall that at the conclusion of the LD micro conference in LA in early June, I spent some time with longtime GeoInvesting Premium Member, Gerald (Gerry) Catarina. He insisted that I extend my stay in LA for a couple days so we could hang out in his hometown, Huntington Beach.

Upon waking up on Thursday morning, a day after the conclusion of LD, I wanted to go for a jog. When I opened my hotel room door at the Angelino, I was surprised to find a “from Gerry” note, placed on top of what ended up being 8-pages of  “Unique And Unusual Things To Do In LA!”

I guess Gerry’s attention to detail is why he has had some great stock picks over the years.

The choice of activities ranged from watching a play to riding go-carts. I pleaded with Gerry that we should just go watch a movie, as I was exhausted and brain dead from interviewing over 20 CEOs at LD. Gerry almost fainted. One thing I have learned about Gerry is that he has a passion for experiencing life’s pleasures. That meant sitting in a movie with me was not going to cut it for him. He told me, “come on, you need to live a little.”

During the 4-hour drive to Huntington Beach that should have taken 30 minutes, I went through Gerry’s activity novel, narrowing down the wish list to either surfing or an event called the Home Entertainment Show. Although I live near Fort Lauderdale beach, the closest I have come to surfing is riding a boogie board. Surfing sounded appealing, but it would have been a disaster and required multiple days of training. So, Gerry said, “let me take you to a concert at this Stereo Show.”

When we arrived in Huntington Beach, Gerry invited me to a delicious gourmet burger at  25 Degrees. Even though I had my fill of Fat Brands Inc. (NASDAQ:FAT) burgers provided at an LD Micro Lunch, I went for it since I had never been to one. During dinner, Gerry explained to me that the Home Entertainment Show is an annual 3-day event that takes place at the Hilton Long Beach Hotel, which is about a 20-minute drive from Huntington Beach. For the 2019 event, the hotel set aside 60 rooms so large and small Stereo equipment companies could rent them. Each company creates a “stage” showcasing their equipment and sound systems.

For about $20, guests can visit the rooms, sit in one of about 15 chairs and listen to music. The companies hope attendees will become interested in buying equipment with prices ranging from $150 to $500,000.

The “concert”, as Gerry called it, would take place some time after the conclusion of the Stereo show at 7:00 PM, where we would listen to an hour of music in the hotel room of his friend who was representing a stereo company. I like music, so that’s what we decided to do.

Well, Gerry must have forgotten about some for the minor details of our conversation. On Friday morning, Gerry called me, asking me if I was ready to go to the show. The stereo show was slated to start at noon and it immediately became apparent that we were not just going to the evening concert!

We arrived at 2:00 PM and at about 6:00 PM we both had our fill of music. So, we decided we would go to dinner at a restaurant on the Queen Mary and come back for the concert, scheduled to start at 10:00 PM. The highlight of the concert was when I dozed off 30 minutes into it and fell off my chair in front of a full capacity crowd. Regardless, I did enjoy the entire experience. It was quite relaxing and really brought back some incredible memories that only music can do.

Speaking of Memories

The next evening, I boarded a plane back to Fort Lauderdale, Florida. While on the plane, I came back to reality, by connecting to the Wi-Fi to do some stock research. What better way to put myself to sleep on the 6-hour flight?

One research filter I like to use to reduce the 20,000 North American stock universe to a manageable level is to track microcap stocks attaining new 52-week highs. I’m a big fan of finding stocks with price momentum that are also undervalued. The strategy has been shown to outperform others in the one to five year timeframe and was my primary initial screening filter I used in the early years of my full-time investing career.

You can read more about some of the things I do to reduce the investment universe here. In my opinion, it’s a good starting point for beginner investors.

You’re probably waiting for me to get to my point. Well, here it is. While I was performing my new high research, I came across a familiar symbol that I had not seen in a long time. The stock symbol is Rockford Corp (OOTC:ROFO).

Rockford designs, sources and distributes high performance mobile audio products. Rockford’s mobile audio products are sold to consumers who want to listen to powerful, high quality sound in their cars, trucks and boats. Rockford’s products include digital and analog amplifiers, subwoofers and speakers, accessories, signal processors, and speaker enclosures.”

ROFO is as dark as it gets. The company seized reporting information with the SEC in 2009 and with OTC markets in 2012. Upon visiting ROFO’s website, there is an area where you can request financials, but you have to prove that you own at least one share.

That didn’t stop me from buying shares of ROFO in 2010 after new products began to gain traction leading to increased sales momentum.  However, I became a little frustrated with the company’s responsiveness with giving me access to financial information and I quickly sold when I made a small gain.

But I was shocked to see what the stock had done since I sold it.

Just unbelievable. Furthermore, the company to pay a consistent dividend in 2014:

Before ROFO went dark, its annual revenue and EPS were tracking at about $80 million and $1.40, respectively.

Why am I telling you this?

First, Peter Lynch would probably agree that it serves as a great lesson to always be on the lookout for companies that align with your expertise,  industry knowledge or hobbies.

Maybe if I was as enthusiastic as Gerry was about sound systems, I would have kept ROFO as we exited the 2008 recession, and placed an order for a top of line piece of equipment from the Stereo Show!

Second, and more importantly, ROFO proves once again that not all microcaps are microcraps. Lots of legitimate companies with substantial revenue trade on the OTC that I like to call Tier One or Top Tier OTCs. Some of the best winners GeoInvesting has profiled for Premium Members since 2007 trade/traded on the OTC like:

Repro Medsystems Inc (OOTC:REPR) (Medical Device; Profiled Geoinvesting Premium Members in October 2014)– Sales have grown from $3 million in 2009 to now tracking at $20+ million for fiscal 2019

Taro Pharmaceutical Industries (NYSE:TARO) (Pharmaceutical; Profiled GeoInvesting Premium Members in July 2011) – Sales have grown from ~$300 million in 2009 to north of $700 million forecast for 2020.

Meritage Hospitality Group Inc (OOTC:MHGU) (Wendy’s Restaurants; Profiled for GeoInvesting Premium Members in June 2015)  – Sales have grown from ~$200 million in 2015 to a run rate of +$400 million for 2020.

Obviously, I’m not advocating that you must follow in my footsteps.  Investing in illiquid microcaps requires that you need to do your homework. Ultimately, you have to make that decision yourself.

What I am trying to say is that when we lock ourselves into stereotypes that the financial media tries to brainwash us with, we can get caught up in the crowd and miss great opportunities everyone else is ignoring.

The stock market is more efficient than ever.  More than any other time in history, there’s more access to news and research tools. Furthermore, passive investing makes up most of the stock market’s trading volume, making it increasingly harder to beat the market. This is why we need an edge.

My experience has proven to me that microcaps still offer us the best opportunities to hunt for ideas that very few are looking at. That’s how you achieve outsized returns.  I believe investing in Tier One microcaps is one of our last and biggest investing edges. I also believe that this edge is here to stay for a long time, thanks to a regulatory environment that is making it harder for people and institutions to invest in microcaps.

Have a great rest of the week and I’ll catch up again with you soon.

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