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While it’s great to have confidence in your longer-term investments, taking advantage of short-term turbulence is a supplemental strategy you can employ for some of your current holdings. So, just as you might diversify your portfolio, a diversification of your investment style might be warranted when a suitable situation presents itself.
This brings me to a specific scenario that we saw with one of our high conviction holdings, Information Analysis Inc (NASDAQ:IAIC), on Thursday, December 2. We didn’t pounce on it, but we immediately identified it as something that we like to call a “Raiser”, which I spoke about in a PodClip I put out on Friday. IAIC is an information technology company that we brought into our Select Long Disclosures Model Portfolios at a price of $0.47, with the current price of $3.33 representing a 608.5% gain.
Now, the term “Raiser” is not to be confused with any company actions, but more so the actions of a shareholder who owns a large chunk of shares, and has made the decision to sell those shares in a large block. Maybe the holder is desperate to liquidate for personal reasons, to raise funds for another investment, or is just spooked by the market’s volatility in general and wants to sit on the sidelines for a while. It’s hard to say, but it really doesn’t matter for the purpose of this observation and what you can do with it. The major point here is that once the seller fully exits his or her large position that was putting significant downward pressure on the stock, shares can rise for a nice day trade.
In order to take advantage of these situations , you need to watch the level 2 quotes to observe all the price action to get an idea that the downward pressure in the stock was being caused by a big seller and to understand when they might be done selling.
As for IAIC, we have been watching it closely or a few days because we noticed that there was some selling pressure on the stock by monitoring level 2 quotes, showing us that there looked to a big seller trying to exit a position
On Thursday, after we noticed that a big sell block if shares was gobbled up, the price of IAIC shot up in a violent way throughout the course of the day, hitting a 52-wk high of $3.95 before retracing to $3.34 by the end of the day. For a little perspective, the stock closed at $2.70 the previous day. So, now you can see the power of a Raiser. The volume spiked to more than 29 times its previous months’ average daily traded shares – 1.64 million shares! On November 21, 2021, the stock only traded 300 shares! Imagine all the algorithms that were triggered.
Some volume had been coming into the stock after its recent up-listing to the NASDAQ, which might have been the catalyst that the large investor was waiting for to exit his position, but again, the reason will remain a bit of a mystery, like other Raisers.
Keen observations with respect to IAIC would have flipped the green flag for a trade, if you had the guts to do so in this market environment. In a normal market environment, I do believe the stock would’ve shut up significantly more. I unfortunately did not try the trade this time, but I’ll be keeping my eye out for the next one, and I also plan on speaking about it in an upcoming Live Monthly Forum, maybe even tomorrow’s.
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Topic: Open Forum | GeoInvesting
Time: Dec 6, 2021 11:00 AM Eastern Time (US and Canada)
Meeting ID: 822 4061 5802
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Investors are using more borrowed money to buy stocks, exposing them during turbulent markets. This is especially true for individual investors, who by one measure are holding the lowest amount of cash relative to margin balances in data going back to 1997 https://t.co/7PNJ2vKNTe
— Lisa Abramowicz (@lisaabramowicz1) November 28, 2021
Investing in a small emerging business (public or private) shouldn’t be seen as a single bet but as a series of bets. When an investment checks all the big boxes be decisive and buy a little. You can bet more as you gain more information and conviction.
— Ian Cassel (@iancassel) November 29, 2021
Investments in Micro-Cap
After Research, Identification & Investing. The biggest virtue is to have patience.
— SANAL (@sanalkumar777) November 23, 2021
A Note About Our Fireside Chats
We try to schedule on average about 1 fireside chat per month with the CEO of a microcap company. Right about the time when we started to include video into our service on a more consistent basis, we made the decision to put forth more effort into inviting management to engage with members after presenting their company stories and answering some questions posed by GeoInvesting’s co-founder, Maj Soueidan. We’re glad that these live events have been received well within our community since it gives us a continuing platform by which we can educate people how we pick the brains of microcap companies that feel are or potentially top tier in nature.
Dating back to October 2020, we’ve published 14 discussions with management of companies spanning various industries. In the timeframe from then till now,, we could not help but notice that there were meaningful increases in price in the companies’ stocks. Serendipity? Maybe, but we’d like to think that our standards lead us to quality companies that fit our style of investing.
On a peak basis, the stocks had an average post-interview peak increase of 107.52%. Now, the market has increasingly punished microcaps across the board as we head into the year’s end, and that number has come down a bit to reflect a current average return of 20.6%.
Still, we are not going to let that stop us from taking a harder look at companies that we feel need to tell their stories to GeoInvesting. The next fireside chat is just around the corner.
Management Telegraphs Company Strength
We are invested in a mobile software applications and software-as-a-service stock that is trading at depressed valuations, but we don’t think this will be the case for too much longer. We came across an interview the CEO did with a well-known podcaster and couldn’t help but notice the extreme optimism that he had about his company going forward, and his brief case study on how the company braved the pandemic without weakening its position going into next year. Please take a listen to the kind of banter we look for in management interviews.
“We haven’t historically worried that much about whether what I’m doing is going to add dollars to the stock price tomorrow. What we worry about is what I’m doing going to add value to the company tomorrow. And the stock price at times will lag. And there’s opportunities for it to catch up.
But my belief is, and the belief of the board of directors is if we create actual underlying value, so real value to shareholders, real value to the company, that will get captured in the market. And you can always go and get the market to see that value if you need to at some point. But if you don’t spend time creating the value, if you spend all of your time figuring out how to get value in the market, you can wind up on the wrong side of an equation, which I think is you know, how crashes happen.
I’ll give you a great example. The value this year is the same as it probably was two years ago, and I don’t think we’re valued at anything except a basic services company on a very low multiple of revenue. We trade at barely over one times [revenue]. But we’re a well-run company with a history of success.
We grew 130% In the five years before the pandemic, and then we were on a path to grow faster than that when the pandemic hit. And during a global pandemic, where the most impacted industries and companies on the planet are my [types of] customers – restaurants, retail, convenience stores, the places nobody went to anymore, the places that closed their doors were our [kind of] customers. And despite that, we had positive EBITDA throughout the entire pandemic, despite the revenue losses, despite everything else, we didn’t lose our knowledge, workers or technology. We didn’t even lose our customer base.
So, I think, over the last 18 months, through the entire pandemic, I think we had to write off all of $17,000 or something like that in bad counts receivable. I mean, it’s nothing. We probably would have done that anyways, without a pandemic.
The underlying strength of the business is very clearly proven as we’ve gone through this pandemic. And as we look forward now, you asked me what the value proposition is…when you take a look at a company that’s proven the what it can withstand, that has software growth, even during the pandemic…our SaaS business grew. While our service business, of course, is the largest part of our business, we’re growing our entire business. We’re heading into a year with where we just did an acquisition…”
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