Ian Cassel 谈《Stock Picker》：那本让我震撼不已的书 | MicroCapClub

1. Sponsor: AlphaSense

You're about to listen to yet another value podcast with your host me, Andrew Walker. Say, "Oh, I say this all the time, but we have such a great one for you." We have Ian Castle on for the first time. He just wrote a book, Stockpicker. There's a link in the show notes. Go follow it. Buy it on Amazon, support Ian, whatever. And look, I've had multiple books on the podcast, and most of them have been quite good. But this book blew me away. I I Kyle Malry, he's a friend of the podcast. You've heard him several times. He will attest. I was at a bar with him last night and I was like, I just read this Ian Castle book and it was unbelievable. It it's it's so good and one of the reasons you're going to hear it, you're going to hear how excited I am, as I am on most podcasts about the book. It's got a real personal touch and you know, it just hit me in a lot of places where there's investing, there's research and everything, but there's a lot of other stuff that comes with it that is is very hard to deal with and it's just it's such a well-written book. There are so many fun stories, all that sort of stuff. So, you are going to love this podcast. You are going to love this book. Go buy it. There's a link in the show notes. We're going to get there in one second, but first a word from our sponsors. Today's podcast is brought to you by AlphaSense and more specifically my upcoming webinar with AlphaSense called the AI agent reality check. What they mean for investment decisions. It's going to be me, Steve Clappam from behind the balance sheet and two AI leaders at AlphaSense. And we're going to be talking about using AI agents and all the upsides, all the downsides, and the rapidly evolving landscape for investors using AI. You know, I know for me as a oneperson shop just kind of going around, I have found, if you've been listening to this podcast, you know, I have found AI just incredibly transformative for the research process, but I'm always worried. Am I using AI correctly? Are there things I could be doing to improve? What are my peers doing? What am I doing wrong? What am I doing right? What should I be thinking about? And look, Sarah and Ben, the two experts from AlphaSense, all they do all day is work with investors on how to use AI. So, I think it's going to be a super interesting conversation. If you want to sign up to go see it, it is free. There will be a link in the show notes. You can follow that, sign up, and I'm looking forward to the conversation on September 22nd. All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. With me today, I'm happy to have on Ian Castle. Ian, how's it going?

Ian, how’s it going?

It’s going great. Thanks for having me on.

2. Buying low, then buying higher

Cool. Uh just quick disclaimer before we start. Nothing on this podcast investing advice always true. Uh you can see a full disclaimer at the end of the show or in the show notes. But Ian, let let's hop to it. The reason I’m having you on, aside from your ownership of the Planet MicroCap event, which is one of my favorite events—I unfortunately couldn’t go this year, but I went the past 3 years—is that you wrote a book. You wrote Stock Picker. It’s just called Stock Picker, right?

3. Why Ian wrote Stock Picker

Yeah, just called Stock Picker.

I should know this. I’m going to just disclose: I fucking love the book. I’ve had book people on before, and I’m sure people say, “Oh, every person says they love the book.” I loved it. People are going to hear that because I’ve got so many questions and so many notes. I was at a bar with my friend Kyle Malir, who’s been on the podcast multiple times, and he will vouch for me. I was like, “Ian wrote this book. It’s so good.” But let’s just start here. Why did you decide to write a book? And I think you’ve written books before, but why did you decide to write this book?

Yeah, I co-authored 2 books about 10 years ago on the topic of intelligent fanatics. I wrote those with my co-author, Sean Iddings. Those were mainly about going over—we did a deep dive into some of the intelligent fanatics Charlie Munger mentioned in his speeches, folks like Les Schwab and John Patterson from NCR. We were trying to dive into those stories, figure out if we could pull out some lessons, and apply some of the great leadership skills we saw to micro-cap investing. Those were 2 books we wrote 10 years ago on that topic.

This book is really a culmination of my narrative combined with stock picking and micro-cap investing. It’s more personal, and it was a joy to write because of that. I’ve written a bunch of articles over the last 15 years, and people have come to me and said, “Hey, it’d be great if you put some of these things together in a book and packaged it up so I could just read the whole thing.”

4. The personal book: his mother, money, and the myth of the stoic investor

Finally, I don’t know, something about hitting the age of 40—just over 40—you think, “I should write a book.” All of a sudden, I thought, “Well, maybe I should,” to kind of bookend that first half of your life. Hopefully it’s my first half; I could die tomorrow. But just get these lessons distilled onto paper.

Look, you hit on the 2 things I was reading. I’m rapidly approaching 40, and one of the reasons I think this book hit for me is that a lot of what you write about is in my headspace. It is a deeply personal book. I couldn’t believe the first 5 pages. You start with this and detail it, and then you’ve got more of the story in the middle of the book, but you talk about how your mother died.

When I opened up a book called Stock Picker, I thought it was going to be, “Here’s how I pick stocks. Here’s how to do research.” I know you do a lot of scuttlebutt, and I thought it was going to be all that. But I read the first page and had to step away from the computer for a second. The story about your mom dying—we’ll talk more about this in a second, but—

I think one of the things you see throughout the book is that, as an investor, you use the term “stoic” in one of your chapters. You’re supposed to be stoic: you’re supposed to invest, buy the stocks, and not let any of the emotions of the stock market get to you. You don’t really want the emotions of the stock market. But I think what shines through this book—and something I’m wrestling with as I approach 40 and have 2 kids—is that there are a lot of personal factors in this. I mean, you talk a lot about the personal finances of being an investor, and it jumps out.

I think that’s something that, when I was 27, maybe I wasn’t prepared to think about. When you’re working as an investor, you think, “That stuff doesn’t matter. I am the über-alpha.” Anyway, I’m rambling, but that’s the first thing that jumped out to me about this book.

Well, I appreciate that. I wanted to write something that was authentic, genuine, and personal. I don’t think the world needs another “invest like me” book or instruction manual on how to invest in micro-caps or whatever it is, because we’re different. You can be successful in every different myriad of ways, with every flavor of investing. It’s one of the things I’m proud of: just how personal and genuine it is.

Stitching together my narrative and some of the personal and family lessons I had, having to support yourself on your own capital, and then with the fund, having kids—all that stuff plays into it. Your maturation as a human being kind of goes alongside your maturation as an investor.

5. Where the chapter-opening stories come from

100%, 100%. Okay, let me try to recover from talking about the personal stuff with a lighter one. You start basically every chapter with a fun anecdote that relates to the story. I think the first one you start with is that they’re trying to ship codfish in the 1800s—from the Northeast to the West Coast—and they just can’t get the codfish to taste fresh.

What they figure out is that they need to put a catfish in there to chase them so the muscles are working, right? First they try freezing them; it tastes terrible. Then they try shipping them in an aquarium; it tastes terrible. They figure out they need to put a catfish in there to chase them so the muscles are working. And you’ve got a story like that in front of basically every chapter. How do you find all these stories?

It’s a good question. I’ve always been curious, and I usually read a decent amount. I’ve always found these little oddball stories. Today, everybody just puts it into Claude: “Give me a story that’s somewhat reflective of this,” and it can punch out something for you right away.

But I’ve been doing this for 15 years, before Claude or AI was around. It was mainly about finding these little interesting anecdotes, and then I’ve always found it fun to somehow relate that back to stock picking in some loose or direct way. I feel like that’s how you connect with people, not only inside investing but outside investing as well.

No, I think you really smashed it on that. There are lots of stories. The John Madden one really struck me, and there are a lot, but it’s toward the end of the book. There’s a story about John Madden, and he’s serving as—I think he’s an assistant coach at the time. He hasn’t been a head coach.

He goes and sees Vince Lombardi, and Vince Lombardi spends 8 hours talking about 1 specific play.

And Madden is like, “I know nothing. I couldn’t talk about a play like that.” To bring this back to the investor and myself, a lot of times I’ll have an investor come on. Most of these podcasts are not me talking about a book; it’s me with a person talking for an hour about a stock.

I’ll have an investor be like, “I don’t think I can talk about a stock for an hour.” I’ll tell them, “If you’ve done a lot of work on a company and I do an even okay job of asking questions, you’re going to be surprised how quickly an hour goes and how many things there are to talk about with this company and this stock.”

6. The value-added investor, and what his fund does now

That one just stuck with me because a lot of times I have a lot of doubt, like, “Oh, my God, could I talk about anything like that?” I thought that was an interesting one.

Yeah, and I think that’s a commonality you see in anybody who is in pursuit of greatness in their craft. There are a couple of other anecdotes in that chapter, too, with Perdue—the chicken guy—and his story. The book about him was amazing. You just see this constant obsession with their craft, down to the nitty-gritty details.

I think you can relate that back to especially concentrated stock pickers. When they have a portfolio of 15 or fewer stocks, they have the time to dive in and know every little detail about the culture, whether it’s qualitative or quantitative. That’s the beauty of it, too. If you know a stock well, you should be able to talk about it for probably 5 hours on any random topic because you’ve done so much work on it. To know it better than everybody else, you better know it better than everybody else.

7. Is the microcap playbook describing a market that no longer exists?

Well, let me bring it back to the market. I don’t want to say this is the only thing for investing, but you run MicroCapClub.com. You’re now the co-organizer with Bob of Planet MicroCap, so you are an evangelist for microcaps.

8. The PM has nowhere to hide

If you read this book and put the personal takeaways aside, I would say the one thing you’re saying is, “Hey, get out of your spreadsheets, go travel and visit these companies in person, shake some hands, meet the companies, and then invest heavily in the best ones you find.” I agree with all that, but the one thing I do wonder—and specifically with microcaps—is whether this is describing a market from yesteryear.

9. Scarcity: why the stock nobody can buy reprices

You started trading in the 2000s, and I’ve seen the SiriusXM story before. But when I look at the markets today, there aren’t a lot of companies under $500 million in the U.S. Let’s put international aside for now, and we can talk about international later, but there aren’t a lot of microcaps in the U.S. anymore. They’re not coming public as microcaps, mainly because of Sarbanes-Oxley and the cost of being a public company. They can stay private as long as venture capital is available—all these things have been detailed.

Most of the companies under the $500 million mark that I’m aware of are small caps that became microcaps, or they’ve kind of been picked over. They’re Indiana-based pizza companies—not to disparage Indiana-based pizza companies—that are completely controlled and have no regard for shareholders. There are a lot of companies like that, where the shareholders are secondary to the CEO’s control and there’s no way to replace them.

I guess, are you describing a different market? Are there still these great companies in microcaps, or don’t those companies stay private? Can you really get access to these?

I think there’s some truth to that, especially here in the U.S. You don’t see Walmart going public in 1970 as an IPO as a microcap anymore. That quality level of a company isn’t coming public anymore, and that’s what you’re talking about.

10. Do not ask multi-part questions

Yes, you still have 100 to 150 IPOs on the U.S. exchanges, but it’s mainly story stocks or somebody raising money for a Phase 1 trial. It’s not an actual business behind it. But we also have the luxury here in the United States of having so many companies to begin with. The number of microcap companies still surpasses the number of companies on the New York Stock Exchange and Nasdaq combined.

It’s just a huge number of companies. Luckily for you and me, we don’t have to own all 8,000 of them. We can pick and choose the 5, 10, 15, or 20 that we want. Depending on what your flavor of investing is, that’s going to determine how many you get out of the U.S. market in particular.

I also think you have to live in the reality that, yes, I would love to find something I can buy and hold forever, but very few will fit that description over time. That’s just the truth of it. The shelf life of the average microcap company—even for somebody who I think knows what they’re doing—is around a year. That’s the type of turnover it takes.

These companies are fragile. Small businesses are fragile when compared to larger companies. They have key-person risk, customer concentration, product concentration, and jurisdictional concentration, which increases the spectrum of bad things that can happen compared to larger companies. You have to live in that reality and stay on top of these things as best as you can.

It’s just going to involve a shorter shelf life for the holding period. For me, I’ve probably owned 100 stocks over the last 6 or 7 years. I’ve only owned 1 for over 5 years. It’s hard to find ones that are worthy of owning and not just renting. I guess that’s how I would characterize it.

11. Why most microcaps get rented, not owned

Let me ask a question on that. You discuss this in the book. I can’t remember if it’s at the opening of a chapter or not, but you say, “I’m going to say something controversial: Most microcaps should not be held for more than 36 months.” I believe that’s the exact quote.

When you say that, you have the junior mining curve in there, where you’re saying this is how a lot of microcaps look. You want to buy them before they’re discovered, ride them until they’re about to start producing or start drilling—whatever it is—and then sell. That’s the peak.

You mentioned that you’re renting these microcaps and holding them for a year. How do you think about that? If you came to me and said, “Andrew, I have this great strategy: You buy a stock on a Tuesday, sell it for a 100% gain on a Wednesday, but if you sell it on Thursday, it’s a zero,” I’d say, “Well, that’s really luck.”

You’re saying, “I buy the stock in January 2025, my goal is for it to inflect up, and in January 2026 I sell it at the height of that curve. After that, it comes back down.” How do you think about that? That’s really timing-dependent and inflection-dependent.

Each one is so independent in its own situation, and I don’t know what the end is. I’m not going into it saying I’m going to hold this for 3 years, because these things just evolve. They can change in an instant, whether it’s the market around them or the companies themselves.

You just have to live in this reality and stay on top of these things, because they could change from week to week, month to month, or quarter to quarter. My intention is to hold for a long time, but the reality is that most of these companies will deserve to be sold.

Even with the successful ones, usually you have a small, let’s say, $20 million-revenue company. It gets one large contract, and all of a sudden revenue blips up 30% for the next 3 quarters. Everybody else out there puts it in their Excel spreadsheet that this should continue for the next 10 years.

12. The hurricane pro forma, and the comp that needed two Katrinas a year

All of a sudden, it goes from an 8 P/E to an 80 P/E. Then, after the fourth quarter, when they have to get the comps and replace that contract with another one, it doesn’t happen, and the thing falls 80%. That’s a perfect example of what you’re dealing with: concentration risk in these small businesses. You just have to be aware of how everything is shaping up. That’s just one little example, but you see that all the time.

You have this story in the book of the company where Hurricane Katrina hits, and this company buys 2 other firms. They become the largest hurricane-recovery company in the U.S., and their pro forma financials are like, “Hey, this $60 million market-cap company would earn $90 million.” The stock rips, and I think you successfully buy it and sell it for a big win. Then the stock goes bankrupt.

What everyone forgot was that the $90 million required the 2 biggest hurricanes in the history of the country to hit every year for that to be—

Yeah, the business model required 2 direct Category 3 hurricanes to hit cities.

[laughter] But I was reading that, and I was like, “Yeah, I have been here before.” I just think that it’s a great over-the-top example of what you’re saying.

Yeah, it is.

13. Meeting management without getting pantsed

You have a whole chapter devoted to talking to management teams, right? And I felt personally seen by this because anybody who’s listened to this podcast before—I mean, my last book person I had on was Roso Tulip, who wrote “How to Interview a Management Team.” I pull back and forth on interviewing management teams all the time, right? Because on one hand, I want that unique information. A lot of investing is: What do you know that other people don’t, or what do you understand? One way to get information no one else knows is to go meet the management team.

You know, actually, do they have a firm handshake? I hate to keep using “handshake,” but you will find out stuff that no one else knows when you go meet management teams. But on the other hand, I’ve also come to get worried. I’m just a little silly investor with a mustache sitting in a closet, and these management teams—they get to the top because they are great salespeople. They’re great at interpersonal dynamics in the office.

They’re probably meeting 10 investors a week, and I might meet—you’ve got to travel—so you might at best meet 2 CEOs a week. They’re just more practiced. And I’ve always worried because my biggest losses have been—I feel like I kind of got pantsed by management. So I just wanted to ask about that push and pull with going to meet management teams. How do you avoid my proverbial pantsing when you’re going to meet these management teams and develop relationships with them?

Well, first of all, when you start out doing it—which you’re probably at your 1,000th rep—but the first 10 or 20 times you sit down with a management team, your eyes are as big as saucers, and you’re not even paying attention to what you’re even asking. You’re just going to walk out and buy the stock either way because you’re just enamored to be sitting across the table.

In your head, you’re still a college student because your first time, you’re probably right out of college or maybe in college. You’re talking to this titan of industry. Even if they’re just a $20 million CEO, you’re talking to this titan of industry who has wisdom beyond your years. Absolutely.

Yes. I think it probably takes a good 10, 20, or 30 reps for that liability to turn into an asset, to where you have enough reps that you can approach it with a neutral mindset, which is the first hard thing to do when you’re starting out with it. I know for me, again—and you and I both know plenty of people who don’t talk to management at all and have excellent track records—but for my approach, I’ve always just been hands-on.

It’s probably because of the first experience I had with that XM Satellite Radio CEO sitting across the table from him, and that kind of got me enamored with this whole qualitative art of trying to find out about these leaders, if they’re great or not. But I do think that, for me, it’s not just the first conversation. It’s the repetition: the third, fourth, fifth, sixth, seventh, eighth, and ninth. It’s going out and not just spending an hour with them, but spending an entire day, where you can get past the sound bites of the first 2 hours of a conversation. You get to see who they really are.

Spending that amount of time is, for me, even less about building the conviction to hold something longer because, as we just discussed, a lot of these things deserve to be sold. A lot of times, it’s just trying to get to know them well enough where you can almost spot the signs of something going wrong. Just like your wife can be angry at you and she doesn’t have to tell you, it’s kind of the same thing: You can just sense something’s wrong. And that Spidey sense has saved me a lot of money over the years.

14. How Ian decides which company visit is worth the flight

So, look, you are going in person to meet these companies, right? It’s one thing to do Zoom calls, where a Zoom call is pretty low-stakes, right? You block off 30 minutes, you hop on a Zoom, and you do it. An in-person meeting requires time—again, you and I are both talking about time away from your family. It requires flights. It requires money. But the big thing is the time, right? You’re going to spend, at minimum, a day flying there, going and meeting the management team, probably staying in a hotel, and flying back. It’s a lot of time devotion.

How are you—I mean, you’re running a concentrated book, but how are you choosing what meets the bar to go put the time in? You talk about running quite concentrated early, and now that you’re kind of running a fund, you’re still running very concentrated, but not quite as concentrated—10 stocks-ish. Is it something that you’ve already bought? Is it something that you’re on the verge of buying? Or is it something where you could see yourself buying it at some point in the future?

Maybe I need to start planting those seeds now and building the relationship now so that in 3 years, when this is ready for prime time, I’ve got that relationship with the management team where they’ll let me spend a full day, or I already know their tells when I’m talking to them. So, how do you think about just the time allocation when you’re choosing whether or not to go do this?

I would say I’m usually, at least mentally, more than halfway to a buy decision if I’m going to be putting the time in to go meet with them. It could be something I’m initially looking at that struck a chord and that I want to go to immediately. Or it could be something that I’ve followed for a long, long time, where all of a sudden something happens and there’s a catalyst, or there’s a fat-finger seller that comes out and drives it down 30%. It’s something I know fairly well, and I could just hop on a plane quick, see what the real story is, and hopefully take a position and take advantage of that seller. So, it’s kind of a bunch of different reasons why you would do that.

Especially when you’re married and you have kids, I have a checklist of, let’s say, 20 trips. About 5 of them are just my own events at Planet MicroCap. The rest of them are for these company visits where I can just be nimble and go really quickly. Luckily, I married well, and she can step up with the kids. That’s key for this game, too. It allows me to be able to do that still.

You know, in that section, you also have—in almost every section, you’ve kind of got practical rules for how to follow this thing and stuff. One of your rules there is, “Don’t ask multipart questions.” And I will tell you, as you can tell from this interview, I felt personally seen and attacked when you said, “Don’t ask multipart questions,” because I love to ask 7 questions in a row and just like, “Hey, why don’t you take all those?”

I mean, it’s okay to do that if you know you have a big block of time with them and you know you can follow up and not allow them to skirt around something. The problem with multipart ones is people can skirt around some of those. So, that’s—

15. Consulting for the companies he wanted to own

Just to stick with building management relationships, this is earlier in your career, but in the 2008 to 2014 time frame, you mention several of the companies you buy. You mention that this is when you’re getting started, and you say, “Hey, I want to be a full-time investor, but I need something to cover the bills.” You kind of do capital-markets consulting work, and for several of the companies you’re buying, you’re doing capital-markets consulting work.

That was really interesting to me because, look, I run a podcast. I run it—I’m no stranger to being an entrepreneur and stuff—but I hadn’t heard of someone doing capital-markets consulting work while they have a position in the stock. It speaks to building a relationship with the management team and all this sort of stuff. So, how did that come about? What were you looking for when you wanted to buy this stock and worked with them? What was the structure and everything there?

Well, it was difficult because, ultimately, that was from right after grad school, so 2005 to 2009. I did that consulting just to bridge the gap until I could become a full-time private investor. I mainly just went out and found companies that I actually liked as an investor and then said, “Well, these are the things you should be doing differently, either with your narrative or whatever, to help tell the story better.”

In all of those cases, I’d be like, “I’d like to buy it. I can’t buy it if I know something I shouldn’t know, so I’m basically blocked out until I’m done working with you.” It was kind of a risk going into it because I was kind of blocked out from ever selling when I was doing that.

16. Over the wall, and what it cost him

So, you would go internal and get MNPI?

Not all the time, but in the cases where I felt like it was a gray area, I had a rule: I just wouldn’t. I didn’t want to cross that bridge. And there were some times that it hurt me. I probably left $1 million on the table in 2009 because I was still kind of over the wall with one last company at the time. Nothing’s worse than when you have a 7-figure position in something and the CEO says, “We’re about to miss a quarter.” I’m just like, “Ugh,” and you’re just—you know, it’s like all those things going—

But would you have sold in advance of that? That is the question, right? Without the CEO saying, “We’re about to miss the quarter,” I do know—I’ve been on the inside where a company says, “Hey, it’s not going to be good,” and you’re like, “Oh, you know, this is 100% fucking the ax about to drop.”

Oh God, I know.

But that experience really solidified something I didn't mention in the book. Around 2003 or 2004, I befriended a fund manager with a small—probably $10 million—fund that invested in nanocaps. He took a 10% position in a health care company, and it was about $1 million. He earned like 10% but he filed went on the board. I saw him help the CEO with a narrative and with a couple of other things around capital markets, and it ultimately ended up being a 20-bagger for him over the next, I don't know, 4 years.

It was just cool when I looked back and reflected on it. By the time it was 2006 or 2007, when he actually realized that win, it was cool that he was a value-added investor. He wasn't a value investor; he was actually adding value to the company and allowed them to have a more positive outcome, most likely because of the advice he gave. He wasn't just, "I'm here to buy low and sell high."

Seeing that made an impact on me, and I remember thinking about it as I was consulting with companies, as I stepped into that type of role, so to speak. Some of them were successful and some of them weren't. I liked that feeling. Now, fast-forward to the fund so many years later, and that's kind of how I view our fund now. We still deal with these really small, rinky-dinky market caps, but we like to take a decent position.

Usually, our reputation somewhat precedes us. The management team would like us on the cap table. They realize we're not here to flip out of the stock, and they realize we give good advice. I really view ourselves, as a fund, as kind of this hybrid of PE/VC meets public microcap, where we're trying to find good situations that can become great—not bad situations that can get less worse—but being a multiplier to that company.

You can point at it and say, "Hey, I was a part of that. This is better because I was here." That's something that goes beyond returns; it gets into fulfillment and all that stuff, which you start thinking about when you're above the age of 40. So it's kind of another thing. [laughter]

You very much do, you know. Again, these are the things when you're 27—and I think most of my listenership is in their late 20s, early 30s—where you're like, "Oh, what are these gray-haired guys talking about?" Then when you hit your late 30s, early 40s, you're like, "Yep, yep, I get it. I get why they're having midlife crises. I get all this."

Twenty-five-year-old Ian was just like, "Okay, I was mainly a story-stock investor—"

Buying Porsches and selling them to keep his stock portfolio going. Yeah, my average holding period was 6 months, and I could care less about being a value investor. I was more worried about who was going to buy my shares 100% higher. That's all I cared about.

A few things I thought were interesting: one, you had this interesting one on scarcity, right? This kind of relates to, "Who's going to buy my shares 100% higher?" You say you like companies that are scarce along a bunch of different lines. You say, first, you like the niche and all this sort of stuff, but you also like when the stock is scarce, because if they're not issuing equity and the story gets a little sexy, the institutions are going to be forced to buy it higher, higher, higher.

I thought that was really interesting because, again, this is something I think 10 years ago I would have dismissed, but I've seen it so many times, even in larger caps. It's hard to believe now, but a while ago, cable companies were really, really popular. There was one cable company, Cable One, that was a small cap, and it traded for a huge premium to all the Comcasts and Charters, the big companies.

Everyone asked why, and what you would find was that when you talked to small-cap managers, they would be like, "We love the cable story. We cannot buy Charter or Comcast. We would prefer to buy them. We think those are better businesses, and we think they are cheaper, but our mandate does not let us. Cable One is the only play we can have on a cable company." So Cable One traded for this massive, massive premium.

Just as you were saying with scarcity, obviously you're talking about microcaps, where institutions are kind of trying to fit in through a small door. But I think it's something I would have dismissed 6 or 7 years ago that I've come to agree with: once something gets in the mandate and people can hold it, they will drive it higher than the fundamentals might demand if they need to get into it.

Yeah, and it just gets multiplied if it's in something illiquid, like a microcap company. I think the combination of the tailwind and scarcity—kind of a fire hydrant of water hitting a couple of things—is what I'd love to look for in everything.

I gave a couple of examples in the book with QuePasa.com, which was a Latino social network back then. That was kind of my far-flung example, I think. You can look at this with anything, whether it's AI as a theme or whatever: just trying to find the best microcap way to participate in that theme. It's especially a great theme if there are only a few of them, because there's going to be this tailwind of buying into it eventually.

17. Why capital allocation barely appears in the book

One thing you don't mention much in the book—I just did a Control-F through the book—is dividends. In, let's call it, a 300-page book, you only use the word dividend 6 times, and basically all of them relate to—or are on—the same page. It relates to the gold-mining stock, I think Goro, where you say, "Hey, I bought them for $1 per share, and a few years later they were paying a $1-per-share dividend." That's the only time you mention dividends.

I don't think you use the word share buyback or share repurchase once in the book. So I thought one thing that was interesting is capital allocation, because I can be a very capital-allocation-numbers-focused, Excel-focused person, right? You don't seem to think about that too much.

Now, to our scarcity point, you obviously don't want them diluting like crazy, because that's the way to destroy a multibagger, right? The value is 10 times higher, but the share price isn't 10 times higher. But you don't focus a lot on capital allocation. Is that just because, hey, they're microcaps, there's not a lot to do, growth is all that matters? Or is there something else to the lack of focus and mention of capital allocation here?

18. John Madden, Vince Lombardi, and knowing one thing cold

Well, no. I think you're correct to pick up on that. It's mainly because I'm more of a growthy investor. I'm trying to find things that are undervalued that can get very overvalued. I'm not necessarily as interested in things that are going to pay a dividend. That doesn't mean they're not going to buy back stock, but specifically dividends, I probably wouldn't own too many of those.

It's not like there's anything wrong with those; it's just my flavor of investing is a little bit different. I'm trying to find really high-organic-growth-rate companies that can self-fund their growth, and they're going to just plow it all back into that growth.

No, it's great. I think there is something to it. I've come to believe this as well, particularly with dividends. Okay, great, I would like my company giving back, but I think there is something to—you want, if you think you have skill, more variance.

A company that is at the point where it's paying a dividend, or where you're really focused on the dividend yield, has just kind of seen its variance shrink. Honestly, the variance is kind of left-tail-ish at that point, where they cut the dividend or something. But there's not that much, "Hey, if they're paying a $1 dividend this year and that's part of the story, everybody's going to bid it to $1.08 or $1.10 next year." Nobody's going to be like, "It's going to be $0.07," you know. So I think there is something to that, too.

Well, and I would never say never, even if they paid a dividend. I'm sure something I'm going to own will pay a dividend, but I think one of the things, too—I mean, you've been investing for a long time—is that the way you invest today is probably different than it was 10 or 15 years ago.

I feel like the whole maturation of an investor—I started as a story-stock investor, then precious metals and junior mining, and then more GARP. I didn't care about profitability until 10 years in. I view each one of those stages almost like learning how to paint with a different color. After 20 years, you can learn to paint with a few different colors.

I do have some cheap stocks in the portfolio, but I also have a couple of story stocks in the portfolio, because that kind of represents my past and I did decently well in that endeavor. You don't have to just do all of one thing.

19. Great investors evolve or go extinct

Well, look, I actually have a note on that. You've got a line: "Great investors evolve or go extinct," right? You mentioned your mentor in the book, Skip, and you say, "Hey, you still love him and respect him, but after a few years you start to evolve and move away from him, and he kind of sticks with his same story."

It struck me that the investor you are today—and you also mention toward the end that you're always trying to improve yourself and comparing yourself to your past as an investor—but I think there's a lot of investors who have success. I'd point to a lot of famous investors who did really well from 2000 to 2002, and they've done pretty poorly probably since the GFC.

They keep decrying the Fed or passive investing or broken markets or whatever you want, and they haven't really looked themselves in the mirror and said, "Hey, from 2000 to 2008, yes, the very basic traditional value investing worked really well, but maybe that's been competed away."

Maybe I’m not evolving. Maybe I need to look in the mirror and say, “The problem isn’t the market; it’s me.”

And you look at Buffett. He’s always been a value investor, but he’s evolved, right? He evolved from, “I’m doing Ben Graham deep, deep net-nets,” to—you mentioned See’s Candies in the book—“I’m doing great companies that I can compound.” Part of that is his capital base, but I see a lot of investors who do well and then freeze because they’re not evolving.

I just like that line, and I think you said, “Go ahead.”

I think the good ones really just push out their circle of competence. It’s easy for us to judge, and sometimes there’s a thin line between pushing out your circle of competence and FOMO. But I do think they evolve, continue to grow, and push that out. They do so in small ways—shooting bullets before cannonballs when they’re doing that.

20. Fundsmith, momentum, and shooting cannonballs

I think they’re constantly not satisfied with where they are. They know there’s always a better investor inside them. I think that’s what you see in Buffett and how he evolved, just like you said: from cigar butts to buying quality, to now he’s basically a private equity firm with a public book.

All the GOATs do a whole bunch of things well. In addition to playing every instrument in the orchestra, they eventually lead it by putting a team around them. It’s interesting to see how they’ve evolved.

Did you see the—I think it was—the Fundsmith letter where they said, “Hey, we’ve always been fundamental, but now we’re really leaning into momentum as we do this”?

I did. I saw it, and I liked it. I was probably one of the only people who wasn’t going to jump on him and say he’s an idiot.

I liked that he was willing to evolve, but I think something you said bridges the gap, right? The willingness to evolve was nice, but you said, “Shoot bullets before cannonballs.” I think the issue is that he shot the cannonball, right? He said, “We’ve been underperforming—wholesale changes to the process, wholesale changes to everything. Out goes value; in comes momentum.”

I think the issue was that he kind of shot the cannonball because it’s supposed to be a little bit more gradual than that.

I think you’re probably right with that. Unfortunately for him, you can tell that he didn’t shoot any bullets. It was just cannonballs.

One thing you just mentioned is putting a team around you over time, right? Buffett does this with Berkshire. He brings in Charlie and builds a big business. On the other hand—and I’m quoting from you as a portfolio manager—it doesn’t matter if you have a team around you. Your investors don’t care. You get the credit and you get the blame. You have no place to hide.

I wrote that down because it related to the Fed comment I just made. You see investors who blame the Fed and blame everyone but themselves. How do you think about putting a team around you when you’re the portfolio manager? You’re the one calling the shots. It doesn’t matter if your analyst comes and says, “This is a great idea.” You’re the one who puts it on, and if it goes down, it’s your fault, not theirs. How do you think about putting a team around you when you do that?

I’m probably speaking out of turn because I don’t really have much of a team around me at the fund level. It’s me, and I finally hired somebody for operations who can handle the administrative stuff, so I don’t have to do that.

I’ve been blessed because MicroCapClub and the personal networks I have fill a bunch of voids. I can lean on 2 or 3 research analysts in my personal network for some things. I also have a Slack group of, as you’re well aware, probably 10- to 20-somethings who remind me of myself 20 years ago. They’re the people who have 28 hours a day to research stocks and remind me of myself before I was married.

You tend to figure out where your weaknesses are. I think that’s a huge thing for a stock picker. All of us have strengths and weaknesses in regard to our skills. It’s about being honest with yourself about what you’re strong in and what you’re not strong in, and looking to fill those voids with either tools or people, or a combination of both.

Then you find people who are going to be hungry, who want to row alongside you, and who are also okay with leaving. Ultimately, you’re looking for somebody who reminds you of yourself, and you’re entrepreneurial. If they were you, they would probably leave, too, eventually. You have to be okay with that and give them applause when they do. You have to say, “Hey, that’s awesome,” and always be recruiting the next person—or at least have your eyes open for the next young person who reminds you of yourself.

21. Building a brand, and spotting the real ones

At my scale, that’s what it looks like.

It’s really interesting. This relates to the other thing I was standing up and saluting when you had something on “Create Your Own Brand,” right? You mentioned that one of the ways you got started was through stock market message boards. I don’t even know if the youngsters know what that is, but you would become the ax on a name, post on it frequently, and reach out to people. That’s one of the ways you started building your brand.

Obviously, you’ve got MicroCapClub, and you have that to help people. There’s great research on there and a lot of people. A lot of youngsters are coming on MicroCapClub for different reasons. How do you separate the wheat from the chaff when you’re looking at these youngsters who are coming in and putting things out there, probably looking for a guiding hand to help steer them?

I’m usually looking for something differentiated. It’s getting harder and harder because there are so many AI write-ups. Right now, it’s obvious when something is AI, but soon it won’t be as obvious.

I’m lucky that I still put a lot of value on the qualitative skill set of talking to management. Even with the onslaught of AI, I feel like it’s all coming back to that again. The only place to get an edge is through interpersonal skills that aren’t recorded or transcribed, or whatever. It’s going out of your way to have those conversations.

I think that edge is actually going back to what it was 30 years ago, or—

I think it’s going way up. Again, it’s unique information that only you can get if you can go get it. I think that edge is going way up.

For me, in my flavor of investing, what usually attracts me is when you see a younger person who actually made the effort to talk to the CEO or whoever at the company, and they include that in the thesis. They’ll say, “This is the additional insight I learned about the strategy,” or something like that. They made that extra effort because that’s something I would have done, and it relates back to my strategy and the way I invest. That’s what I particularly look for.

That’s really interesting because I have a lot of them, and a lot of them are very eager. You can only spend so much time each day, and I do try to respond to everyone. But I’ve been thinking about how to choose who to spend a little more time with versus dismissing.

As you mentioned, you get these write-ups that are 10 pages long. I’ll have people send me a write-up a week, and I don’t know: Is this person really eager, or are they spray-and-pray? I don’t think any of this is that great, but was any of my work that great when I was 21? I don’t know.

In regard to mentorship, which is what you’re talking about, it’s as much about the relationship as anything else. That’s how I got the attention of Skip back in the day. I first tried to get his attention by just getting his attention. It didn’t work.

What I ultimately had to do was show him value. I had to research the stocks that I knew he owned and was posting about, find some incremental pieces of information through scuttlebutt, and then post them on the message board so he would ask, “Who’s this kid, and how did he get this information? I didn’t know this.”

I had to provide value first before he provided value back to me. Ultimately, that’s what happens with the few younger people I’ve done this with. They show value to you as an individual because you’re a busy guy. You’re managing a fund, doing a whole bunch of things, and you have a family. They almost go out of their way to provide you with so much value that you feel like you have to reciprocate, either by getting on a Zoom with them or just helping them.

It happens naturally. It’s not something you have to worry about when you’re reading through a fire hose of theses from 15 different people. It’s the person who really goes out of their way to get your attention in a positive way and add value to your life instead of taking time from it.

That's great. Just a few other things I really like. Let me start with one. You are a big proponent of “buy low and then buy higher.” Basically, you buy the stock, and then, as the company executes on the story, you buy more of it. You can increase your position, and it's something I've really struggled with over the years. You start buying at 10, and the stock's at 15, and you say, “Oh, well, it's not 10 anymore.” How do you develop the flexibility to buy as it goes higher?

The counter to that is, look, if something's at 10 and you start with a 5% position, it goes to 15, and now it's going to be about a 7.5% position. If you buy more, it's a 10% position, then it goes to 20. How do you avoid the—I’ve seen a lot of people buy all the way up and then it explodes. How do you balance the two?

22. Journaling: every trade, what I did and why

I think it's always a fundamental decision on the business. You're really only trying to average up into things where their fundamentals are accelerating faster than their stock price. That's the arbitrage. That's why it's just as cheap at 15 as it was at 10, and that's why you're buying it. It's a short answer, but that's primarily what you're looking for when you're looking to average up into things.

Especially in micro-cap—and I know you'll understand this—when you're buying this $20 million market-cap thing or $50 million thing, once it grows up, once the revenue doubles from where it is, it's also a higher-quality business than it was before. It's deserving of a higher multiple, in addition to everything else. They probably have more customers, more products, more geographies, and more management depth. It's worthy of a higher multiple as well.

You have that dynamic overlaid over it. You do find situations—not every situation that goes up; some just go up because we're in a hot market and it hit an AI area, or something like that—but for the ones to average up in, you really only want to invest or average up in ones where the fundamentals are accelerating faster than the stock price.

This is what spurred it. I've got 2 examples over the past couple of years where something goes up a lot, and I write down, “I think this is better now than it was the day before. I should probably be buying.” Unfortunately, I sucked my thumb on it, and both have worked out. That might just be a small sample size, but I write that down.

You mentioned journaling a few times in your book, right? I'd love to know how you use a journal as an investor and what your process is with that.

Journaling is something I've done ever since I was in my 20s. Honestly, there's really no set way I do it. I used to get up early at 5 a.m., have some coffee for the caffeine kick, do mindless tasks before the caffeine kicked in, and then start writing. I don't go into the morning with an agenda. Sometimes I just write about personal stuff, sometimes about stocks, and sometimes it's about anything else. Most of the book came from just that type of thing.

On the stock side, I do have a more structured setup where I'm constantly updating my thesis at least every quarter, after every conversation with the CEO. There's probably a more effective and efficient way for me to do it, but I'm kind of old-school. It's in a Word document. I can still search everything. I have my watch list of things where I'm looking for something to change.

Probably not on the company-specific side, but on my journal side, I've started writing just thoughts on overall markets and what I'm seeing.

Are you going back and researching these, or are you just writing them? Either is fine, right? I'm wondering if you're going back and referencing them to see, “What was I thinking then?” Sometimes a lot of it is just getting your thoughts out on paper, and that's a very effective habit. I think there's been research that—so are you just trying to get your thoughts out, or do you actually go back?

I just get my thoughts out—the emotions out. On the investing side, every trade I make, I say what I did and why, so I can go back and reflect on it. Then you rub your nose in the ones that went up 5× as soon as you sold them and wonder why you did that, or this or that, and see if you can actually pull out anything from it.

23. Imposter syndrome after the big winner

It's kind of 2 separate silos, but most of my journaling creatively is in the mornings. I certainly know that.

All right, I'll end with 3 that really hit me. There's a Chapter 14 story, and you basically say, “Look, every stock picker, after they have a big winner, says, ‘Can I still do this?’” You're worried your big winner is your last winner. I was working with a performance coach for a while, and I was crying, like, “Hey, I had this great idea. It worked, but I wasn't big enough. I'm never going to have an idea this good again.” She would say, “Andrew, you say this every time.”

As an investor, I always feel like an impostor. I have huge impostor syndrome when it comes to this. How do you get over the impostor syndrome, or get over the feeling that your last big winner is your next one—that you're never going to find another one? When you have a big loser, how do you keep your confidence and your ability to swing a bat?

24. The losing streak: diversify, do not double down

That's really difficult, depending on which environment you're in. We have a tendency, when we're on a hot streak, to get conceited and think we know everything. Then, when we go through a low streak, we feel like we know nothing. We reach for answers everywhere, stretch our strategies in places we shouldn't, and buy things at the top that are about to fall out. Those are 2 different mindsets you can find yourself in, and neither one is good.

I think the key is just trying to be as even-keeled as possible and stay away from the tendencies during the downtimes that a lot of stock pickers go through—at least concentrated ones, which is what you see quite a bit. They double down, triple down into averaging down the positions that aren't doing well. They get into this mindset of wanting to prove the market wrong rather than make money or stop losing money.

You see it time and time again. They start selling some incremental winners they have to add more to the losers that are dropping. They get more concentrated in their losers, and then they go broke and shut down. You see that time and time again.

I think the opposite of that is what most people need to do if they're going through a losing season, which is what I ultimately did back then and still do now. Get more diversified. Sell a loser, free up the mindshare, add a couple more batters to the lineup, and give yourself a couple more chances to win. That's how you get out of the hole—not by doubling down on things that weren't working, where you're probably not selling them because they're too cheap, even though it's taken 3 years longer for your thesis to play out and it's probably wrong.

Look, it's something I've had a lot. When something goes down, you're like, “I know I'm going to prove the market wrong. I'm going to prove all of that is wrong.” It's one of the reasons I don't like really engaging if somebody's got a bear case. I'd love to hear it, but I'm not going to go on Twitter and debate the bear cases with people.

Michael Lou used to work with you, and I was on a panel with him once. They were asking a similar question, and he was like, “Look, when I sell a loser, it's like the ultimate belief in my conviction. Cool, I'm going to go find another great one. I'm going to find something else better.” It's like the ultimate belief in my conviction. He said that, and it was a throwaway line at a panel 3 years ago, but it has stuck with me. Whenever I've got a stock down, I'll just be like, “Hey, have belief in yourself. You're going to go find another winner or something.”

Yes. Selling losers is so freeing. You can just feel the weight lifting off your shoulders. “All right, let's just move on. Now we can actually focus positive energy somewhere else.”

25. Wishing time forward, and the secret to compounding

It really is. I've had some big losers, and I will have some more. Once you get them off the books and you're not seeing them on the screen, you just feel so free. It feels like chains coming off you.

All right, I think we've gone through all my ones except for one last one. The worst part of investing is wishing time would go faster so you can get your returns quicker. We all make this mistake. I have that all the time, right? You're an investor, you're a compounder, you're a compounding machine. If you can pull the next 10 years of returns forward to today, or if you've got a big position you're confident in, you're like, “God, I wish I could see—I wish I could fast-forward and see this quarter's earnings and next quarter's earnings.” You're like, “Pull that all forward.” Our time on this earth is limited.

Again, we’re guys with some gray hairs. You mentioned the kids, and you don’t get the time back. How do you balance the two? Because I feel it hitting me all the time. I’m like, “God, I wish I could speed this effing thing up.”

Yeah. I think it’s only at this period of my life. The 25-year-old me would be like, “What are you talking about?” The 25-year-old Andrew or Ian had time in abundance, and now the 40-year-old me—

Time was abundant when I was still drinking alcohol. There were a lot of mistakes we were making—

All the time in the world. And now, all of a sudden, it’s become scarce again. Scarcity—time becomes scarce. I think I realized that, and it’s hard. You’re never going to get out of it completely.

As stock-pickers, you’re always looking 1, 2, 3 years out in the future, estimating where the business is going to be, making a decision today, and then you can’t wait for the next quarter or the next year to hit for you to be proven right. You collect those returns—the money, the accolades, everything. You just want to get there tomorrow. You can’t wait.

In the meantime, you have a family and kids, and they come home from school while you’re still thinking about the earnings call that happened. You’re still thinking about all this stuff. You’re thinking about all these things out in the future, and you’re not living in the present, which is what you should be doing. The ironic thing about that is that even with stock-picking, thinking too much about the future is going to prevent you from getting those returns, because you’re probably not doing something today that you should be doing to get the returns tomorrow.

That final chapter is about the secret to compounding, which is what I called it. I think the secret to happiness in your family life, personal life, stock-picking life, whatever, is just taking care of today. Hugging your kids today, kissing your wife today, telling her you love her even though it’s a bad day and you don’t feel like saying it, calling your dad today, apologizing today—all those things, including doing the research today, doing the expert call today, and doing the screens today.

26. Closing

If you do all these things today and don’t wait, that’s what produces tomorrow. That produces the long-term outcome you want: actually living in the present today, and the future will take care of itself.

That was beautifully said. I’m an old softy. I’m getting a little mushy up in here. That was great. Why don’t we end it on that, Ian? I can’t tell you how much I truly enjoyed this book. I would be shocked if anyone listening to this podcast wouldn’t enjoy it. I found it energizing.

I took personal offense when you said, “Don’t ask multi-part questions.” Some of the things relating to your mother and stuff, I had to put the book away because I was just in tears. It was just a wonderful book. I’m so glad I read it, and I’m so glad you came on this podcast. I enjoyed this.

Yeah. I’ve always had a lot of respect for you. We’ve been fighting the same battles for a lot of years, so I appreciate the work you do as well. Bringing good-quality small-cap or younger managers onto your program and giving them a voice is huge for micro-cap investing, too. Not all of them are micro-cap investors, but it all helps. I appreciate that.

Cool. Well, hey, I hope to see you in Vegas next year, and we’ll go from there. Talk to you soon, man.

Take care.

A quick disclaimer, nothing on this podcast should be considered investment advice. guests or the hosts may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial adviser. Thanks.