1) When it comes to investing, dont be a chicken, be a hawk.

Dont be afraid to say no to 99.9% of investment opportunities. You only need to

find one great company, before others, to change your life. Extraordinary returns
follow extraordinary discipline. An investors goal should always be to make as few
investment decisions as possible. Keep your hurdle rate high and embrace inaction.

Chickens will eat anything you put in front of them. They will eat insects, bugs,
meat, fruit, vegetables, fish, and, yes, even chicken. They have no self-control
and will even eat their own eggs and faeces.

A hawk can see up to 8x more clearly than the sharpest human eye. To put in
comparison, if you had a hawks vision you could see an ant on the ground from on
top a 10-storey building. A hawks eye is so large that it occupies a big portion
of its skull. The hawk knows what its looking for.

The visual capabilities let the hawk distinguish the size, shape, and speed of the
potential prey so it can recognize, target, and capture it quickly.

Dont be a chicken, be a hawk.

Be picky.

As you fly above the investment world looking for opportunities, develop tools,
strategies, even statements, that you can apply quickly to evaluate opportunities.
Know what you are looking for so you can develop the vision to recognize an
opportunity quicker.

2) Dont bother finding the next multi-bagger if you are not going to develop the
conviction to hold it.

Stocks rarely perform in the time frames we predict, and its why the market only
works for investors that have a long-term portfolio focus. Performance is never
linear, up and to the right, year after year. You sometimes have to hold onto a
position for a few years before it goes up 100% in 3 months.

Every multi-bagger will have long periods (even years) of stagnation as

fundamentals backfill, old shareholders get bored, and new shareholders enter. Just
like a fine wine, sustainable multi-baggers often take their time to ascend and
develop. If youre invested in great businesses that continue to grow and earn more
money, dont let lulls in stock price and boredom scare you out of them.

Lee Freeman-Shor writes in his book The Art of Execution:

One of the key requirements of staying invested in a big winner is to have (or
cultivate) a high boredom threshold.

It is very hard to do nothing but focus on the same handful of companies every
year; only researching new ideas on the side.

Many of us, seeing we have made a profit of 40% in one of our stocks, start
actively looking for another company to invest the money into instead of leaving
it invested. This is precisely why lots of investors never become very successful.

As human beings, we are very impatient. The hardest part of maturing as an investor
is allowing ourselves the time. You cant force it. Many investors force it by
being active for activitys sake. As Ed Borgato says: What Wall Street perceives
as productive activity is needless complexity.
Investors tend to over-analyze when stocks are going down (fear) and under-analyze
when stocks are going up (greed). ?The hardest part of investing is holding through
these times, embracing boredom and inactivity, and distancing human nature-emotion
from investment decisions.

3) Learn to differentiate between business performance and stock performance.

Sustainable multi-baggers have certain characteristics: Long-term revenue and

earnings growth with little to no dilution. When you are holding onto a position
ask yourself Is this business growing and making more money per share than it did
a year ago, two years ago?

I started buying a company early 2012 when it was at $0.35-0.40 per share. As my
conviction grew, I bought more. We are in January 2017 and the stock is still at $2
per share. On the face of it, this has been dead a dead investment money for 2.5
years. Years!

But, the companys business is almost double the size it was 2.5 years ago. The
stock hasnt gone anywhere but the business is doing really well. I have no problem
holding this stock. If the business wasnt performing, I would sell.

Successful investors can differentiate business performance from stock performance

and can take advantage of those investors who cant.

Great businesses have great stocks. Great businesses always get overvalued. Its
important to make investing decisions based on business performance, not stock
performance. Its also important to know the distinction between external stock
market forces driving a stock price lower (buying opportunity) versus business
reasons you are not aware of (you should be selling).

4) Avoid piling into a position at one go.

All my winners had one thing in common, I was always averaging up. Most of my
losers had one thing in common, I was always averaging down.

My buying strategy has evolved over the years. Early on I would pile into positions
too quickly after naively believing what management would tell me. Overtime I
realized giving up a small amount of upside to de-risk the investment was well
worth it. I normally buy my positions in thirds as my conviction grows. If
something doesnt check out along the way Im not stuck in a huge position.

I buy my first third after extensive due diligence and after talking to management.
I dig through all the filings, industry journals, place some calls into customers,
suppliers etc. Think of this as passing the smell test. Im also making sure I have
ample margin of safety.

I buy my second third after traveling and meeting management at their head
quarters. I want to see what their offices look like, the interaction between
management. Is it a dictatorship or a democracy at the management level? Can I find
an employee who hasnt been told to be nice to me and ask them questions? Does
the company do the little things well? Do they pay attention to detail? What do
they drive? What are their motivations? etc.

I buy my last third after the management team does 25% of what they say. The
majority of microcaps over promise and under deliver. You make money on the ones
that under promise and over deliver. It takes time to make sure you are betting on
the right jockey. They need to prove this to you by executing, so buying this last
third might not happen for months. With most of my winners, I bought this final
third 100%+ higher than my first third.
My personal investment philosophy is to buy microcaps that I think can be 5-10x in
a few years. It might sound insane, but I dont buy stocks where the peak potential
return is less than 100%. Im look for and buy undervalued companies that have the
potential to get very overvalued. If Im initially buying a $0.50 per share stock,
Im likely buying it because I think it can be a $5.00 stock in a few years. So who
cares if Im buying my last third at $1.10 after the investment has been greatly
de-risked by management execution? Even after these small microcaps double, lets
say from $10 million market cap to $20 million, they are still very under followed
and not even on institutional radars.

In all my big winners, I was constantly averaging up.

5) Successful investing isnt about being right all the time; its more about the
ability to identify when you are wrong quicker.

Investing is tough because you have to constantly anticipate how the thinking of
other people is going to change before they know it themselves. This means you have
to buy investments early, before the investment is obvious. But, there is a thin
line between being early and being wrong. If you are constantly buying the stock
lower it is likely the latter. If you find and buy great investments, youll likely
be making subsequent purchases at higher levels.

Always keep your ego to the minimum. The market loves to humble boastful investors.

When you find yourself constantly averaging down its normally a sign that your ego
has taken over. Youve convinced yourself you have to be right, but you forget that
being broke and right is the same thing as being wrong. Your ego clouds your
judgment and slows your thinking. Many investors have gone broke trying to prove
the market wrong, and you certainly arent going to prove yourself right by
throwing good money after bad.

6) The management makes the difference.

The smaller the company, the more should be the focus on management and qualitative
analysis. CEOs of small microcap companies tend to wear a bunch of hats, so their
influence is much greater than larger companies. Founders are the difference
makers.

Microcap investing is really entrepreneurial investing, which means you really need
to talk to management. Im cautious in saying this because not every small investor
should expect to be able to call up and talk to management. The point Im making is
on quarterly conferences calls, etc. take advantage of the opportunity to ask good
questions.

A qualitative attribute in most of my winners was a CEO that figured out how to
swim on his/her own. They grinded it out and dug their way out of the hole. Most
importantly they did it without diluting shareholders. When management does right
by shareholders in the worst of times, its much easier to fully trust them in the
best of times.

Invest in management teams that focus on the long-term and let their execution do
the talking: 90% of microcap management teams say too much and do too little. This
rare breed is called intelligent fanatics. I want to invest in owner-operators
that have an intense focus, integrity, energy, and intelligence.

Once I find an intelligent fanatic running a potentially great business I start

the due diligence process. If everything checks out, I invest. As management
executes, I buy more at higher prices.
Intelligent Fanatic = (Long Term Vision + Focus + Energy + Integrity +
Intelligence) x Execution

The combination of all these traits multiplied by execution is what makes an

intelligent fanatic. Many investors mistake an executive with charisma for being
an intelligent fanatic. The microcap space in particular is filled with snake oil
salesman and executives that talk too much and do too little. Dont mistake a story
telling, charismatic CEO as an intelligent fanatic. In fact, many intelligent
fanatics are not charismatic. Intelligent fanatics let their execution do the
talking.

In conclusion, keep this in mind:

I like companies with no debt, or at least low debt. Small companies and debt just
dont go well together. Travel light, travel far.
Cash flow, not reported earnings, is what determines long-term value. Undiscovered
companies that can sustain 30-40+% growth rates from internally generated cash
flows are hard to find.
Look forowner-operators with intense Focus, Integrity, Energy, and Intelligence.
For a small microcap company to be a market leader, it must dominate a small
market. I want to own businesses that dominate a small market that is expanding.
This normally pushes quality attributes down to the financials.
Look for a clean capital structure. I look for low outstanding shares, all common
shares, and low amount of warrants/options as a percentage of outstanding shares.
You want to invest in a management that treats its shares like gold.
I prefer no institutional ownership. When you find and invest in great businesses
that bigger money doesnt own, the stock has nowhere to go but up.
Find repeatable, sustainable, profitable growth. My biggest risk as a microcap
investor is dilution. I want to find companies that are self-funding their growth.
Buy when the business is fundamentally undervalued to limit risk and to fully
leverage multiple expansion. Your margin of safety is buying an undervalued
business that can get overvalued.
What counts in the long run is the increase in per share value, not overall growth
or size.