Hello readers! I know I’ve been a bit absent lately, life has been crazy, and I do work a day job 😊. But I hinted at this in my last general discussion post and it’s time to deliver!
Today, I am announcing my new series, my Ultra Microcap Portfolio! This has been a series I’ve been wanting to do for a few months now but haven’t gotten around to documenting, until now. I figured, hey, I write a lot about investing and microcaps. But generally it’s only about microcaps with generally quite high market cap already. These are the usual suspects like AITX, SIRC, and ALPP.
However, a huge passion of mine is investing in companies that are minuscule, absolutely tiny! Companies that you could own a significant share in without too much of a monetary investment. I love scouring stock screeners and identifying promising companies that have market caps at or below $10 million dollars.
So I figured, why don’t I put my money where my mouth is and start tracking my performance investing in these ultra-microcap companies!
However, these companies are not all very well known and most of my readers will probably have never heard of these. So I’m very well not expecting this series to rake in the views, but I hope many of you find it interesting or learn something now about some new companies. These are companies that I think are doing the OTC the “right” way and I think deserve some recognition.
Anyways, let’s get into the basics…
How it Works
Here’s how the challenge works. I will create my own portfolio of these ultra-microcap using my own real money. That’s right, I’ll put my money where my mouth is here 😊. One other twist is I’ve actually been doing this since late last year. But to make this cleaner, I’ll have the clock start on January 1, 2022 when the portfolio was much smaller and was at break-even.
Now, onto the specifics:
- 80% of the portfolio value must be invested in companies with a market cap below $10m.
- To provide upside incentive, any new purchase must be a company with below $10m market cap. This does not include purchasing more of a company that has now eclipsed $10m market cap.
- All companies purchased must be at least pink current on OTCMarkets. If they lapse reporting and go defunct for a few weeks, shame on me. But I don’t have to force a sale into a dark market.
- I cannot invest in shells as defined by OTCMarkets.
- All companies must be US or Canadian headquartered.
- I am limiting myself from the following industries as I consider them more like gambling:
- Natural resource speculation – mining stocks, oil, etc.
- This does not include ancillary services, technology, etc. I’m strictly talking about companies purchasing land and speculating on resources.
- Research stage biotechnology
- Cannabis, vape, smoke, etc. companies
- Natural resource speculation – mining stocks, oil, etc.
- It goes without saying, but I am only limited to common stock. So no preferred shares, debt, etc.
- I cannot use options, derivatives, or leverage. That’s right, no shorting!
So in general, I have not restricted myself too much except for the market capitalization one.
This is probably the primary reason I’ve delayed announcing that I’ve been doing this, I’ve been a bit conflicted on reporting my performance. More specifically, whether I’d report nominal value earned or loss or just keep it to percentages.
For now, unfortunately, I’ve decided to just keep it to percentages. So all you’ll be able to see are how much I’ve earned on each stock on a percentage basis, my weight of each stock, and finally the portfolio return. I find that if I actually put how much money I’m investing in these, it sort of dilutes the actual purpose of this which is to show percentage returns rather than nominal returns. Maybe I will change that later, but we’ll see.
For now, I’ll give you some hints so you can judge how seriously I’m taking this. Right now the portfolio is about 5% of my stock portfolio, and I’m a late 20’s professional. So take that as you will 😊.
As a final note on presentation, these stocks are mostly quite illiquid. Because of that, I will take a very conservative approach and choose the final bid price from the last day of market close in the month. This will tend to skew the value of my portfolio lower, but it’s technically the value I could get for the portfolio if I wanted to sell it at a minutes notice.
So all of this sounds great, but what am I going to judge my performance against. In my mind, for the amount of risk I’m taking with these stocks, the S&P 500 and the NASDAQ do not have the same level of risk that I’m taking.
The Russell 2000, which is one of the smallest capitalization indexes out there, is probably about as close as it gets in terms of major indexes. So that’s one place to start, but it’s not quite enough.
The next closest, but not widely used, would be the indexes actually prepared by OTCMarkets. Given the market caps I’m investing in, the OTCQB Venture Index is the best index I could find that most accurately replicates the type of portfolio I’m going for. The OTCQB Venture Index tracks the performance of companies on the OTCQB, which many of the companies I could purchase trade on. This should, therefore, best capture a comparison to the risk-return profile of my portfolio.
In general then, if I can exceed the OTCQB, my stock picking is theoretically working. If not, then I was better off just buying the index. Now, before I get some “WELL ACSHSTUALLYYY”s in my DM’s, I am not aware of an ETF, mutual fund, etc. that actually replicates this index. So one couldn’t automatically invest int it in a few clicks of their mouse like with the NASDAQ, SP 500, etc. But the index exists nonetheless, and theoretically someone could replicate it.
So, to recap, my goal is to exceed the index full stop. So even if I’m 0.001% better, I’m celebrating.
Ideally, I’ll release a new article at the beginning of each month and will track performance on a monthly basis. But at a minimum, I’ll release results quarterly.
January to April 2022 Performance
Now that that’s out of the way, let’s get to the results! See below a summary of how I’ll present each month (I’ll look to refine going forward):
Just to be clear, this is from January 1, 2022 until April 30, 2022 for both the index and my portfolio.
As you’ll see, the portfolio right now quite heavily concentrated and is only in four companies. I currently have around ten additional targets that I am monitoring, so in subsequent months you should see some more diversity here.
My biggest winner, and I’ve been harping on this for a while, has been SKAS. They operate a tourist helipad in Manhattan and also provide aircraft related services at a regional airport in Kansas. This was my COVID reopening play as they got absolutely hammered by COVID and the lack of tourism in New York. I’m still forecasting more upside for this stock.
My biggest disappointment so far has been RJDG. They’re a holding company that owns two operational businesses: One that manufactures and installs countertops, and one that provides medical IT support and technology services. They always earn a healthy margin and grow revenue steadily even in the face of tight margins in construction. This company is stupidly undervalued right now and is trading very near its tangible book value. I have high hopes for RJDG and much more to come here, I hope!
AMMX and JNSH, my newest holdings after initially buying in April, have almost netted out to zero. More to come on them in future articles…
Anyways, performance wise I’m up about 15% since the beginning of the year. Honestly, with how awful the broader market has been, I’ll take it. Still, my sample size is still too small, and this could change on a dime given how volatile these companies can be. Nevertheless, I’ll keep trying to find value where I can and buy the dips.
In the future, I’ll get into some more of the stocks in my portfolio in a bit more detail. But since I explained the rules for 3/4 of this article, I kept this one short.
That’s all I’ve got, I hope this article was entertaining for everyone!
DISCLAIMER – AT THE TIME OF WRITING THIS ARTICLE I HAVE A LONG POSITION IN SKAS, RJDG, JNSH, and AMMX. THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES. I AM NOT A FINANCIAL ADVISOR. DO YOUR OWN RESEARCH.
1 thought on “Ultra-Microcap Portfolio Challenge – Intro to the Series and 2022 YTD Performance”
Thanks for the article.