In this episode of The Acquirer’s Podcast Tobias chats with Maj Soueidan, President and Co-Founder at Geoinvesting. During the interview Maj provided some great insights into:
- Finding Great Opportunities In Tier One Microcaps
- The China Fraud
- The Trend Is Your Friend: Momentum Investing
- How To Make Money With Penny Stocks
- Capitalizing On Stocks Coming Out Of Chapter 11
- The Bitconnect Ponzi Scheme
- The Value Of Combining Long Term & Short Term Investing Strategies
- What You Need To Know About Non-Dilutive Offerings
- Robinhood Trading
You can find out more about Tobias’ podcast here – The Acquirers Podcast. You can also listen to the podcast on your favorite podcast platforms here:
Tobias: You gotta do a victory lap when you win, mate. You get so few in this game.
Maj: It’s true.
Tobias: Hi, I’m Tobias Carlisle. This is The Acquirers Podcast. My special guest today is Maj Soueidan. He’s the founder and manager of GeoInvesting, and he’s the top-ranked member in the micro-cap club. We’re gonna talk to him about his 30 years of investing right after this.
Maj: I’m gonna talk about the really early years in my journey, at some point, my dad’s influence. I love him to hear that. My dad’s like 78 years old. And he had really incredible influence on me. So maybe we could have— [crosstalk]
Tobias: What did he do? What happened?
Maj: He’s who got me into this, my dad got me into investing. Eleventh grade, I actually had a paper investment contest, which really propelled me. But before that, I used to sit there and watch stock stuff with my dad, wasn’t really talking about stocks, I was just watching it with him. He would be in his basement, we [unintelligible 00:01:23] stock cave and he will come out, “Hey, I got this great stock,” and I’m like, “What are you talking about? It was IBM? “No, no, it’s famous artist’s brands.” Like “Who?” I was getting my first nano-cap lesson from my dad. I actually started– because of him– he gave me the book to read Peter Lynch from Wall Street. Because of him, getting jobs, investigate companies that I wanted to invest– industries I want to invest in.
So, he was investing in artistic greeting. I went to work at a famous artists’ brand which was a greeting card company. And just watching my dad do it, but watching him do it in a way that was– he was never stressed out about it. I remember the ’87 crash and the Gulf War stuff and he was always like, “what shall we buy?” I heard him say that. It was interesting to see that whole calmness in it. So, I saw him go through that. He bought an OTC stock. Wall Street Journal had a section for OTC stock, I didn’t even know that. My dad showed me. They track your highs and your lows, the Barron’s and then your Wall Street Journal. I don’t even know if it’s called OTC at the time, they called it something else, section. My dad is like, “You’re hunting over here?” So, I started buying OTC. He got me right into it.
Tobias: How old were you when you started?
Maj: The first stock I probably bought was probably 19-ish but I was investigating four years prior, like doing investment contests and really saving money obviously. The first stock I bought coincidentally was during college was Storage Technologies, symbol was STK. They’d just come out of Chapter 11 bankruptcy. So, my first stock I bought was– nothing normal. My core bucket was this thing, and I made like 50% of my money on this thing real quick. But funny story is that 11th grade, when I was in that stock contest, I bought that stock and put all my money in that one stock, concentrated investing, boom. And I didn’t know they’re going through a Chapter 11 process. So, I lost it all.
So, my first lesson was to do your fucking research, dummy. [unintelligible 00:03:42], the first stock I really bought was STK out of bankruptcy. I was like, “Wow, there’s a lot more than just what they teach you in school.” But my dad put me into kind of look for these obscure things, these stocks, ideas. I’m glad I wasn’t just introduced to buying IBM, Intel, and all these big-cap names. It’s not fun to me too.
Tobias: Yeah. They don’t move enough, up or down.
Maj: No, they don’t. [chuckles] Yeah. My dad is still investing today. He still has his passion for it.
Tobias: What’s he like? What’s sort of stuff’s he– same thing, micro-cap?
Maj: He’s changed a lot. He’s changed. He’s micro-cap still, but he does a lot of biotech stuff. He’s done pretty well at it actually. But he buys some bigger stuff now too though, as he got older. It’s good to see he’s still doing it. I hope to be able to do that myself when I’m 70 or 80.
Tobias: 70 is young if you’re an investor, you’ve still got 20 years. It’s 20 years, you’re still running it easy.
Maj: Yeah. He told me actually, we’re going through the whole COVID crash, so I’m done. I sold everything. Two weeks later, sending me like stock things, he’s already back into it [laughs] and buying stocks already. So, it’s fun to watch it and I’m really grateful that he put me in that path. He gave me the book. The day he gave me One Up on Wall Street was the day I was born in this. I was a full-time investor that day. I read it two, three times like that. He gave it to me the summer, I think, in my freshman year, and you’re off. Me and my buddy took a road trip to Alabama. I just read the book twice.
We’re taking this road trip to Alabama from Philadelphia, it’s a long trip, to visit his ailing grandparents. All I’m thinking about the whole time is, “I forgot the book.” I’m on this long trip without the book. We end up seeing his grandma and grandfather, seeing them off. Decided we’re gonna keep on going to Florida. I think it was Memorial Day weekend. We’re just gonna go to the beach and just party. There were no rooms, you couldn’t get anything, I was sleeping on the beach, checking the stocks, sleeping a pelican in front my face. It was amazing time, getting that book, road trip, nowhere to sleep, nowhere to shower, [unintelligible [00:06:20] book and I got home I was born into this whole investing thing. I’m just so glad it happened.
Tobias: That’s great.
Maj: Someone had called me who’s in the industry in terms doing all the proxy stuff and everything. With the whole Robinhood thing, in trading, you can trade fractions. You can buy shares in fractions, no commissions. So, if you open up a Robinhood account, you get these free shares. You never gonna sell them. You’re just like this millennial, I got 0.0005 shares at Tesla, I’m gonna keep it for my trophy. See you take a float away from the market. And then I was learning the proxy laws are all screwed up, where—
Tobias: Oh, yeah. How do you vote them?
Maj: You had to vote them. Here’s a situation, the way the pricing works and what a company pays to like a proxy company, doesn’t change it. It’s per person, it’s a per fee per proxy.
Tobias: Oh, no kidding.
Maj: He was showing me like, “Hey, look, I have this nano-cap company. [unintelligible [00:07:31] now it’s got all these shareholders now, because Robinhood just gave away all these free shares. Robinhood makes money because Robinhood even makes a deal with the proxy guys like an ICR, for example.
Maj: Yeah. We’ll give you our stuff. They cut a deal. The more people who own shares, the more money. It’s this whole thing going on. And so now, you take that, combined with– there’s incentive to keep creating these, this buy volume. There’s incentive to give away free shares. They’re so miniscule, you’re not gonna sell them. So, you take a float out of the market too. I think that’s what’s probably going on. Between you and me, Brian from ISDR called me and talked about that. He was one of– I read an article on it, maybe or something. He’s torn, because he’s making money from it. Brian, he does all the proxy stuff at the end of the year, forex and he’s like, but margins isn’t right.
I was at a bachelor party. This was before COVID hit. And I’m sitting there getting like [unintelligible [00:08:47] drinking the shots, whatever. This girl is like, “What do you do for a living?” I go, “Well, I’m a full-time investor.” “Oh, really? I’m investing now.” Well, here we go. She pulls out her Robinhood, what do you own? Tesla. She’s like, “I don’t know what I’m doing with all this stuff, whatever. I have all these stocks. I’m an investor now.” And she’s happy about it and she’s never gonna sell the shit.
The Bitconnect Ponzi Scheme
Maj: It’s the same like with a crypto, you saw all these people getting all crypto, who had no idea what they’re buying. The dangerous thing here though is there’s actually a really good market for stocks, and up the stock market and the way it plays out. It’s not fraudulent the way crypto was fraudulent because they had to end because it was a fraud, you own nothing.
Tobias: I don’t know if crypto has ended, some of its ended, but I think that Bitcoin and Ethereum and some of the bigger ones are still going strong.
Maj: Yeah. I do believe in the whole blockchain and the revolution there at some point. I own some Bitcoin, Ethereum and Litecoin.
Tobias: The more they torch the currency, the more you gotta start thinking about the alternative ones.
Maj: I’m amazed. What’s gonna happen? Maybe nations are gonna adopt their own cryptocurrencies. And I don’t know what that does to a Bitcoin or Ethereum at that point. [crosstalk]
Tobias: They’re just mediums of exchange. They’re just currencies.
Maj: I can’t believe they haven’t gone up more. I remember watching this, I’m like– those Altcoins. Did you watch some of those pyramid scheme?
Tobias: There’s some shit coins out there. You call them Altcoins, Shitcoins?
Maj: [laughs] Yeah, Shitcoins, yeah.
Tobias: What was the story there?
Maj: I play guitar.
Tobias: I can see it.
Maj: Things are peaking when you have it. Back in the earlier days, it was dotcom. You’re at a barbecue and someone’s talking about, “Oh, I bought this dotcom company.” Two weeks later, it’s crashing. You have all these wonderful little kind of signs. I was taking guitar lessons one day. He knows I’m a stock trader, my guitar teacher. He’s computer’s all up for his musician stuff, recording. I walk in one day, I see charts, “What’s going on here, dude? That’s crypto, right?” “Hey, I didn’t tell. For the last six months, I’ve been doing crypto and I’m doing crazy, man. Look what I’m buying over here.” It’s not really intelligent. Okay, here we go. But he was making all this money in this pyramid scheme. Basically, what it ended up being where it was called Bitconnect, if you wanna look it up or something.
It was a situation where you would participate this ICO. You buy the Bitconnect crypto coins, whatever. And then for owning that, for keeping them there, they would pay you interest on that. Just for owning it. Nothing else going on. You own this, we’ll pay you 1% a day. But you can’t withdraw your money until three months. In three months, bring people in. They said they were investing in crypto and investing in algorithms, all the stuff. But they were just taking the money and pocketing it. If you got it really early, you’ve could have a lot of money [unintelligible [00:12:02].
But what happened then was, it was probably the same outfit doing this. Continue to open other of these little Bitconnect type of different names, pyramid scams. I forget what they were calling, money lending or whatever they were called, some kind of weird name. And they finally blew up. Cryptocurrency bubble really obliterated at that point, because all of these millennials are putting their money in that shit. It was interesting watching and the SEC, they couldn’t do much about it. These guys are all hiding. They don’t know who the hell they are.
Tobias: I knew it was very, very frothy when I was at an Apple Genius Bar, waiting to get– I can’t remember what it was, getting something fixed and the dude beside me, he said, “Do you wanna see something crazy?” He’d filmed himself buying crypto with a credit card on like a crypto ATM in the mall. And like there’s so much volatility. He was showing me as he was buying it like it moved. This is when it was like 20,000, like it was right near the end, right near the very peak, and he showed it was moving like 1000. It was chopping all over the places, he was trying to buy it and I was like, “What did you pay for it?” He’s like, “Oh, I don’t know.”[laughter]
Maj: This is awesome, man. Yeah, I mean it was an amazing weird time. I was definitely intrigued for a while. I still like the Bitcoin and all that stuff, but I was looking at these– because you had some like reputable investors like Temper. Was he investing in some of this stuff? Investing in some of these Altcoins, like okay, but they actually owned an asset because they were pre-Altcoin. They were buying it. They actually own an asset but when you went and bought an Altcoin in a project, you own nothing. That was the beauty of it for the founders because [unintelligible [00:13:59] give away allegedly. They give away no equity when they sold the coins. And it made no economic sense at all.
Tobias: I get it from the perspective of– if you were looking at going and doing– this is germane to the discussion. If you’re looking at doing micro-cap, and there’s some sort of underlying business, if you could get some sort of coin instead of a shareholding and you could get the flows from the business and pay it up through the coin, that’s an interesting idea. I can see that. There’s no reason why it has to be outside the regulatory system. It could be inside the regulatory system, do it properly.
Maj: That’s the key. Can you give us the cash flow, right?
Tobias: Yeah. [crosstalk] –interesting.
Maj: That’s how it should’ve worked, very much. And you can dump that on the ownerships, which is great, but still let people to collect dividends. Yeah, I’d love that if that were the case. I’m wondering that’s where it will go eventually here.
Tobias: I think that makes a lot of sense because it solves a lot of problems. I don’t know how you vote through something like that. Clearly, proxy is an issue and some of the rights attaching to it. Maybe, it’s too complicated for that kind of thing. But just an interesting thought, just one I’ve heard.
Maj: You could maybe have like non-voting– [crosstalk]
Tobias: That sounds great for the issuer!
Maj: Yeah, it does. Maybe there’s some right to the cash flow still, like dividends, without the voting rights?
Tobias: It’s like a [unintelligible [00:15:25] something like that.
Maj: Yeah. It’s pretty interesting.
Tobias: I saw in the thing that you said, you’ve been investing for 30 years full time?
Maj: Yeah. So, my investing journey started when I was in probably 11th grade high school. I was investing my first second semester in college, real estate investing. And most of the money I was making came from– I still had the odd jobs and stuff, but I always considered myself to behave, everything else I’m doing is part time, working at Vanguard and stuff. But my really full-time gig where I just said no more other income was 1994. So, it’s been a long time.
Tobias: How were you supporting yourself?
Maj: Gee, man. If I told you, you wouldn’t believe me.
Tobias: Well, tell it. That sounds like a good story.
Maj: During college, I used to have like 3000 bucks by working, I wasn’t really investing. Still learning the craft and stuff, doing my investment classes, and not getting a lot out of my investment classes really. I would spend most of my time going to library, reading Value Line, do the Barron’s thing, tear sheets. My buddy, he had a good friend who worked at Dean Witter, working with Dean Witter at the time. And I was in a car accident, I broke my leg, my ankle, I couldn’t do anything, so I ended up getting an internship during the summer doing cold calling at Dean Witter. I would just get that out away, made no sales, I was horrible at it. I just read up everything, “Oh my God, look at this information, I don’t have—” actually this is back like in the late 80s, I didn’t have this.
I was like, “Oh my God, the Value Line is great, but look at all this stuff here.” So, I started getting an interest in looking at what value these institutions had and is awesome to have it. I always learning to pay for your research, just do it. I started really getting my first inkling there. I just do the math in my head. If I get a really cheap apartment and get a decent job, invest, work at Vanguard, save $30,000 while I’m doing both of those. I wasn’t making much at Vanguard at the time, so I can probably replicate $30,000, $40,000. I was cocky. I had already had some success on paper and playing in contest. My thing was doubling my money, keep doubling it.
Tobias: Yes, good approach.
Maj: [crosstalk] Yeah, just double everything, just do it. And can it be done? At that time, the environment was different than it was today, in terms of this appetite for nano-caps, micro-caps.
Tobias: What was the difference?
Maj: The environment was just totally different. There was a really good solid retail base investors who could buy these things. You had a lot more brokerage firms that will allow you to buy these things. Institutions could buy them. Since 2008, things have changed tremendously.
Tobias: Why 2008? Why do you think that’s the turning point?
Maj: If you were investing in these illiquid nano-caps, you got destroyed, if you weren’t able to hang in there and you never want to come back to them. It just destroyed a lot of psychology, a lot of accounts. And institutional investors who traditionally would invest in these things, they probably think enough of this. They look– and then you had brokerage firms start to limit your ability to buy the stocks, making it really tough for you people to get involved. So, you had this whole chain, which we’re used to really good, it worked. You get in early as a researcher, a nano-cap guy, you want the first retail investor to find them. And all these other retail guys find them. These are all quality companies, they’re not talking the pump and dump stuff, like today. It was working.
Then institutions come in at $5 a share because it’s not a penny stock anymore. They come in, and you sell to them. It was this beautiful flow and it would really work. Why I was able to support myself in that timeframe– I left Vanguard, I have $30,000, it was I think February ’94. The first month, I made 30, 40 grand, just investing in quality, value, momentum type of a strategy. If I told you the stocks I was buying, like what the heck? But they were the real companies. And this is all before dotcom. And I kept doubling my money every year for several years. But it worked because the value I saw at least or the formula we had, if you used the Lynch Formula, P/E to 25, PEO of less than 15 non-trailing, 4 is undervalued, 25 trailing’s undervalue. I was a bit Peter Lynch fan. It worked really well. And there was a lot of inefficiency in the market so you could find these stocks early, inefficiency in nano-cap and micro-cap space.
So, it worked well. I just keep doing it. I just doubled my money and it was working, but the key was that it happened fast. Now, I don’t wanna say– I’m not a day trader at all, but I don’t like to look long term, but at that point in time, that period of time, you could buy these great companies at inflection points of growth, not worrying about the three years prior, having to just wait [unintelligible [00:20:52] cycle. Get in there and within six to nine months, what you think the stock is worth for the short term will be realized because you had this chain of constant liquidity coming into these stocks and discovery. That’s how I was able to do it. And then, 2008 came along, everything changed.
Tobias: Yeah. I think it’s sort of started a little bit earlier that because I think Sarbanes-Oxley made it so much harder to get listed. Then I think a lot of those companies that would previously have gone to listing as micro-caps, they just raised another round of VC and they held on for longer, because you had to get bigger to be able to pay for the extra million dollars a year in compliance costs that Sarb-Ox put on all the listed companies, and it just got too hard to go public at that stage. So, do another round of when your private get like that scale bigger and then, so all of those opportunities disappeared for small and micro-cap.
I was working as a lawyer through that period. I was in Australia, but we had companies that had listings in the States, either debt or equity, and they’d come back. When we started doing these things, we’re doing the 20-F filings and there were just– the cost for us to prepare them were just getting astronomical and there were just like, “Just get us out. just get rid of that listing. It’s too expensive.”
Maj: It’s so true, man. And then what you end up doing is, as like I’ve been through this whole period, there’s no good stuff, there’s no good new IPOs. The China thing, we ruined the whole reverse merger market. All the quality stuff is this all legacy crap from back in the day and I’m buying all these, I like it, a lot of it. But it’s funny that you don’t see any new stuff that you’d wanna buy. Personall, I don’t at least in the IPO land and that you just don’t see a lot– anything that comes out is this crappy–
The China Fraud
Tobias: Is it just the States? Do you look globally because you’re GeoInvesting?
Maj: Yes. When I launched Geo, the intent was to go– we’ll go everywhere and then we got caught up in China fraud and it was like– once I [unintelligible [00:23:02] that China fraud, you know what? I don’t know if I wanna go emerging market right now.
Tobias: Tell the China fraud story.
Maj: Yeah. The China fraud story is good, man. I was investing in mainly US companies and then I want to say around, I don’t know when it was maybe, but somewhere in that 2000, maybe ’04 or ’05, I started seeing some of these interesting companies trading on the OTC. There were a few that were listed, but like P/Es of 5s and 6s and crazy growth, mostly because it is OTC. So, you started seeing this, you started interviewing management, you could trust the SEC documents that you’re reading in the filings. So, I had the market eventually figured out. I understand there’s a China thing and there’s gonna be a discount to that. I was actually very long in this space. But they weren’t really moving much. In my nano-cap area, they weren’t moving much. I wasn’t really grinding it to know enough early on if there was a lot of fraud going on. But what I ever owned was just sitting there always, the violations continued to stay low.
Then what we had was, we launched Geo, I think, 2007, so basically a wonderful time to launch right before the crash, right?
Maj: I was like, “Wow, this is just incredible.” All this great US stuff, all this China stuff, let’s launch Geo to bring this wonderful information to people and we’ll share it, and it’d be great. It was a free site at first, Geo was free. And I really wanted to [unintelligible [00:24:39] good ideas going and everything. They still weren’t moving much. And when 2008 hit and all the US stuff’s getting just crushed. While we’re sitting here in the US, arguing about what to do and not being able to agree on what direction to go, how to cure the economy, politics played a role, China is right there, just pumping, stimulus, giving money out, united front. And these stocks all got found, really fast. People still wanted to invest money. And they found them in these China stocks. 2009 for us was all like a big China move.
Geo was great. We had long. “Hey, we’re here championing China, it’s okay, US will come. In the meantime, invest in China.” We’re running long pieces, looking like idiots, [chuckles] a year and a half later. And then it was like, I just started going to these conferences, and start meeting these people naturally. I’m meeting these CEOs and CFOs of these companies. Something wasn’t right. They wouldn’t speak and they had a translator but you could tell the way they were answering all these questions was almost like, whatever.
Tobias: Bit cagey.
Maj: Cagey, will say yes to whatever you want. And it was getting to that point where I just kept hearing it, never any negative thing from any of the companies. And you started hearing like at one company say, “Yeah, I’m a leader in this industry.” Two doors, “I’m the leader in this industry.” [crosstalk]
Tobias: Same industry.[laughter]
Maj: Yeah, same industry, he was a leader. But it started getting interesting. And then we start seeing some– Alfred Little, if you remember him, The Ghost. We call him The Ghost, but his name is Alfred Little, actually Jon Carnes is his name.
Tobias: I didn’t know.
Maj: Yeah. And then you had Muddy Waters come out with some stuff. We started– maybe, “Hey, we don’t think we’re wrong yet, okay? But we’re willing to at least prove the short sellers wrong., at least not be blind about it.” So, we decided to go that route and hired a PRC attorney who has actually lived in the US, but started working for us at GEO, just helping us understand the legal framework of things in China, some of the accounting, he was really well versed in financial accounting also, financial analysis. So, it was really a good thing for us.
I took place in a private placement. I was buying some paper from somebody who took place in a private and I just didn’t feel right about the way how that conversation was going. And they were such in a hurry to sell it to me. It was like $1.50 but there was so much growth coming. And that was one of the companies we actually busted later on. It was the last company really busted in China. So, it was cool.
Let’s go to 2010-ish. I think it might have been the summer of 2010. We’re still making money going long China, a lot of it. But more you know, skepticism is coming out. At this point, I had the attorney give me a letter, at least an opinion letter on corporate structure, filings in China. So, a lot of times what we were doing was we were referencing SAIC filings, which are filings in China that are filed at the provincial level. So, a Chinese company has to file– that does business in China, at every place, they do business I guess, at the provincial level, they had to file these filings. And then they aggregate them and then you have a consolidated number you can get. So, you can get these things relatively easily. Those numbers weren’t matching SEC filings, the numbers by drastic amounts.
So, of course, the management teams of these Chinese companies, the investment bankers, reputable bankers, it’s all because of gap, US gap accounting versus IFRS accounting versus China, it’s all different. It’s nebulous. How do you prove it? Most of us are actually going, “Yeah, that sounds right.” It’s in the FCC docs, auditors signed off on it, lawyers signed off on it. You got a reputable investment banker. That’s what I’m gonna believe. We’re not gonna believe these bloggers writing about it. But that went as far as, our PRC guys are like, “No, everybody else is wrong. These things do matter sometimes. And here’s when they matter.”
So, that’s how we started getting– we started trying to say, “Okay, here’s when fraud does matter. But here these things do matter.” Understanding corporate structure, VIE structures, when the filings matter, when these numbers are accurate, representations of the company, and we wrote about that, And there were still people who didn’t believe us, so okay. And then I had greatest college kid called me one time and he says, “You know, I love what Geo is doing.” This is the summer of 2010. “I’m bull on China like you guys are. I understand you’re still a little pessimist in some areas but send me to China. And let’s look at these companies.” I already had a smaller China team starting to percolate there with our PRC lawyer guy, so let’s do it.
We thought 50 companies, say, “Go do this.” And within like, five days, “They’re all frauds, get rid of them all.” He looked like a tier 20. The following few days, I went through every one of our company– we had a lot of coverage in these companies. I wrote a note, suspending all coverage on these companies that [unintelligible [00:30:41], we’re a little worried. And for every company, we went through and wrote down our concerns now with each one, it was a really laborious process. And then we said, “Okay, you know what? It can’t all be frauds.” Empty factories, cagey related party relationships, feudal between brothers, it was all this weird stuff, man. You couldn’t script it better.
So, I said like, “Let’s still do the right thing. We’re still long, guys. We’re not short sellers yet. Let’s at least not work with investor relations firms. Let’s work with investment banks. Let’s help you find the fraud. We’ll let you know what companies are fraudulent so you can drop them. We do the right thing.”
Well, when you realize that 80% of these are fraud [unintelligible [00:31:42] whole income stream, they all say yes. And then when it comes really down to it, we finally got one or two firms to say, “Yeah, you know, what, show us we’re frauds and we’ll do that.”
Tobias: But it turns into a risk for them at some stage, right? They gotta be nervous about the fact that they’ve been associated with this fraud. You wouldn’t welcome that kind of insight from somebody else.
Maj: Yeah, we hope so. But then you got behind disclosures. Never trust a fucking [unintelligible [00:32:11]
Tobias: But once you become aware of it, now you’re really on notice, now you know.
Maj: The tough decision, the SEC [unintelligible [00:32:26]. You have GeoInvesting telling you as a fraud, with all the evidence. Then, you have the CEOs showing you their evidence, like filings in China and stuff. The regulators are also in a tough situation where they can get sued. Then, I think the NASDAQ’s been sued. But I don’t think that’s why they didn’t. It’s all about fees, but there is still a fine line there.
What’s sad is that it’s just happening. We’re not 10 years removed from this whole thing, when this fraud began, and regulators still haven’t really taken that information. All the tools that we used, Muddy Waters, Citron, Geo.
Tobias: What about Kerrisdale? Did you see them in there?
Maj: Kerrisdale is great, man. Yeah, I could see them. He was one of the pioneers for this whole thing. Using the information that we all used to put together a template that the regulators say, “Here, every company that wants to come here in the US and list from China for example, here’s a checklist that auditors, lawyers have to have to follow, investment banks, before you bring the public here. For Christ sake, make sure they have their licenses to operate. The simple things. Make sure you actually have cross checked an SAIC filing with an SEC filing.” And they still aren’t doing it. Just two weeks ago or three weeks ago, I think they’re gonna pass– Congress is trying to get through some law passed now to basically and might just look at, in my opinion, to delist– if you have any ownership in your company that’s bought or controlled or ownership by a state-owned enterprise or a government entity in China, you can’t be listed here or if you don’t allow your auditors to be inspected, you’d be delisted.
Well, the reality is that auditor thing was always here. It’s been here for 10 years. Okay, so that’s not new. And then what they said in the ruling was, I think, more like, you have to attest that you don’t have any ownership interests from– [unintelligible [00:34:48] fucking why. Furthermore, it’s about like a three-year process to get these things delisted potentially. So, there’s so many more things you could put in there. Make sure [unintelligible [00:34:57], make sure they have their licenses, make sure– you’ve gone through this whole of the red flag list, make sure it has accountability by investment banks if you do bring this stuff here. All of these not gonna be any kind of incentive, it’s gonna keep it going.
Tobias: It’s hard if you’re– I admire the fact that you’re able to switch from long to short, those companies. I had a little bit of experience with them as a lawyer. We had some companies that wanted to set up operations in China, and we went and helped them do that. And it’s a very different process to the one that I was used to in the States and in Australia where it’s a lot looser, the structuring is a lot looser. There are some weird intellectual property rules where after, I think, five years that the entity owns all of the intellectual property of the parent company, which you don’t want that as a– there’s some very odd things in it.
And it was all documented and it was a much looser structure than I was used to. And so, when I became a full-time investor, when I found them as an investor, you’re conditioned as a long guy, to look at things that everybody else has sold this thing off. You still think it’s cheap and it can work and so you’re trying to look through and see like “what is it that everybody else is seeing that I’m missing?” With the China stuff, it was hard. Maybe, it’s just the fact that these are Chinese companies like they’re just off the run. Nobody really– it’s a weird structure. Maybe, that is the thing that is depressing them.
But then, so I made some mistakes through that long stuff that got blown up. But they were big funds in Los Angeles. I won’t name the name of the fund, but I think they put in $100 million into Sino-Forest like two weeks before it blown on. And they went as far as to send an analyst to China to look at the forest. And they said there’s the forest. They just didn’t own the forest. What can you do?
Maj: Right. We actually wrote an exposé on a cemetery company, same thing. Here’s our cemetery. Well, it wasn’t your cemetery.[laughter]
Maj: [unintelligible [00:37:04] who do you believe? Do you believe Geo or do you believe the auditors from the regulator’s point of view? It had to get to the point where you eventually had to do so much work to get it done. And it was worth it then because these were 100% frauds. So from a business point of view– so we eventually ended up having to short these stock so because no one was paying us to do due diligence. We weren’t gonna get funded by anyone. So you know, what, if we’re gonna do this– is we want to clean the space up still, we wanted to clean up, we’ll start shorting and so we started shorting these stocks.
Tobias: Let’s talk about Geo little bit. What is Geo now?
Maj: When we first launched, the real single-line mantra was to bring institutional-type quality research to the everyday investor, bullish kind of ideas. And then moving forward, as we went through the whole China phase, now it became– we wanted to do that still but also have portfolio protection. Letting our members know when we come across fraudulent companies. Well, not even fraudulent but maybe some red flags before you invest and it’s more of a learning process. We teach our membership base how to look for great companies, but also how to identify risks, how to know when certain risks are worth investing in, and maybe some aren’t. And through that process– and we’re putting out constant research all the time with that, every day.
Our research becomes like a learning process when we do it. Then, it turned into a situation where we were short sell. We were known for being short, because nano-cap, micro-cap, that’s not sexy. And you were doing a great job there, everybody forgot that we really were. There was that period of this, between like ’10 and ’14, we’re these short sellers guys. The last few years, I’ve been trying to rebrand a little bit. That made us better investors. It was something we had to go through. A, because we were long in these stocks, we thought we had to go short or at least tell you that we were wrong in that and help you understand the risk. Along our path, we started exposing pump and dump stocks. Based on all [unintelligible [00:39:17], we exposed 12 US-China frauds and 22 pump and dump stocks along the way. So, I think that we’re in a position that’s “Hey, we’ve done it all. We finally won, but we’re not blind longs.”
So, what Geo is today is more of, “Hey, we’re still 100% all about going long, being bulls, but also understanding when you identify risk, we should let people know about it.” And more of a risk portfolio protection pieces, we’re not always out there putting out short pieces all the time anymore like we used to.
Finding Great Opportunities In Tier One Microcaps
Tobias: It’s been a bit of tough time to be a small micro-cap investor. It’s such a beaten-up, bombed-out part of the market at the moment. I don’t know if we’re at the bottom, but I think we gotta be the—it’s stretched now. Do you think it’s starting to look interesting?
Maj: Yeah, I do. 2019 was a very interesting year. You started like mid 2019– everything I talked about, this whole like chain of events, making it tough for the micro-cap sector to keep getting the retail investor institutions, well, I think it’s just got to a point where it’s just– the bloating of these big cap valuations, the pump and dump, this whole shit with crypto and [unintelligible [00:40:36] played that the money has to go somewhere now. And then the smart money knows probably at this point– that the smart money’s in this little nano-cap, micro-cap arena, I call them “Tier 1 Quality Companies,” we call them.
Tobias: What makes it a tier 1 quality company?
Maj: There’s like an interesting checklist. If I had to tell you, have some revenue, you got revenue at or near profitability. But one of the biggest of these is capital structure. We’d like these companies to have really nice capital structures where share accounts aren’t bloated. So, in the US at least once, we start getting to this, like, hundred million, I’ll say [unintelligible [00:41:17] companies, it’s been our experience that they’ve just like been at a low-quality micro-cap, it shows that management had that that dilutive stock for years to grow or try and grow and they’ve been unsuccessful at it. So, it’s a hint to us.
And then there’s this usual– we want companies that have revenue and are near profitability or at it, that don’t have to continually tap the markets to raise money. And preferably, it’s been around for maybe 10 or actually 15, 20 years, these old school companies. There’s a lot of them out there. So, if you had to [unintelligible [00:41:57] really small or I’ll even put a turnaround company in a tier one if we think it’s going to get to that– gravitate towards that level of confidence.
Tobias: So, 100 million shares on issue, why don’t they just do a share recombination, whatever that’s called.
Maj: Right. So people ask about– so let’s just do that. And what we like to look at too, is how many of those they do. A lot of these companies will keep doing this to make themselves look better. But then we’d look, if these guys have done five reverse splits, we know what they’re up to. The reverse split, issue more shares, dilute the hell again, stock goes down, pump it up, reverse it again, you see a lot of that now.
Tobias: What’s the issue with them? Is it the fact that they’re just not making enough money to– they’re just not getting the escape velocity that they need to justify the cash they got in them or is it that management’s just ripping out too much cash?
Maj: I wish it was like your first thing you said there because that would mean they actually had an intent to grow but I think what it really is, I think it’s a game. I think there’s more money to be made in the pump and dump game for some of these companies than actually running a company. Let’s make ourselves– the pump and dump game has changed so much over time. It’s obviously fraudulent companies that had maybe nothing going on, no revenue with the mailers, pump and dump mailers. Now, it’s actually listed companies that have a pad, have a license, have a product, maybe they realize it’s just too hard to grow anymore. We have this wonderful asset in a public company. Let’s just keep this up, let’s just pump it, make some money, do it again, do it again, rinse, repeat. That’s a theory of mine.
Tobias: I think the pump and dump’s gone up market. I think that Moderna, they released the preliminary results of like a 15-person trial. Then that afternoon, you drop a one and a half billion-dollar capital raise on the market. Well, I’ve seen that a million times before in smaller micro-cap land. I’m not falling for that one.
Maj: Look at genius down here, the GNUS, look at that chart this week. It’s got the Netflix for kids. I think it’s been around for some time, and they had an offering at two, three bucks, that’s 11 bucks today. It went up into the offering, after the offer was announced.
Tobias: This is a very fluffy market.
Maj: You would never see that like 20 years ago, man. Dilution is bad.
Tobias: It is a late 1990s thing. We’re doing a placement, we’re doing an issue, we’re gonna have some cash and all of a sudden, the stock, it rallies on then.
Maj: Yeah, well, it’s been there for 10 years, this whole thing.
Tobias: No news is bad news in this market, like just sending out a press release saying, “Hey, we’re still here,” market rallies on that.
The Trend Is Your Friend: Momentum Investing
Maj: I got off track, I’m sorry. I think we are at a point now where it’s– the smart money is starting to find these companies, and the retail investors are probably buying Teslas and stuff and everything and we talked about that earlier. So, I think that’s really good for us. And actually, seeing the momentum kind of– when I was first– early in my career was a great formula, I would look for momentum companies that were still undervalued or going through turnarounds, whatever. And it works really well as timely. Before COVID, we were kind of there, I thought. A lot of these wonderful companies were being recognized relatively– their value is being recognized quickly with our investors, we see a lot of value coming into that. There’s a lot more liquidity coming into that space.
Tobias: How do you define momentum?
Maj: The new high list, 50-week new high list. I would just use that. Sometimes, I’ll use a three and six-month high list. But when I was– In my career map of 20 years, I thought I would use– it was 20,000 stocks there, how do I reduce the universe? I didn’t like to squeeze too much data, you couldn’t trust the data. I was like, “If I can find companies hitting new highs and find the reason they’re doing it, is it bullshit or real, and they’re still undervalued, maybe that’s telling me there’s an inflection point going on here, the herd mentality. So, I could buy great companies that everyone else is gonna buy and I could make money really quick.” That’s how it was in that 10 to 20-year period for me.
So, that’s how I define momentum. And I think it’s working again actually. It’s still working in the small cap, big cap, large cap area for the last few years. But it stopped working in the micro-cap, nano-cap land. So, last 10 years, I started “Alright, you know what? Let me reset a little bit. That’s 12 years. Let me start treating investment like an art again, like an art. Let me go back and find these companies well before they get highs.” And because the strategies, the quality stuff isn’t hitting highs anymore. It’s all shitty quality. I’ve learned to become actually a much longer-term investor which I love more than ever nowadays. My longest hold is 13 years now. Back then, it was probably nine months when I first started. Now I combine, “Okay, let me find these hidden companies, four or five year– get price I’m never gonna get, establish small positions then. And then as everything’s proven, plan is proven, method comes in, I really jack it up, maybe even sell on my method now. I’m being patient, I might just sit three or four years without making money, but, man, if you can get really great price, it’s worth waiting instead of buying it three times higher at the inflection point, the minimum.”
Tobias: So, previously you were hunting for them on the 52-week highs, how are you finding them now?
Maj: Yeah. I love it. It’s fun to me, but I still do it. So, our team, we’re reading press releases. Every nano-cap press release that comes out, we’re reading it. All the SEC fillings, as long as they have 50 million shares outstanding or less, we’re gonna look at you and read your press release, read your earnings report, read your conference call transcripts, and call management where we get it down to like a 10 stocks on a bucket through our research process. I know it sounds like– well, the new high thing it was only a way to take 20,000 stocks and reduce the universe. We don’t need them all. I think I’ve seen people working with the new low list. You could look at that new low list probably and still run the same kind of analysis.
The Value Of Combining Long Term & Short Term Investing Strategies
Tobias: I think it’s a good approach. It’s one of the things that value guys– it’s a trap for value guys that they wanna go and look at the 52-week low list because they feel like you’re getting a bargain. Wes Gray told me this one that the momentum is real. So, if you’re buying stuff off the 52-week lows list, you’re buying stuff that’s got negative momentum. You’re buying stuff that’s likely to go down over the next 12 months. Whereas 52-week highs list, that has positive momentum, it is likely to be doing better. And then if you can get it cheap there, that’s a pretty good strategy. That’s a solid strategy.
Maj: It really is. There’s nothing wrong with making money short term. There’s nothing wrong with that at all.
Tobias: I like long-term ones that turned into short-term ones.[laughter]
Maj: Right, yeah. [unintelligible [00:49:17] when you talk to somebody about– a pure long-term investor that you invest short term [unintelligible [00:49:26] you’re down here. Well, yeah, we wanna make money. So why don’t I have a little bit of everything? Why don’t I have a portfolio that can like have your long-term core holdings that are gonna multi-bag over the next 10 years, but what about these other ones that can double short term. And that’s kind of how position my portfolio now, over the last 15 years or so.
Tobias: It’s just the way that it moves sometimes. I do a whole lot of work to figure out this. I think if something’s gonna make like 13%, I think I can compound 13% over the next three to five years. Sometimes, you get lucky and you get all of the gain in the next quarter, like what am I gonna do? Hold for five years to get the IRR that I predicted when I first bought it? No, I’m gonna cash it in now.
Maj: Just so you can say you’re a long-term investor?
Maj: No, you wanna take your money now. Well, what was funny though early on, I was reading a lot about different strategies, I totally thought that buying the stocks at new lows would be interesting. That’s why I went into it first. A couple of months or a few months, I took the new high list, new low list and put it all together and tracked them all. And didn’t really see any kind of advantage of doing that right. Maybe even worse. Then I said, “No, wait a second. So all these value investors, that’s your definition, are looking at new lows and shitty companies, so they’re not looking at new highs. I have less competition from really good guys.” Probably actually, a good analysis.
So, you have–I thought, “All right, I could probably [unintelligible [00:50:57] with some maybe less savvier guys maybe.” I’m not saying that to be rude at all. So, I thought, “Okay, the really smart guys are over here.” And I thought, “Well, what if I can be over here and, like you said, find great value?” You can be a value investor looking at new high lists. You’re just trying to find value, man, at any price. And whatever you can do to make the process easier for us to get through that works for everybody, let’s just do it.
Tobias: Well, that’s really the trick. You have to separate in your mind what the price has done over the last 12 months and what the value of the company is because those are two different things. It could be cheap on the 52-week highs list and it could be expensive on the 52-week lows list.
Maj: Absolutely, man, absolutely. And if there was no chart, how would you value a company? Let’s say you had no reference of history of price. And you came here the first day and you just saw one blip, how would you value it? Now what will happen is charts are like parabolic, they may come down on a technical basis. But you take it all out, maybe you’d be able to add your position or something. And that’d be pretty interesting.
Tobias: So one of the things that I saw when I went through the sheet that you sent through to me, the strategy buckets. Do you wanna talk a little bit about how you think about the strategies long, short, and going down through the— [crosstalk]
Maj: Yeah. And I put some thought to that maybe a year or so ago, because whenever I’m asked, “What do I do?”, I always had different answer, depending on what bucket I was investing in at the time. I basically like to have my bullish side, my bullish buckets, and then my short buckets. And then, in the bullish side, I have my core holdings. These are like the really, maybe your classic GARP kind of stuff. Some of those momentum strategies we’re talking about, contrarian pullbacks. But these are all I would consider high-quality companies that are in any one of those mini buckets there.
Tobias: When you say high quality, it’s something that you expect to be much bigger in the future and you’re just looking for an opportunity to buy it at a sensible price now.
What You Need To Know About Non-Dilutive Offerings
Maj: Yeah, [unintelligible [00:53:13] whole potentially 3, 4, 5, 6, 7 years, that’s my core, in my army, if you wanna call it that. And then you have– since I’m a full-time investor, I need to make money in the short term. There’s nothing wrong with that, obviously. And so, what are those strategies gonna be? And that’s where you get to my special situation stuff. If we find a catalyst that we think is gonna maybe materially affect the valuation of a company or an acquisition going on that maybe the same thing, balance sheet restructuring, fixed capital structure, activism, non-dilutive offerings. That’s a great, by the way, short-term strategy.
Tobias: What was the last one?
Maj: Non-dilutive offerings.
Tobias: Non-dilutive. So, how are they doing that?
Maj: So, you have a situation where every time we see a filing– a company wants wants to raise money or you see an S3, for example– and we all assume– it’s actually called a shelf that a company puts out a filing, they’re gonna issue shares. So, issue shares is dilution. So, every time we see a document, we’re thinking dilution. We’re gonna dump all these more shares in the market, which are gonna to dilute their earnings per share and your ownership, and stock goes down. While the stock goes down too because of price discovery, you have to give a discount to make the offering go through.
But not all these offerings are really offerings of new shares. A lot of times are offerings by current shareholders that wanna sell a bunch of stock. But you have to still entice others to buy that, so the stock falls, like maybe 20%, 30%, and there’s no change of valuation to company at all. And you’re like– you have a big holder that wants to get out of this thing, which is actually great for the company.
Tobias: They’re just managing the sell down.
Maj: Yeah. There were some of the best– you can see 20%, 30%, 40% returns really quickly on those bounce backs once the offering is done. And sometimes even in that dilutive offering, you’ll see shares come in to pay down debt in the balance sheet. You’re actually de-risking the company. So, maybe it is better and then the net effect isn’t that bad in the end. So, those are great bounces we like to see. We’ll play that like big caps. I’ll go large cap on that stuff. I’ll start going up the food chain on those ones.
Tobias: So, what’s your definition of nano-cap versus micro-cap?
Maj: 50 million or less in nano cap. Between 50 and 300 million is micro-cap. We’ll look at companies [unintelligible [00:55:46] like 500 million or less, I’ll go down from my core strategy. But I’ll go as high as four billion for the special situation situations stuff though. [unintelligible [00:55:57] into small-cap land there, right?
Tobias: Yeah, that’s probably the bottom of mid-cap maybe. Yeah, that’s probably the top of small cap, I guess.
Maj: Yeah. Peter Lynch used to be there. Peter Lynch, he could be four billion or less. And that’s why I I guess kept that.
Tobias: I think it’s a good number. I like hunting in that. I think that’s a good cutoff. I think above four billion, it’s a slightly different strategy to below four billion. Because above four billion, they’re really gonna have professional management, they need to be pretty robust. They’ve got guys who are– it’s sort of beyond just the engineer, founder, or whoever was in there. It’s like a professional management team who are looking to grow it into a monster. Below that, you’re looking at the founder, entrepreneur, and it’s almost like listed private equity.
Maj: Absolutely. It’s a whole new ballgame there. And plus, you got more competition of ideas they’re looking with you. So true. I’ll give you a great example of that one with a stock that– I’m allowed to talk stocks here?
Tobias: Yeah, absolutely. As long as you want to, yeah, go ahead.
Maj: Yeah. And I don’t own it anymore, but it was– BXC was the symbol. It was a blue link, so it’s a round tripper. So, it was a multi-bagger to a multi-bust. And so, it was a company that we had bought, it was a leading wood building supply company. And they got crushed in the recession of ’08, ’09. And to save them, a P/E firm came in, Cerberus Capital, and took a 50% stake in the company, I think. Somewhere along that for a couple years, I think they tried to take it private, they said, “No, it’s a really cheap price.” Fast forward to 2015 or 2016, we started looking at it ourselves. They had– went to penny land, did a reverse split, was about five, six bucks a share. And [unintelligible [00:58:01] was the negative about it, which turned out to be four years later probably right. They kept promising they’re gonna sell the assets, delever the balance sheet, and pay off all this amount of debt they had and get cost of the control, cut out a lot of redundancy in their sales process, get closer to the customers. It was all things that made sense to me. So, I decided– I liked management portrayal of the story to me at the time, so we bought a lot of it around six, seven bucks, got as high as like maybe 10, 11, and pulled all the way back, and I was holding for two years. Everything just destroyed like in a few weeks. Like what’s going on because they were making progress. They were selling some stuff, assets, revenues shrank a little bit.
Well, it turned out Cerberus wanted out, Cerberus Capital, so they had to do like offering at seven bucks a share. So, the stock went from 11, 12 bucks to 7 bucks relatively quickly. Unfortunately, I already had so much the stock, I didn’t wanna participate in the offering. But they sold it. Second they sold it, management bought some stock, stock at 11, 12 bucks, they announced a transformative acquisition, which they couldn’t do when Cerberus there. And I think part of the reason that Cerberus, why it left was because [unintelligible [00:59:20] wanted to do this acquisition. Cerberus probably didn’t them want to do it, we’re gonna find out why in a second. The stock goes at 50 bucks [crosstalk] like in two days, basically. We sell most of our position on that run, and then we held a little bit and sold the rest like in the 20s.
What didn’t make sense was they spent all these years getting rid of debt and then they went and pile on more debt to buy this acquisition. It was a really great on-paper acquisition, if everything would have worked perfectly. We were at probably the seventh inning of the housing recovery. And they kept saying, “Hey, we got a few more years to go, we’re still not at peak yet.” Well, we would not get the peak again. Who knows? The stock value is 600 bucks share, they just buffed the whole thing and we got a lot of bad things going on.
The economy did not keep on going, you had the industry situation, you had the yield curve crash, everything went upside down. So, now the things did not according to their plan. House recovery, slowed. So, they’re [unintelligible [01:00:23] now. But that was actually interesting, A, things there, that was one of our special situation buckets. You had a restructuring in the debt. You had an acquisition and you had a non-dilutive offering. But staying long term, that would have been just horrible. So, that’s an example of a short-term thing we look at though.
Tobias: Is it interesting now, like at $6 or $7?
Maj: I didn’t look at it. I looked at it like three weeks ago and I might spend some time on it again. I just don’t like that decision they made there. They got it so cheap, they got a great deal. I gotta wonder why they got a great deal. And now I’m maybe seeing it now. They’re not able to execute how they thought, it’s probably because of that. And the synergies weren’t all expected, but it might be worth looking. I don’t love it, I hate that industry, hate it. So [unintelligible [01:01:15] going there again, it was a situation where I just saw an incredible catalyst coming over. And that catalyst originally was just paying the debt off. Once they pay the debt off, [unintelligible [01:01:25] maybe a double out of it. But then all this other stuff happened, I thought, “Well, they get this bonus thing, that’s not gonna last forever.” Get really lucky with it and move on.
Capitalizing On Stocks Coming Out Of Chapter 11
Tobias: Do you ever look at equity stubs where there’s a business that’s gone bust, they got net operating losses, they got some cash, they got some smart shareholders who are trying to control the– you need to maintain the shareholders, the current shareholders, so you don’t lose in operating losses? And there’s some smart investor in that, do you have a look at those kind of things? Do they fall into your special situations bucket?
Maj: Really don’t. It sounds interesting though, but they really don’t. I try to stay– I know where I’m able to go and unable to go. [crosstalk]
Tobias: I’ve torn up a lot of money. So, I’m just interested to know if anybody knows how to do it properly.
Maj: Has it worked?
Tobias: No, they’ve all been disasters just because the guys who get control, often it’s a private equity firm, smart, brand name private equity firm, KKR, or someone like that, holding it. And their time horizon is just so long. They’re just waiting for it to like drift down so they can keep on buying a little bit more. And they know that you’re gonna get bored after two or three years and move on before they do anything. So it’s never really worked out.
Maj: They got money to waste too, right?
Tobias: Yeah. It’s like a $50 million holding for them in a multibillion-dollar book and it’s just for the effort to turn around so they just– it just doesn’t ever do anything. They gotta assign some associate or something to it to like write it and they just can’t do it. I’m too busy, got too much work on.
Maj: I love Chapter Elevens. I made a lot of money in the years coming out of– especially the dotcom, dot bomb.
Tobias: In the equity?
Maj: In the equity, yeah, after coming out of Chapter 11. I didn’t really invest into Chapter 11. But I remember investing in these like telecom companies coming out of Chapter 11, which is amazing. And so I love that. So we have recessions, I’m always looking for these [crosstalk] opportunities.
Tobias: What’s a recession?
Maj: Well, yeah, what is a recession? [laughs]
Tobias: That used to happen a long time ago.
Maj: It doesn’t happen anymore. It’s a day or two of a market going down or something.
Tobias: Yeah. That’s a one-point down day.
How To Make Money With Penny Stocks
Maj: I only have my long shots. I want to really get to this one, I’m sorry. This is my favorite area to play. I love playing here because everybody hates it. Everybody thinks penny stocks are all fraudulent fucking companies, with no manager team. It’s either these beer-chugging, overweight dudes that just scam people. Well, they’re really not. I would say most of them are, okay. There’s just so much beautiful stuff there though, sitting there waiting to be found. This is where you’ll see a lot of– you’ll see like a 70-year-old, 80-year-old management team just sitting there waiting for something to happen. And they did it right– I just have confidence in them, they’re gonna do it again. Things happen and markets change, environments change, [unintelligible [01:04:33] change, and it will adapt. But something went terribly wrong along the way to make these stocks penny stocks. But there’s still a great business value there. There’s a great brand potentially, good technology.
Someone new comes in and alleviates that old magic team of their responsibility because they just can’t adapt, but this new team comes in and fixes it all. It’s tight. There’s great capital structures on some of these companies that meet our requirements and you’re gonna sit in these things, just wait and this is where– is one of my favorite places to play and then they’re not penny stocks 10 years later. That’s the most fun I have because I can sit there with a little bit of money, take very little risk, and sleep at night, not worry about it. [crosstalk]
Tobias: Yeah. So, that’s the key. You size them small.
Maj: Yes, the size is small, but they become huge later. But now I don’t feel as bad– I can sleep at night because they’ve proven to me for the last five years they can do something right. I’m gonna be betting on them now. And it’s great when you have the first inning of a recovery and you’re buying stock at a price you’ll never be able to buy in the fifth inning. But even with the fifth inning, it’s still fucking great. You could pile on more, you have confidence. If you gotten from 81 to 85 and they got skewed along the way, now you got this great [unintelligible [01:05:52] and you just go below the ship. And then you wait till seventh inning or whatever. You see a lot of takeovers in this stuff, like eventually get taken over, a lot of them. But what I love about it is like this little bit of risk in the very beginning money, no capital and it can become a lot of money later.
Tobias: Yeah, I like that too.
Maj: And everyone is ignoring them. It’s beautiful. I mean no one can buy them. You can’t buy them at broker stores anymore, you gotta call the order in sometimes. You can’t short them, that’s great. Short guys aren’t gonna play in this fucking field, in this mess. Everyone’s ignoring them, smart investors, dumb investors, everybody. So, it’s just beautiful. And then the short side you got, the China stuff and the pump and dump stuff, and they’re still trying to throw it out there now, it’s just amazing. It’s pretty bad.
Tobias: Yeah. I just about to screen them out. It’s just too hard.
Maj: You can’t. I’m long on one right now, probably down there actually, but I’m still betting but the stuff you see now, these filings, they’re still here public without their licenses to operate in China. They have a brokerage license. There’s companies, they are doing online brokerage, you’re not allowed to do an online brokerage in China. You don’t have a license to do it, you’re still doing it. You say you’re not allowed to do it. You circum- it’s a fancy way of doing it, it is illegal. So that hasn’t been voted upon or hasn’t been like really [unintelligible [01:07:23] China yet. Maybe, it could come to the US. Oh, by the way, get a license here. It’s ridiculous. It’s just crazy.
I’m not gonna say names right now, but what’s legal about it is, China has this real capital flight problem. RMB leaving China, to the US or to Hong Kong, whatever. In China, you can’t take RMB or dollars and move them out to invest. And these firms are facilitating that process. And our thing is at some point, China’s gonna care, especially right now with all the attention going on. We love it here, you’re bringing US dollars to the US and that’s okay from our point of view. I guess that’s what’s going on here. But my theory is, I think a lot of pump and dumps are happening from this whole money too. So, I think a lot of money is coming from China to either Hong Kong accounts, where they can buy US companies’ stocks or US accounts. You can figure out who those two firms are. And then just pumping these Chinese stocks. I think a lot of it’s coming from there, because it’s not making sense right now. I don’t know if you saw what’s going on GSX.
Maj: You gotta read that story. So, GSX, you got a short report published by Grizzly Research. Citron and Muddy Waters, not too shabby right. Stock’s hitting highs right now. On my opinion, it’s a 100% fraud. Basically what they’re doing is apparently, this is an online education company, a portal in China. If I understand it correctly, they’re buying a lot of their users to make it look like they have users. The fraud was busted, to a point where Grizzly say, “Hey, we have the company that sold them the users.” Stock’s up like 10 bucks instead like from $30 and 40 bucks or 35 off that, all that. It’s like regulation is doing nothing about it. It’s really scary, man.
Tobias: Maj, if folks want to get in contact with you or follow along with what you’re doing, how do they do that?
Maj: They can email me directly, email@example.com. I have no problem calling me. My phone number is 267-246-3263, my mobile. And you can go to geoinvesting.com also and check out our site and just reach me through there, firstname.lastname@example.org, you can reach us there. We’ve got a free trial at our thing. It’s $408 for your membership, about I think 300 bucks for six months. And we also have a monthly membership we just put in place now, and there is a seven-day free trial. But if you want more time, I can extend it and everything.
Tobias: And you’re on Twitter as well. What’s your Twitter handle?
Tobias: I’ll link those up in the show notes. Maj Soueidan, thanks so much, GeoInvesting.
Maj: Oh, thank you, Toby. It was awesome, man. Thank you for having me.
Tobias: My pleasure.
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