In his latest interview with Sunday’s Idea Brunch, Ian Cassel explains how he finds stocks using his first wave of discovery. Here’s an excerpt from the interview:
We invest in 6-10 businesses and focus on the United States, Canada, UK, and Australian markets. We are looking for undervalued situations that we believe will get overvalued. The way we achieve this is by identifying unique desirable businesses that can sustain high organic growth rates with superior operating margins that institutions don’t own. We want to be the first wave of discovery.
At a top-down level we are looking for the following characteristics:
Tailwinds: They might be geopolitical tailwinds or industry-focused tailwinds or technological tailwinds or a combination of all of them. When you find a tailwind that is hard to stop, and you combine this with a best-of-breed business, idea, or technology, you find an investment that is hard to stop. The tailwind helps us get to our destination quicker with less effort.
Scarcity: The business is a one of one – not a one of a million other companies selling a similar product or service. Great companies always trade at a premium because there are so few of them. Illiquidity is the scarcity of shares. Illiquidity is a powerful driver of price when it’s combined with a great business. Investors are forced to pay up to own shares.
Story: Great stories not only sell books and films, but they also move people. Great leaders are often great story tellers. They use stories to motivate. They use stories to sell their mission and vision. Employees like to work for companies that are making an impact. Customers like to support companies that are doing more than just selling them something. We love to find companies with a great story. Great stories move companies. Great stories move products. Great stories move stocks.
Undiscovered: We invest in microcaps so by definition they are undiscovered. When you invest in undiscovered companies it reduces the downside and increases the upside because every new investor that hears the story can be an incremental buyer.
At a bottom-up business level we are looking for the following characteristics:
- A business that can grow through a recession.
- A balance sheet that can weather a storm and act with occasional boldness.
- A leadership team and organization that show signs of intelligent fanaticism.
- A valuation that can conservatively double in three years.
You can find the entire interview here:
Idea Brunch With Ian Cassel Interview
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