Investing: It’s a Small World After All

by JT McGee

Own enough tiny micro cap companies and you’ll start running into the same names over and over again.

One of my stock picks for 2013, Solitron Devices, is under new proxy pressure. Backstory aside, the company’s CEO is simply sitting on too much cash while ignoring requests of other shareholders, pissing off a legion of mostly young, deep value investors.

On February 22th an investment fund by the name of Furlong decided to sue Solitron Devices to correct some of the many problems going on behind the scenes. In particular, the fund wants the company to start holding annual meetings and elect new board members. As a shareholder, this is great news.

Put up on the list of new potential board members was none other than Ryan Morris, the guy that you’ve probably read about in BusinessWeek for being a 28-year old Graham/Buffett-based activist investor.

Not so far down in the proxy information is my man Mr. Schembs, who I love so dearly for tearing stuff up at Adams Golf. (Thanks again!)

It really is a small world, this value investing stuff. If all goes to plan, this $8.2 million, Pink Sheet-listed penny stock just might have to free itself of some of its $7.2 million cash hoard. Hand it over, buck-o.

{ 2 comments… read them below or add one }

STEVEN J. FROMM, ATTORNEY, LL.M. (TAXATION) March 5, 2013 at 08:53

Yikes, should anyone own that many micro-stocks in the first place let alone ones that have the same people running them. Not sure this makes sense. Isn’t diversification and being conservative important attributes of successful investing? I hope I am not being too negative but I just do not get it.

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JT March 5, 2013 at 17:03

Risk is in the eye of the beholder, I guess. As far as I’m concerned, it’s riskier to pay 10x ev/ebitda or 15x earnings when you can get a well run microcap at 2x ev/ebitda or 8x earnings.

I’d rather underpay for a microcap that overpay for a large cap.

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