Finding Micro-Cap Multi-Baggers with Pieter Slegers of Tiny Titans

The Allure of Micro-Cap Investing

• 🎯 Micro-cap stocks are identified as having significant upside potential, aiming to find companies that can grow from tiny to become market titans, potentially achieving 10x, 20x, or even 100x returns.
• 📈 Historically, smaller companies have outperformed larger ones, with small caps outperforming large caps by an average of 4% per year over the last century.
• 💡 Combining small-cap companies with quality characteristics is presented as a strategy for potentially phenomenal investment performance.
• ⚠️ The speaker notes that large, established investors like Warren Buffett experience diminishing returns as their fund size increases, making it harder to achieve exceptional growth.

Strategy for Identifying Micro-Cap Opportunities

• 🔍 The market for small-cap stocks is less efficient, offering opportunities due to weaker competition compared to large-cap stocks.
• 📊 A strict filtering process is employed, starting with a market cap below $3 billion, then applying quality criteria such as high return on invested capital, healthy balance sheets (low net debt to equity), high profit margins, and strong free cash flow conversion.
• 🌱 Companies must operate in attractively growing markets and have the potential to reinvest all earnings for organic growth.
• 🛠️ A stock screener is used to identify around 300 quality companies, which are then further filtered by examining management and other qualitative factors, leading to a watchlist of about 94 high-quality stocks.

The Importance of Management and Due Diligence

• 🤝 Management quality is crucial in small companies, and direct engagement like meeting CEOs and management teams can provide unique insights not available elsewhere.
• 💼 Founders often have significant skin in the game, aligning their incentives with shareholders and driving them to maximize shareholder value.
• 🗣️ Direct conversations with CEOs can reveal crucial information, such as their perspective on competitors or their commitment to the company, which is difficult to glean from financial reports alone.
• ✈️ Extensive due diligence involves not just reading financial reports but also traveling to meet management, attend capital markets days, and gather information from various sources, including other investors and former employees.

Differentiating Micro-Cap Investing

• 🚀 While some small caps may fail, the goal is to find a few tremendous successes that can achieve 5x or 10x returns, compensating for potential losses.
• 📊 Micro-cap stocks often trade at significantly lower valuations (e.g., 13-15 times earnings) compared to large-cap stocks (e.g., 30-35 times earnings), especially in the current market.
• 🌍 The Tiny Titans portfolio will be worldwide and sector-agnostic, excluding only cyclical companies like commodities and traditional banks.
• ⏳ The strategy focuses on long-term investing, acknowledging higher volatility but also greater upside potential, and anticipates a potential reversion to the mean where small caps may outperform large caps again.

Tiny Titans: An Exclusive Investment Opportunity

• 🌟 Tiny Titans is designed to be an exclusive service focusing on identifying high-quality micro-cap stocks with significant growth potential.
• 🗓️ The launch is planned for September 16th, with a limited capacity of 250-300 members to avoid influencing stock prices.
• 💰 The annual subscription price is $1,500, providing access to the portfolio, detailed investment cases (around 50 pages per company), an entire watchlist, and exclusive reports on management meetings.
• 🚪 Access will be closed once the platform's activity begins to influence stock prices, making it a time-limited opportunity.