Investing in small and micro-cap companies (or “penny stocks”) can be a very dangerous activity, and yet these companies provide some of the biggest opportunities for outsized gains. MicroCap Intelligence was created to help individual investors identify the best investment opportunities, as well as avoid the poor ones.
Our investment philosophy is to seek the absolute highest returns by identifying relatively unknown microcap companies that have the potential for enormous growth. We use a combination of proprietary quantitative modeling and old-fashioned sleuthing to identify a short list of candidates from which we ultimately make our investments.
In practical terms, the companies we find generally find are not profitable, but have 1-2 years of consistent revenue growth and a business model that suggest it will continue. Additionally, they have increasing gross margins and a relatively high gross profit per invested capital than their peers. We also look for strong secular growth stories that are supported by major demographic or cultural trends that will provide tailwinds for the company.
We tend to avoid “glamour” stocks that are well known, preferring to identify companies that have the potential to become glamour stocks later. Additionally, we avoid drug companies with blockbuster potential that require FDA approvals. These approval processes are binary outcomes in which we have no insights.
The companies we like are generally not profitable, which means that owning them carries enormous risks. However, we believe that our investment criteria minimizes the downside and provides an asymmetric risk profile that maximizes the upside.
This investment approach is identical to the approach that Silicon Valley Venture Capitalists use when investing in high-growth startups. We simply apply that same criteria to companies listed on the public exchanges. We invest our own cash, and like VCs, we expect a 10x return on our investment.
The site was originally launched in January, 2013 with a goal of providing extremely broad coverage across many markets. Writers were given wide latitude on their coverage criteria, and editorial standards were not very strict. In June, 2013, the site went on hiatus for almost a year.
In May, 2014, the site was relaunched with our new investment criteria and much higher editorial standards. We believe that this new approach will better serve the investing community.