I am new here so have a couple of questions. Do you have any write-up of your trading process? Such as selection criteria and entry and exit criteria. In addition you mentioned letting the winning stock run. But what are your criteria for exiting a stock that has appreciated a lot? Thanks!
Thank you for your questions. I don’t have a write-up on my investing process yet, but will post one in the coming months. I basically go through every stock growing 20-30% or more and try to find those trading at 4-8x P/E where I expect growth to accelerate. I roughly like companies trading at 4x P/E with 10% growth, 8x P/E at 30% growth and 12x P/E at 50% growth, but I want to make sure the business is predictable, growth continues and capital is given back to shareholders or deployed well.
Exit is typically when things start to look less great for the company, or when I have a similar stock that is just much less expensive. Or when I think the stock is expensive and it starts running. Before going down it often trades at the same level for ~3 months without new highs. Like Spyrosoft in H1 2023 was a good example of a company re-rating from 12x P/E to 20-25x P/E and then flattening out for 3-4 months before going down.
Or DBA Group recently. What I do is more investing though. The only trading type items are holding to the winners until they start to look like DBA now, and also just not looking much at losers to find potential buys. They can do well, but it just works better to focus on 1000s of companies already busy delivering success…
And when you say company is growing at 20 to 30%, do you mean earnings or sales or both?
I look forward to reading your upcoming work process write-up. That will be very beneficial for readers to understand your style and where the edge is. Most of the stock picking sub-stacks don't have that. I think it will be a good value added and differentiator.
Hi Floe, the thesis is interesting, but how do you factor in the volatility specific to small caps? If a stock is up 15% in one month and then drops 30% in two weeks, do you sell if nothing particular has happened (no earnings release, no news)?
Hey Pascal, that's quite uncommon but in that situation, I would not sell. It kind of happened with Moneymax a few months ago. I couldn’t really figure out why that was happening but it fortunately reversed. It was probably mainly profit taking…
Excellent article, the book is on my reading list, I read that Soros was always taking a small position before the big moves to see how the market was moving on a stock.
I am new here so have a couple of questions. Do you have any write-up of your trading process? Such as selection criteria and entry and exit criteria. In addition you mentioned letting the winning stock run. But what are your criteria for exiting a stock that has appreciated a lot? Thanks!
Hi Tash, welcome!
Thank you for your questions. I don’t have a write-up on my investing process yet, but will post one in the coming months. I basically go through every stock growing 20-30% or more and try to find those trading at 4-8x P/E where I expect growth to accelerate. I roughly like companies trading at 4x P/E with 10% growth, 8x P/E at 30% growth and 12x P/E at 50% growth, but I want to make sure the business is predictable, growth continues and capital is given back to shareholders or deployed well.
Exit is typically when things start to look less great for the company, or when I have a similar stock that is just much less expensive. Or when I think the stock is expensive and it starts running. Before going down it often trades at the same level for ~3 months without new highs. Like Spyrosoft in H1 2023 was a good example of a company re-rating from 12x P/E to 20-25x P/E and then flattening out for 3-4 months before going down.
Or DBA Group recently. What I do is more investing though. The only trading type items are holding to the winners until they start to look like DBA now, and also just not looking much at losers to find potential buys. They can do well, but it just works better to focus on 1000s of companies already busy delivering success…
This is very helpful. Thanks for the explanation.
And when you say company is growing at 20 to 30%, do you mean earnings or sales or both?
I look forward to reading your upcoming work process write-up. That will be very beneficial for readers to understand your style and where the edge is. Most of the stock picking sub-stacks don't have that. I think it will be a good value added and differentiator.
Thanks so much.
I mean Quarterly Revenue (year-over-year growth).
Great post floe. Your writing has improved tremendously
Like the update floe, when your adding to 52 week highs. Your still looking to get these at or under 10x ntm earnings correct?
Exactly, I think only Legacy and Atrem were a bit above 10x pe
Hi Floe, the thesis is interesting, but how do you factor in the volatility specific to small caps? If a stock is up 15% in one month and then drops 30% in two weeks, do you sell if nothing particular has happened (no earnings release, no news)?
Hey Pascal, that's quite uncommon but in that situation, I would not sell. It kind of happened with Moneymax a few months ago. I couldn’t really figure out why that was happening but it fortunately reversed. It was probably mainly profit taking…
Hey, did you write a note on Canaf?
Hi Ed, I haven’t posted a full review of Canaf yet. Long term consistency of the business and low valuation would be things to mention there.
Great post, especially regarding the value of adds!
Excellent article, the book is on my reading list, I read that Soros was always taking a small position before the big moves to see how the market was moving on a stock.