Investing in illiquid small caps is not for the faint hearted. I should know since it's where I concentrate all my efforts. Yesterday I experienced the worst one day share price collapse in a company I hold (if memory serves me correctly) since I started investing seriously in the early 2000's. The company in question is Trakm8. I'll address yesterday's debacle later.
Of course these things work both ways. Yesterday largely reflects the panic and irrational behaviour of a current bear market in micro-caps pushing their share prices well below fair value. Bull markets do just the opposite with the exact same companies.
With all the above in mind, whilst I'm constantly banging on about being a long term investor, it's vitally important to keep personal goals in mind and act accordingly.
I bought all my shares in Trakm8 back in 2011 when the share price was even lower than it is now i.e. it was in the teens. Here's my blog post from that time:-
http://michae1mouse.blogspot.com/2011/09/your-m8-my-m8-trackm8.html
Trakm8 was one of my largest investments. It ticked so many of my personal investing criteria for a micro-cap.
Fast forward to Spring 2015 and Trakm8's share price had risen above £1, and I took a gamble. Trakm8's results were improving, trading statements were excellent and the share price had real momentum. I quit the day job with a (hopeful) £2 plus price target in mind which would make my dream of full time investing possible. In early October of the same year (2015), as the share price rose above my £2 target, I attempted to sell half my holding. I managed to sell a good portion, but given the huge illiquidity of the shares, I didn't sell all that I wanted to. As luck would have it, share price momentum continued and I actually sold the rest of that 50% for well over £3.
My two sales gave me a 12 bagger and a 20 bagger respectively. This translated into more than 6 times my original investment with the remaining 50% to hold for "free".
I hope this doesn't sound like bragging because it's not, I'm just trying to state the importance of having personal goals when making buy or sell decisions.
Trakm8 changed my life and I'll always be grateful to the management team that had done so well up until that point in their development. For regular readers, I hope this also goes some way to explain why in the past I've defended them so vociferously (and clearly I still hold 50% of my original investment).
My personal experience in the micro-cap sector has taught me to pick 10-15 such companies that you believe have significant potential. Carefully consider their financial situation and prospects before investing and buy them as cheaply as possible. Hold tightly unless the story changes or you've reached a personal goal. One or two of these success stories will change your life. There are other successful strategies of course, but buy and hold works for me. Never forget with all the best research in the world then you'll still need a bit of luck, but "the more you practice the luckier you'll get".
Hot on the heels of Trakm8 came another success story. Avesco. What I don't think I've mentioned about my investment here is that before I started the thread below, I'd bought a small maiden purchase at around 80p, which I thought was very reasonable at the time.
https://uk.advfn.com/cmn/fbb/thread.php3?id=20681152
How I laughed as the price plunged to as low as 20p. I kept thinking maybe I was missing something, but the shares seemed ludicrously cheap. That's when I bought the bulk of my holding. In 2016, Avesco was bought out for £6.50 and along the way investors enjoyed generous dividends that included a bumper £1.10 payout after winning damages against Disney.
http://michae1mouse.blogspot.com/2016/11/avesco-value-realised-after-recommended.html
This brings me back to yesterday's interims and trading statement from Trakm8.
The interims and trading statement were extremely disappointing there is no denying it, but a near 70% drop in the share price is just plain silly.
As a long term investor, what you need to decide is where will they be in 5 years or more?
I see a company that's still making good progress (albeit slower than hoped) but had a bit of bad luck in regaining momentum. It's recurring revenues make up 58% of total revenues which in 2018 are likely to be around £22m or so. Lexis Nexis and EE are two major contract wins recently announced and join the AA, Scottish Power, Direct Line, Marmalade, E.ON etc in employing Trakm8's cutting edge technology. Reading yesterday's report again, I still believe the company has excellent medium and long term prospects.
I don't give advice, but I'll be holding my shares now until the end game which I'm hopeful will conclude in a few years time in a similar manner to Avesco i.e. huge capital appreciation, dividends when appropriate and an eventual buyout at a premium.
ATB to regular readers, and if you're relatively new to investing then don't be depressed by the current sell off in micro-caps, it's an opportunity and not a negative.
As ever, AIMHO and please do your own research.
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