Finding companies like Appen Limited (APX) early, page-54

True, this thread should be talking about how to find early stage companies like Appen.

The truth is that you'll have to take big gambles if you want to look for Appen-like companies but in their infancy. These companies all started small, and at that time you'd be forgiven to think they were a "pointless, prospectless, they-have-no-idea" type of company that would probably not last 2 years into their public listed status.

There are some companies that Motley Fool introduced early, such as REA in the mid to late 2000's, CTD in the early 2010's, ALU and NEA in the mid 2010's that have gone on to do very well. There are many more too that had huge potential but did not deliver, CL1, CAT, RFN, PG1, ICQ, RNT, and about 40 to 50 more that I've put in my watchlist but have forgotten about. Finding big winners like these aren't easy, most of the time you would only put a small sum down on these no-namers. The trick is to put more money as they rise in price.

The buy low sell high mentality should be wiped from your brain, if you are to invest in these stocks. It's all about the buy high, sell higher, continue to buy higher, sell even higher mentality.

I recall when APX was at $6 and people sold down saying it had grown 50% from $4, and to take money off the table. Apparently 'nobody ever went broke taking a profit'. Well guess what, nobody got mega-rich taking profits either.

At $7-8, same thing happened. Questions arose about the acquisition, capital raising, and small customer base representing a big chunk of revenue.

At $10 even more people started wondering if this company could even keep this up, that's when a lot of cautious old-school old-thinking investors said this company had a very concentrated portfolio of clients and this was unsustainable.

At $13, lots of people were talking about unsustainable growth and worried about the Leapforce acquisition. Some said it was a once in a lifetime acquisition, the growth was only coming from that acquisition and it was all downside risk from here onwards.

But purchasing at those prices (when they were at the peaks and all time highs) would have netted investors lots more money.

The trick is to spread your funds that you can afford to lose among small microcaps that have potential. Say those 20c companies grow to 40c, you add more money. Once they grow to 80c, you add more money. This is called watering the flowers.

Those 20c companies that fall to 10c, sell them immediately. This is called culling off the weeds.

Lastly, let your flowers run wild. Don't trim them and say oh my god, it's grown to 4% of my portfolio, I need to sell. Let it grow. Don't be that person that sold their APX at $8 because it had grown to 4% of their portfolio. They left $16 per share on the table because of that thinking !!

It is a very tough mentality to follow, due to anchoring bias and loss aversion bias. Even though I know this is the winning strategy, I still find it hard to do this, but I'm getting better at it and my growing share portfolio is slowly giving me that positive reinforcement that this really is the winning strategy. Think ALU, APX, NEA, APT.