finch and sandybeach,I happen to think you are both correct but...

finch and sandybeach,

I happen to think you are both correct but the distinction, as it so often is I believe, lies between small/micro-cap resource and industrial companies.

The former (small cap resource stocks) I wouldn't countenance touching with someone else's barge pole.

The notion of:

• drilling hundred of expensive holes into the ground for many years in the hope that something of value is found [capital raising(s) required],

• upon which hundreds of millions of dollars have to be spent over several more years in developing the "project" [capital raising(s) required],

• and once it is finally up and running after delays and capital cost blowouts [capital raising(s) required],

• the prize is an operating business which management has absolutely no control of the selling price of the product it produces, and very limited control of the costs at which the product is produced.

• And then this “operating” part happens for 10 years, after which you've got no more business left because the product is gone [capital raising(s) required].

is an anathema to the creation of shareholder value.


But in the non-resources world, there are some great undiscovered, small industrial businesses listed that are just starting out their path of corporate evolution, and already demonstrate the attractive investment traits of:

• unique products or service offerings,

• surplus capital generating business scalability without recourse to shareholder capital, and

• competent, aligned and trustworthy management with a clear understanding of how to increase the intrinsic value of the enterprises they run.


Some of the companies that created the most wealth for my family and I were discovered by me many years ago when they were at “penny dreadful” status, such as:

ARP
AUB
BRG
DTL
KOV
MMS
NHF
ONT

Some of these I have owned for over a decade, and in some instances the annual dividends distributed today are roughly equal to the first price I paid for the stock!

Needless to say, I have also added to my positions in these great businesses over the years.

And I still own them today because I believe they will continue to increase in intrinsic value at a faster rate than alternative investments.


I think the message that I am trying to convey – based on my own happy experience – is twofold:

1. High-quality, under-researched micro-cap (NON-RESOURCES) businesses do indeed exist

2. When you discover one, don’t ever sell it; simply keep buying it in times of equity market angst [eg. Asian Financial Crisis (1997/8), Dot.com bust (2000), Sept 11 (2001), Global economic slowdown (2003/4), GFC (2008/9), European Dept Crisis (2011)]



All in the interests of Prudential Investing

Cam