🧵New followers, welcome!

I'm a quantitative based #microcap investor. To give you an overview of my approach, here are a few links and resources:

1. Seeking Alpha

I write long-form pieces on my quant research. My profile and article list:

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seekingalpha.com/author/ryan-te… I had a great conversation with @majgeoinvesting where we discussed my quant approach to #microcaps here. Warning - we kept on talking and talking for 3+ hrs 😉

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geoinvesting.com/ryan-telford-i…

🧵Over the last 4 yrs, I have managed to achieve a CAGR of ~37% by:

*investing in #microcaps
*applying the GUTS approach
*using quantitative strategies (using Portfolio123) @P123Finance

A summary of the approach and how you can too:
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👇 This performance has outperformed the major indices by a wide margin as well, with $QQQ the closest.
#Microcaps provide the largest opportunity for alpha IMO.
Typically undercovered & misunderstood, they can provide surprises on the upside (and downside!)

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🧵ROIC favours capital light businesses

Return on invested capital=NOPAT/invested capital (IC).

Naturally stocks with very low capital requirements, or IC, in the numerator will score a high ROIC (all else equal).

For this reason many tech stocks have very high ROIC.

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https://twitter.com/RTelford_invest/status/1736408715517911123

Let's take a 25 stock portfolio of the highest ROIC stocks in the $SPY. Very good returns at ~20% CAGR. However also note the high concentration in tech (right).

Are returns due to high ROIC, or tech exposure?

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(1/n) Some consider return on invested capital (ROIC) the ultimate "return" factor (vs ROE, ROA, etc).

ROIC takes unlevered profits (NOPAT), and scales by invested capital (debt + equity).

High ROIC, on its own, is not a particularly strong factor for #smallcaps ($iwm): ROIC is also a measure of how effectively a company is deploying capital.

If we take some capital allocation factors (share reduction, internal financing, investment in CAPEX, R&D, etc), returns are actually quite improved (without ROIC):

(🧵)Baby GUTS for #microcaps

I'd like to share a version of my personal microcaps strategy with everyone.

A relatively simple quantitative strategy that uses the main factors from GUTS:

➡️Growth
➡️Undervalued
➡️Timing
➡️Sentiment

A public simulation at Portfolio123:

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👇 Here's the 10 year backtest: +20% CAGR for the last 10 yrs:

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*New strategy* - "Phoenix from the Ashes" - Illiquid Industry Leaders

I've been fascinated by the recent performance of $canb.v.

The #cannabis industry has been hammered lately, but this stock continues to buck this trend, with strong fundamentals and stock price.

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👇 My #chilliquid strategy looks at CANSLIM type stocks, in the illiquid TSX Venture Exchange.

Industry strength is a key factor, as the #CANSLIM philosophy suggests that up to 50% of a stock's return is due to its industry.

But $canb.v is in a poor industry...

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4 things I do *not* do as a quant #microcap investor
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* Read 10K's or 10Q's
* Interview management
* Forecast or calculate DCF
* Hold stocks "forever", or fall in love with them

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👇 I do not Read 10K's or 10Q's:

Most of the information I need is in the financial statements, which is available as "point-in-time" in the dataset. The numbers, in my experience, can provide a more objective perspective than some of the commentary.

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Some people have asked about what I look for in #microcaps. I run different strategies, but they all have one thing in common: GUTS.

Growing
Undervalued
Timing
Sentiment

A thread 🧵

(1/n) 👇 Growing:

As target #microcaps are businesses in their infancy, growth is critical to keep up with (and hopefully surpass) competitors.

I look for high, but stable growth in sales, margins, earnings, and free cash flow.

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I am "holding period" agnostic, particularly with #microcaps. Some names can return triple digit returns in a short period, others take time to appreciate.

One of my longer term positions is $SXP.to, a manufacturer of envelopes, of all things (boring business, exciting stock)! On the flipside, here's a stock that I've held for nearly 1 year, with flat return $mnd.to