TIP607: SMALL BUT MIGHTY: UNCOVERING SMALLCAP VALUE

W/ PAUL ANDREOLA

10 February 2024

On today’s episode, Kyle talks to Paul Andreola about how he evaluates smallcap stocks, why flipping over as many rocks as possible is such a strong strategy, why to put all your focus on profitable growing businesses, why the PEG ratio is so important for finding great opportunities, the importance of understanding the capital raising process, why value will always succeed in the long term, the current state of microcaps and much, much more!

Paul Andreola is a highly successful microcap investor who has been managing his own money for over 30 years. He is a board member for Atlas Engineered Products, Total Telcom, and Departure Bay Bay Capital. He’s a big proponent of microcap investing and runs an investing community called SmallCap Discoveries where he interviews CEOs of microcap businesses and shares his ideas and strategies.

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IN THIS EPISODE, YOU’LL LEARN:

  • The importance of flipping over as many rocks as possible.
  • Why focus your efforts on profitable businesses that are growing.
  • The power of owning businesses that institutions can’t invest in.
  • Why you should stay away from low-growth businesses even when they are cheap.
  • How to use the price-to-earnings-growth ratio to help you identify undervalued growth stocks.
  • How to add a margin of safety using the PEG ratio.
  • How to use the PEG ratio to help you determine what needs to be sold.
  • How increasing fund flows can attract low-quality businesses in search of capital.
  • Why owning profitable companies can de-risk your investing.
  • Why you should stay away from businesses that are likely to heavily dilute shareholders.
  • The importance of having a board member with capital markets experience.
  • The hidden costs of financing.
  • The role of intangible assets in finding financing.
  • When it makes sense to use equity for funding.
  • The importance of buying businesses that have minor struggles that are fixable.
  • Why businesses that are struggling can offer significant upside.
  • When and why averaging up makes perfect sense.
  • Why you should be flexible on how much concentration you put into a position.
  • Why averaging down is a losing strategy.
  • How opportunity cost should help govern your portfolio allocation.
  • The positive tax consequences of holding positions.
  • Strategies for selling your losing legacy positions.
  • The one question to ask yourself about positions to make sure it’s right for your portfolio.
  • Why building an investing network is so important.
  • Why value will always do well despite overall market conditions.
  • Why increases in financing is a signal that capital is coming down the market into Small Caps.
  • What Paul likes to do when it’s harder to find good opportunities.
  • Why institutional capital inflows are the primary driver for increasing returns.
  • And so much more!

TRANSCRIPT

Disclaimer: The transcript that follows has been generated using artificial intelligence. We strive to be as accurate as possible, but minor errors and slightly off timestamps may be present due to platform differences.

[00:00:38] Kyle Grieve: In today’s episode, I’m talking with Paul Andreola about how we evaluate small cap stocks, why flipping over as many rocks as possible uncovers the best winners, why to put all your focus on profitable growing businesses to both increase returns and decrease risk, why the price to earnings growth ratio is so important for finding great opportunities.

[00:00:56] Kyle Grieve: The importance of understanding the capital raising process, why value will always succeed in the long term, the current state of micro caps and much, much more. Ever since speaking with Paul on the Millennial Investing Podcast back in August of 2023, I’ve become good friends with him. He’s reached out to me and shared numerous great ideas and has happily shared many of his investing strategies with me at a very deep level.

[00:01:17] Kyle Grieve: He’s been a sort of mentor for me, and I feel a lot smarter every time we talk. Paul’s knowledge, experience, and passion for microcap investing are hard to beat. He understands the discovery process at a whole different level than anybody I found. And his entire system for leveraging his knowledge has produced some incredible picks.

[00:01:33] Kyle Grieve: His greatest pick of all time was finding expel back when it was trading around 20 cents. As of February 2nd, 2024. Its trading at fifty-three dollars and 80 cents, and this just scratches the surface of his ability to find multi-bakers. Paul’s told me he’s previously identified five additional hunter-baggers that are boring, but highly profitable businesses.

[00:01:52] Kyle Grieve: If you like learning about multi-bagger stocks, especially ones that have smaller market caps, this is a must-listen conversation. Additionally, if you own a smaller private business and are thinking of one day going public, you’ll learn a lot about how to generate institutional interest Now. Let’s get to my conversation with Paul Andreola. 

[00:02:37] Intro: Celebrating 10 years. You are listening to The Investor’s Podcast Network. Since 2014, we studied the financial markets and read the books that influenced self-made billionaires the most. We keep you informed and prepared for the unexpected. Now for your host, Kyle Grieve.

[00:02:54] Kyle Grieve: Welcome to We Study Billionaires. I’m your host, Kyle Grieve, and today we bring Paul Andreola onto the show. Paul, welcome to the podcast. 

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BOOKS AND RESOURCES

  • Join the exclusive TIP Mastermind Community to engage in meaningful stock investing discussions with Stig, Clay, Kyle, and the other community members.
  • Check out Paul’s services at SmallCap Discoveries.
  • Read Paul’s articles here.
  • Learn more about the Berkshire Summit by clicking here or emailing Clay at clay@theinvestorspodcast.com
  • Check out all the books mentioned and discussed in our podcast episodes here.

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