Mental Models discussed in this podcast:
- Scuttlebutt
- Quality Investing
- Capital Stack
- Dark Stocks
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Show Outline
The full show notes for this episode are available at https://www.diyinvesting.org/Episode127
Scuttlebutt on Overlooked Companies - Areas of Focus
- Capital Stack:
- Clean is better. Ideally only common stock.
- No lending to insiders or other self dealing.
- Has management issued themselves options in the past? Were the prices reasonable? How much of the company does this represent?
- "Overdue or delayed payment to insiders."
- Red flag. This basically menas the company is in default putting your equity at risk. Can't even really mount a proxy fight because the management could force the company into bankruptcy.
- Filings:
- Current or pink limited on filings with the SEC
- I want to see financials. (They don't have to be audited)
- Some sort of management commentary is nice. (Shows shareholder friendliness)
- Business Model:
- Change
- New products
- New management
- Growth of some kind
- Change
- Asset Base:
- Ideally assts to cover the market cap (providing a margin of safety)
- Earnings Power:
- Profitable (every year for 10 years, no more than one loss in 10 years)
Summary:
Overlooked companies are often cheap. Therefore, scuttlebutt on overlooked companies needs to focus on filtering for the quality of the business. High-quality and cheap makes for a great stock. Look for abnormal signs of positive potential.
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