Ian Cassel

10 Lessons & Principles

Apr 15, 2023

If you’re a keen small and microcap investor, high on your list of people to grab a beer with will undoubtedly be Ian Cassel (alongside Jerry Seinfeld too hopefully). Who else is on that list for you?

Over the last month, I spent a lot of time reading and listening to Ian’s wise words. 20 essays, 5 podcasts, and hundreds of tweets later, I feel smarter for it.

Ian is very generous with his knowledge. In this post, I translate some of his many lessons into 10 principles. I hope you find this useful. I will continue to profile investors overtime, aiming for 1 per quarter. Feel free to send through those that inspire you.

There are a bunch of small stocks that will 10x over the next five years that are waiting to be found. Institutions can’t buy them. Only you can.
The opportunity in small stocks (microcaps) exists because institutions can’t own them until they go up. It is the small retail investor’s duty to find them and collect the reward for doing so.
Ian Cassel

If you want 16 of his best essays in a plain PDF format to send it straight to your kindle like I did, feel free to download my one 👉 here.

1. Create your unique style

Creating your own unique strategy take years. Ultimately it ends up being the best way you believe you can reach your goals, in a style that is enjoyable to you.

Ian believes that the active coffee can approach can work, but is likely to be more successful in larger environments (mid to large caps), where a lot of the early stage challenges have now been overcome. That’s why he’s happy with high portfolio turnover.

He also mentions that Peter Lynch and Warren Buffet also had very high portfolio turnover in their earlier years when they were in the world of microcaps.

It's romantic to think you can coffee can a portfolio of microcaps, but microcap investing will always be an active-higher turnover strategy.
My intention with every purchase is to hold for 5-10-20 years but <10% will make it to 5 years. Very few earn that right.

2. Journal

On a number of podcasts, Ian would say “I was just recently journalling about this…” when beginning to answer a question. You could tell his answer was thoughtful.

I’ve often said that writing things down allows you to see the bullshit more clearly. Journalling is a powerful investor tool which will help you continue to improve.

" Most great pieces of writing are preceded with hours of thought. Writing is refined thinking."

-Stephen King (H/T to Strawman)

The process will highlight your mistakes more clearly, and having them written down will make you less likely to repeat them. Here’s a good reminder:

3. Create your own investing process

Ian shares his process openly on multiple podcasts (namely on Jim O'SHaughnessy Infinite loop here) Here’s what he screens for:

Top down to bottom up

A business within a tailwind: The first thing he will look for is that the business operates in a field with tailwinds. He mentions another way to think about tailwinds is what venture capitalist Josh Wolfe of Luxe Capital calls undeniable directional arrows of progress.
Scarcity: Ian says he’s not interested in businesses where there are seemingly a lot of others who are doing the same thing (especially if these others are public companies too). The biggest mover of price is scarcity.
Great stories: Stories move products, employees, culture and stock. Look for great stories.
Undiscovered: Ian looks for businesses that are 98% undiscovered even from the people in the world of microcaps. Don’t look so much for small caps who became microcaps; these are known stories (fallen angels), look for rising stars.

Bottom up

Growth: A business that can grow through a recession.
Strong balance sheet: A balance sheet that can endure and survive. This means the business can afford to be aggressive when their competitors are not.
Intelligent Fanaticism in leadership: A management team that shows signs of intelligent fanaticism. His 8 signs of intelligent fanaticism as below.
Valuation : Ian wants something that can reasonably double in 3 years. A 25% CAGR is what he looks for.

I’ve made a simple version of his high-level selection criteria into a simple, 8 point checklist, make a copy of it 👉 here.

Of course, checklists are only worth so much. It’s the depth at which you go, and the continued work overtime that will matter.

4. Put in your reps

Ian shares the story of John Maxwell once being asked in an interview: “How did you write so many bestsellers?”, and John Maxwell answering with: "Well, I've written 71 books. One of them has to be good”.

There’s no shortcuts being great in this field. You can tell Ian didn’t just get lucky, he’s putting in the hard work everyday.

My investment philosophy is quite simple. I study great stocks, great businesses, and great leaders – hundreds of them. I put in the reps to develop pattern recognition and then go find them when they are small.
I want to invest in undervalued companies that will get overvalued.

He says he likes to find new opportunities in 3 ways:

Join a club.
Form a networks of other investors you trust.
Download the list of all listed companies from your exchange, and go through all of them.

Source: We Study Billionaires - The Big World of Microcaps w/ Ian Cassel (link here)

5. Study what great leadership looks like

The term “intelligent fanatic” was first used by Charlie Munger to describe a world class business builder. Ian co-wrote 2 books on the topic, studying a total of 17 leaders to break down their attributes.

Here’s what he found:

Mission Driven
Beginners Mindset
Learning Machines
Intrinsically Motivated – Inner Scorecard
Capacity to Suffer – Personal Sacrifice
Prevailed through Adversity (GRIT)
Obsessed with Eliminating Risk
Large ownership – Low Salary
Frugal
Lead by Example – Blue Collar Founders
Teachers
Employee First Mentality

Source: Rocket Ships by Ian Cassel, Feb 13, 2019

6. Look for investing lessons in other areas

Ian is a keen golfer, and in a recent article (Three Golf Stories About Investing, link here) , he shares lessons he’s learned about investing, from golf.

When you really love something (investing), it’s naturally present in your mind often. If you pay attention, you can learn about investing from a lot of other, apparently unrelated fields in your life.

Lesson: Golf is the sport that is most like investing and stock picking. Your opponent isn’t the other players. The opponent is the golf course and yourself. Play your own game. Don’t get distracted by what other investors are doing.

7. Be kind and grateful

It was only after listening to Ian on multiple podcasts consecutively that I noticed he was just different in how he interacted with hosts.

Sentences such as: “What I learned from you…”, “You do this very well…”, “You’re a good example of…” etc…

In a domain where there are constantly clashing opinions, it feels the default is to be harsh to one another as investors. Ian cuts against the grain with a default trusting and true gentlemen attitude, which feels incredibly refreshing.

8. Don’t hold them too tight

My days as a founder have helped me learn that growth in the early days is a roller coaster; not a ride down the highway. This is easy to forget when most stories we’re exposed to are of mature companies that have long past the product-market-fit hurdles.

You can’t use the same framework to evaluate microcaps as you would more mature companies, you have to be more adaptable. Ian talks about having the right timeframe (3 years being just about right for him), to help you achieve this process.

Anything can happen, good or bad, in a quarter or two. These are small business. A big order/contract win pulled in or pushed out of a quarter can distort reality.
Give the next quarter or two some wiggle room. Hold your positions like a tube of toothpaste. Don’t hold them too tight. No company is perfect.
Give them enough room to disappoint you a little.

9. Read

In his writing, Ian uses stories exceptionally well. It’s clear from these that he’s well read.

Given a lot of his investment strategy is to find exceptional leadership teams, he studies great leaders and teams through books, looking for patterns over time.

He focuses on quality over quantity, and deeply internalising what you read.

Here are books Ian recommends with his comments on why 👉 Link here

10. Never stop improving

On several podcasts and articles, Ian reminds us that you don’t want to be the guy that’s bragging about the wins you had 10 years ago.

Stop reliving the memories of when great businesses could be purchased at 3-5 PEs. Those days are over. What worked 10-20 years ago might not work today. What works today might not work in 10-20 years. Keep learning and evolving.

He shares a story about changing the way he thinks about investing after David Gardner shared his thoughts on how your portfolio should reflect your best vision for our future; that you should be thinking about the impact you have when you allocate your capital.

3 Articles I recommend

Here are some references I used in writing this article, all of which I highly recommend:

Fearless | Ian Cassel | July 3, 2018 (link here)
Use Your Edge | Ian Cassel | July 3, 2019 (link here)
An Essay on Investing in Small Stocks | Ian Cassel | September 2, 2021 - Link here
Podcast : Ian Cassel — All Great Things Start Small (EP.113) - Link here

Conclusion: 1 bonus lesson

At last, I conclude with one last words from one of his articles, which I think summarises well the environment we currently find ourselves in.

Stocks rarely perform in the time frames we predict, and it’s why the market only works for investors that have more patience than they thought they would ever need.

Thanks for reading folks. As always, feel free to share you feedback with me, and anything else you might like me to write about.

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