20 years of success with small cap stocks
Small cap stocks became a passion with this ex-broker, who tells a U.S. advisory about the changes, trends and opportunities he has seen.
How would you describe a small cap investor?
Mr. Max Bowser, one of America’s leading champions of small stocks, has his own flavourful way of doing it.
He is writing about Mr. Richard Molinsky, who has subscribed to The Bowser Report for 23 years. He was a broker for 18 of those years.
“The youthful-looking Molinsky is the type who goes to a tree farm and buys saplings. He knows that in short order they will triple or quadruple in size. The guy from Merrill Lynch is only interested in buying full-grown trees, that might grow 20%.”
We’re not sure that Mr. Molinsky’s youthful looks can be ascribed to small cap investing (that might have more to do with him getting up to play basketball at 6:30 every morning).
Nor can anyone promise that every small cap stock will triple or quadruple.
But this investor does have an eventful story to tell, as he revealed to Mr. Bowser in a recent interview for the advisory.
Bet on the jockey
Mr. Molinsky, who lives in New York State and went to college in Hartford, Connecticut, first caught the investment bug when a college friend found him a summer job on Wall Street.
His first investment was in a company working on a cancer cure. He invested $2,500. By Christmas it was worth $25,000. He was hooked.
The brokers at this firm had a revealing slogan, he tells Mr. Bowser. “Bet on the jockey, not the horse.” In other words, consider the quality of the management, not just the company itself.
Mr. Molinsky’s first full-time job was with a brokerage that sold “cheapies” — small cap stocks. They became his passion.
What keeps you awake?
It took this broker a while to figure out exactly what makes stock prices rise. Quite frequently, “it’s the emotion or psychology of the market that counts and not just the company’s performance,” he says. But in the end, the company’s performance must support the price.
A prime example, Mr. Molinsky, says was Forward Industries (NASDQ-FORD). This company makes carrying cases for handheld devices, cellphones and personal computers as well as cases and protective accessories for medical diagnostic kits and bar code scanners.
Recommended by Mr. Bowser in 2003, it kept reporting better and better earnings, yet still coasted along at $2 to $3 a share. Then the market took a turn for the better and so did this stock — all the way to $25. It has come back down since, and now trades at $3.30.
As for research, Mr. Molinsky goes straight to the horse’s mouth (or the jockey’s, as it were).
“When I become interested in a stock, I will call up management and ask them, ‘What are the one or two things that keep you up at night?’ I find them to be very honest.”
An entrepreneurial spirit
After working with three different brokerages, Mr. Molinsky left the business and now invests on his own.
What changes have you seen over the years, asks Mr. Bowser? For one thing, he replies, the volume of stocks traded has multiplied many times since he began.
But the biggest change may be with investors themselves.
“Buyers are much more short-sighted. Used to be that when investors bought a company, they had a long-term perspective.”
People who buy penny stocks, he adds, have a certain entrepreneurial spirit. And they see things through. “When you look at the Fortune 500, you don’t find any day traders on that list. But you do find a lot of investors who have held stocks for a long time.”
Still, Mr. Molinsky does not necessarily believe that investors should put all their eggs in the small cap basket. Diversify, he says. “Most of my clients owned some blue chips and bonds,” he says.
Last but certainly not least, asks Mr. Bowser, how did this ex-broker react when a stock went wrong?
“First of all, I myself owned the stock, so I was also a victim,” he tells Mr. Bowser. “The worst thing a broker can do in such a situation is to not answer his phone or return a client’s call. I would try to make it up to them with another company as a replacement.”
And that may well be the secret of years of success. Face the music, be honest with yourself about every stock you own, and find yourself a darn good jockey.
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