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Geoff Gannon
Geoff Gannon

Warren Buffett: How to Make 50% a Year in Micro Cap Stocks

January 13, 2011 | About:

A French individual investor, Pierre, who sent in the wonderful CIFE idea, read the post where I mentioned two French micro caps, Precia and Poujoulat, and emailed me this:

“I own Precia shares since several years. I know Poujoulat, I've not invested in it because I think (maybe wrongly) that FCF generation is too low. Anyway, I'm impressed that you were able to find those 2 stocks which are not very well known. How did you do it? Did you use a screener (which one?) Or found them via a blog?”

I wish.

I’d love to have a good screener for French stocks. And I’d love to read a good French value investing blog.

But no. I started with the A’s.

I’m serious about this. And I say it all the time. But most readers seem to think I’m kind of sort of maybe joking a little about working my way alphabetically through an entire stock exchange.

I’m not.

I came to value investing through Ben Graham.

Here’s Walter Schloss on Ben Graham:

“When Ben was operating in the 1930s and 1940s, there were a lot of companies selling below their net working capital. Ben liked these stocks because they were obviously selling for less than they were worth but in most cases, one couldn’t get control of them and so, since they weren’t very profitable, no one wanted them. Most of the companies were controlled by the founders or their relatives and since the 30s was a poor period for business, the stocks remained depressed. What would bring about a change?

1. If the largest controlling stockholder died, the estate may want to sell control.

2. If business got better, then the company would make money.

Notice Walter doesn’t say anything about liquidation. This is a common myth about Ben Graham and net/nets. Ben Graham did not buy net/nets because he thought they would liquidate. Ben Graham bought net/nets because he knew the businesses were selling for less than they were worth.

This is obvious with a private business.

If you put your private business up for sale, there will be no discussion of prices below the net current assets of the business. Private businesses are not bought and sold below their net current assets. So why should pieces of public businesses be bought and sold below their net current assets?

We can take this analogy further by looking at lenders. For over 2,000 years, it’s been pretty easy to borrow against net current assets. The character of the business owner and the quality and future prospects of the business itself have mattered very little to lenders who knew their loans were covered by cash, receivables, and inventories free of other obligations.

If buyers are willing to pay more than net current assets for almost any business regardless of its quality, and bankers are willing to lend up to net current assets for almost any business regardless of its quality, why shouldn’t investors buy pieces of every business selling below its net current assets?

Mostly, they do. Very, very few businesses sell for less than their net current assets. Almost all net/nets are micro caps.

Some people assume that means that there’s something peculiar about net/nets.

They’ve got it backwards. There’s something peculiar about micro caps.

Small stocks tend to be undervalued more often than large stocks.

As a rule: one share of a leading public company sells for very close to the pro-rata price a control buyer would pay for the entire business.

That’s not always true of what Ben Graham called secondary companies:

“The chief practical difference between the defensive and the enterprising investor is that the former limits himself to large and leading companies whereas the latter will buy any stock if his judgment and his technique tell him it is sufficiently attractive…The field of secondary stocks cannot be delimited precisely. It includes perhaps two thousand listed issues and many thousands more of unlisted ones which are not generally recognized as belonging in the category of ‘large and prosperous market leaders’…The intelligent investor can operate successfully in secondary common stocks provided he buys them only on a bargain basis.”

In other words, Graham is saying know-nothing investors should only buy “large and prosperous market leaders”. Know-something investors should buy any stock they want as long as it’s a bargain.

Ben Graham, Walter Schloss, and even Warren Buffett during his best years, all invested almost exclusively in secondary companies. They weren’t all micro caps. But almost none were blue chip stocks.

Warren Buffett made 50% plus returns in micro caps in the 1950s for his own account.

The stocks he invested in were extremely small, and extremely unknown.

A University of Kansas student asked Buffett about this in 2005:

“Question: According to a business week report published in 1999, you were quoted as saying: “It's a huge structural advantage not to have a lot of money. I think I could make you 50% a year on $1 million. No, I know I could. I guarantee that.”…would you say the same thing today?”

Here’s Buffett’s answer:

“Yes, I would still say the same thing today. In fact, we are still earning those types of returns on some of our smaller investments. The best decade was the 1950s; I was earning 50% plus returns with small amounts of capital. I could do the same thing today with smaller amounts. It would perhaps even be easier to make that much money in today's environment because information is easier to access.

You have to turn over a lot of rocks to find those little anomalies. You have to find the companies that are off the map - way off the map. You may find local companies that have nothing wrong with them at all. A company that I found, Western Insurance Securities, was trading for $3/share when it was earning $20/share! I tried to buy up as much of it as possible. No one will tell you about these businesses. You have to find them.

Other examples: Genesee Valley Gas, public utility trading at a P/E of 2, GEICO, Union Street Railway of New Bedford selling at $30 when $100/share is sitting in cash, high yield position in 2002. No one will tell you about these ideas, you have to find them.

The answer is still yes today that you can still earn extraordinary returns on smaller amounts of capital. For example, I wouldn't have had to buy issue after issue of different high yield bonds. Having a lot of money to invest forced Berkshire to buy those that were less attractive. With less capital, I could have put all my money into the most attractive issues and really creamed it.”

Pin that up on your wall.


There’s a lot in there that’s worth remembering. For instance, Buffett says: “it would perhaps even be easier to make that much money in today’s environment because information is easier to access.”

That’s what I mean about starting with the A’s. Buffett flipped through Moody’s Manuals. I’ve heard some people ask about what’s today’s modern day Moody’s Manual.

It’s the internet.

When I link to a foreign stock, I give you everything Buffett had in a Moody’s manual. I give you the company name (and stock exchange page), the Bloomberg symbol and snapshot, and the company’s annual report archive.

What more do you need?

But, the truth is, a lot of people will get to the place in this article where I’ll link to these pages for CIFE and Precia and Poujoulat and they’ll blow right by them. They won’t follow the links.

French micro caps are just too off the map for most people reading this article.

There’s no reason for that. None of these 3 businesses (roads, chimneys, or scales) are super complicated. Warren Buffett, Ben Graham, and Walter Schloss would at least glance at stocks like these.

Except of course: Warren Buffett, Ben Graham, and Walter Schloss didn’t invest abroad. But, then, they didn’t have the internet either.

We live in a time where information is a lot more heavily digested before it gets to us.

Most individual investors subsist on a steady diet of regurgitated data gruel.

You need to learn to forage if you want to be the next Warren Buffett, Ben Graham, or Walter Schloss.

No one told Ben Graham about Northern Pipe Line. He took the train from New York to Washington just so he could read the government reports.

Today, you don’t have to take the train. All you have to do to is click a mouse.

The difference in returns – for truly enterprising investors – comes from two things. One is attitude. That’s hard to teach.

The other is whether or not you click links like these when you see them:

Compagnie Industrielle et Financiere d'Entreprises (INFE:FP) – Reports

Poujoulat (ALPJT:FP) – Reports

Precia (PREC:FP)

The folks who click those links are going to end up with better returns than the folks who don’t. Not just because those are interesting stocks. You can miss out on any 3 interesting stocks. That’s not the end of the world.

But being the kind of investor who can hear me say: “here are 3 really interesting – not so well known – French micro caps” and then just move on to reading another article instead of clicking those links, someone like that isn’t going to be the next Warren Buffett or Ben Graham or Walter Schloss.

It’s like a kid who does a killer job writing in school, but never sits down at a keyboard outside of school.

That kid is never going to write as well as professional writers.

Ben Graham said investing was most successful when it was most businesslike.

That’s the simple answer to why you should start with the A’s.

It’s the most businesslike thing to do.

If you want to be businesslike about buying stocks, you need to make it your business to know the merchandise. That means looking on your own through foreign and domestic micro caps.

Just to make it clear how ignorant folks are who stick to big caps, I ran a screen on Morningstar to see exactly how much of the merchandise in the stock picking business falls into micro cap territory.

I called anything below $100 million a micro cap.

Morningstar says there are 6,260 domestic U.S. stocks. 2,871 of those are micro caps. That’s 46% of all U.S. stocks.

By ruling out stocks below $100 million, you’re limiting yourself to handicapping just 54% of all races. And you’re playing against probably 90% of professional handicappers.


Wouldn’t you rather bet just the 46% of races that only maybe 10% of professional investors spend their time on?

There’s a lot of talk in academic journals about value effects and size effects. Why do micro caps outperform big caps? Is it just value micro caps that outperform? Things like that.

What I can tell you from my experience – and what Warren Buffett and Ben Graham and Walter Schloss would tell you – is that there are far more obviously undervalued stocks among micro caps. There may be far more obviously overvalued ones too. Does that matter? Are you a growth investor? Are you indexing?

No. You’re a stock picker.

And the best stocks to pick from are secondary stocks. They can be micro caps in the U.S. or overseas. Generally, U.S. stocks of all sizes are more closely followed than foreign stocks of the same size – so it’s easiest to find bargains among foreign micro caps.

And what do I mean by bargains?

You don’t need to focus on just net current assets, or book value, or anything like that. Any appraisal method you use on big caps will work better on micro caps.

Trust me, it’s not like there’s just some strange book value phenomenon surrounding micro caps.

The outperformance of micro cap value stocks can be explained in one word: neglect.

I look for bargains among neglected stocks.

And almost all neglected stocks are micro caps.

If you go around appraising stocks on the basis of their net current assets, book value, enterprise value to EBIT, or enterprise value to free cash flow – trust me, you’ll find the real bargains among micro caps.

My definition of a real bargain is the same as Ben Graham’s. A stock should be selling for at least a 33% discount to what a pessimistic private buyer would pay for the whole business.

Graham liked to use net current assets. But you can apply this rule to any value ratio you like. If you think EV to EBIT is the holy grail of investing and you think 8 times EBIT is what a pessimistic private buyer would normally pay for a business, start by looking at micro caps trading for less than 5 times EBIT.

They’re out there.

In fact, if you clicked the links above, you already found one.

My point is that there’s no isolated low price-to-book phenomenon causing outperformance among micro cap value stocks. There’s a pervasive public value/private value disconnect that infects some micro caps.

It’s been around since Ben Graham’s time. And it means little pieces of micro caps – unlike big caps – sometimes sell for much, much less than a private buyer would pay for the entire business.

All you have to do is turn over rocks – go way off the map as Warren Buffett would say – and then appraise the stocks you find there.

All of this was in the original 1949 edition of Ben Graham’s Intelligent Investor.

That’s where Warren Buffett learned to make 50% a year in micro caps. He read The Intelligent Investor.

And then he applied what he learned to the U.S. stock market of the 1950s.

You have the worldwide stock market to play in. And a Moody’s Manual for every company.

You have the internet.

Follow Geoff at Gannon On Investing

About the author:

Geoff Gannon

Rating: 4.1/5 (55 votes)



Go_loe - 8 years ago    Report SPAM

Great article! almost all of the investor in this board are small private investors.. but if you look at the article is being written on the stocks are overwhelmingly large cap stocks(more than 100M market cap). This shows that even in the sophisticated forum like this, people are not willing to work on the things that have high probable outcomes!
Power of Incentives
Power of Incentives - 8 years ago    Report SPAM
Great post. I do like these 3 companies, although their dividends are a bit below what I'd like in order to be patient enough for the "market" to realize their value.

There IS actually a (belgian-)French blog of value investors.

Very very informative: blog.daubasses.com

they also post a weekly evolution of their portfolio, mostly composed of US stocks, actually.

As they started selling some investment recommendations, they hide the latest stocks they bought until the value materializes, which can take some time.

A couple French stocks they own; Gevelot (metal parts), Cofigeo (pasta sauces).

Also verrrrrry cheap at the time, now a bit less.

I also pinpointed Exacompta Clairefontaine a few days back to one our your followers who wrote about Crown Van Gelder.



Graemew - 8 years ago    Report SPAM

In my opinion people who set out with the aim of making anything like 50% return in a year are either greedy or self-deluding or both.

Making any high return is always associated with greatly increased risk. Yes, you can reduce risk to some extent by your careful analysis, but when dealing with microcaps you can never be 100% sure of your information....and often of management capability.

In fact, as we all know, Buffett did not make his fortune with small cap stocks but with the likes of Coca Cola and Gillette...and with a number of smaller private companies he bought out completely.

If you have the possibility to buy such reliable wealth creators as Pepsico and Johnson & Johnson, both quite undervalued at the moment, then why go for much higher risk micro caps?

I clicked on the link for Precia, but the website seemed to have no information for investors...so if they are not even interested enough in investors to provide basic financial information, then why should I trust management with my money?

I do own one or two microcaps in my portfolio as well as a few small caps of around 1B cap or less, and yes I am interested selectively in these smaller companies, but I balance this by having a lot of solid, good value large cap stocks in my portfolio. And I don´t aim for 50%. If I can compound even 15% I will be very happy and do very well over the years.

Go_loe - 8 years ago    Report SPAM
How do you guys buy these stocks(From US based investor perspective)? Pink sheets or local brokerage accounts?
Graemew - 8 years ago    Report SPAM

I am a UK based investor and can invest globally quite easily....maybe it is more difficult for US based investors. By the way, having had my rant above I will offer three possibilities of smaller cap companies. One is Benetton in Italy, the fashion retailer and the another is Accell in Netherlands which manufactures bicycles in several European countries. I own both companies. Another is Maire Tecnomont, a construction company based in Italy, but it has gone up quite a lot recently.
Go_loe - 8 years ago    Report SPAM
Benetton looks interesting on the valuation side just by glancing, its selling for 900M() &

Ebitda is 234M.

Working cap - 786M

Book value - 1495M

Its generating about 200M in free cash flow. Interesting..
Kidchoi - 8 years ago    Report SPAM

Great article Geoff. It all makes sense to me. The problem for me is making the time to play detective. My day job, my family, my hobbies, force me to be a defensive investor 90% of the time but when I can I try to flip over those little rocks too. Love your articles, keep up the great work.

Graemew - you know, another way you can look at the desire to make 50% returns is not necessarily greed or self delusion. I look at it as more like a game. If you are the competitive type, to me stock picking and achieving returns is a game that is very challenging. The sheer difficulty in it makes success all the more sweet. The percentage returns are the points in the game and your competition is greed itself. I would also not correlate risk with return. I think that is missing the point of the article....

It is good though to have misperception on micro caps being "risky". We need that in order to create inefficiency!
Ego_Stanley - 8 years ago    Report SPAM

I like your approach to investing.

When looking up the companies in Google finance, the third one (PREC) was immediately compared with a company called Gevelot S.A. (GVLT), which looked even cheaper at first view.

And now i see one of the commenters here mentioned it too.

Manolosalceda - 8 years ago    Report SPAM

Great article Geoff. I doubt it's possible to earn 50% in a consistent way during a large period of time, at least for a regular guy like me, but the insights you offer and the way you describe looking for the best alternatives is the way investing works and how it should be approached. Two thumbs up!

By the way, after posting this comment I'm following your links.
Csucag - 8 years ago    Report SPAM


Can I ask what sort of returns are you achieving then by doing what you do?

Mcn - 8 years ago    Report SPAM
I have seen several references to 'Unlisted' public companies, on here and various other publications.

How might an investor go about finding, researching and buying 'Unlisted' public company shares?

Thank you.
Manolosalceda - 8 years ago    Report SPAM
I've been investing in the us stock market for 3 years (a little more since I opened the account in august 2007). These are the results I've achieved until now:

2008 -24.9471%

2009 +49.4156%

2010 +14.2389%

My holdings include BRK/A, CAW, EDUC, RMCF, SAB, NTRI, OFI and a few option contracts. I used to hold VTI but I sold that position this year.

What returns are you achieving and what kind of holdings do you have?
Whycok - 8 years ago    Report SPAM
You have also many stock screener that can help you to find out those undervalued stocks faster than starting with the A's :





https://robotdough.com (free signup required - but you can build your own screener via formulas !!)

DocMoney - 8 years ago    Report SPAM
As I was reading this, I was hoping someone would question this article, clearly designed to excite but deeply flawed. Geoff does a great job of getting the reader excited about the upside but completely glossing over the downside. Let me express a few points here.

1. While it is true that there is a higher chance a microcap rather than a large cap will be ignored and therefore misvalued, most microcaps have absolutely no moat. Take Precia - is makes scales. I do not see significant barriers to entry there. Poujoulat - chimney and roof products, also no significant barriers to entry... Geoff selectively quotes Graham and Buffett, while ignoring their most important rule - and that is to be primarily concerned with risk, not return. Also, it is not that rare for a mid-cap or large cap to be grossly undervalued - and many gurus say you go where the value is, regardless of the cap. What is different is the reasons microcaps and large caps can be undervalued - microcaps because they are ignored and large caps because they are out of favor (today - defense and some healthcare) I like to go for undervaluation with less risk, if I can...

2. 50% annual returns? I would like ONE recent example of that. Oldschoolvalue.com guy sounds like he is pretty good at picking undervalued small caps, and he goes abroad too - yet in 2010, he underperformed SPY.

3. I think saying that defensive investors are know-nothing and enterprising investors are know-something is misinterpreting Mr. Graham. In fact, you will see that the criteria for enterprising stocks are less strict than for defensive stocks, implying that defensive investors MUST know their company well.

4. Last but not least. Ben Graham himself mentioned that times change and investing styles may change with them. Nothing else should be taken as gospel. I think today's investor must be flexible, learn the basic principles but develop his or her own, ever-evolving style and constantly work to improve it.
WIBruin - 8 years ago    Report SPAM
I completely buy into the basic premise here: to find value you have to go where other aren't looking. I think Munger said something to that affect at the last Wesco shareholder meeting. Unlike DocMoney, I don't think Buffett/Munger would be too concerned with durable competitive advantages ("moats") when investing in this area. Here, market cap is less than working capital - you don't have to be concerned about paying too much for growth.

However, I have the following concerns:

1. Liquidity problems - When it comes time to sell, will there be any buyers? Will you get stuck with the shares?

2. Higher likelihood of fraud ("pump and dump") - Despite the high profile frauds in the big cap space (Enron, WorldCom, Lehman?), I think there is even higher likelihood for fraud among microcaps. In an interview on gurufocus, Paul Sorkin warned of this risk.

3. Bad Accounting - Is anybody here real familiar with IFRS? I wouldn't be too comfortable trying to interpret a French financial statement.

Tomdilello - 8 years ago    Report SPAM

Geoff is basically discussing the old version of Warren Buffett. The Warren Buffett that used the "cigar butt" approach to investing. Buying stocks which were unknown/unloved and selling below net current assets or working capital. He practiced this during his partnership years (in addition to other styles of value investing). After he shut down his partnership his idea of value investing changed to looking for companies with tremendous earning power and moats. Buffett became more like Charlie Munger and less like Graham. Paying a fair price for a fantastic business with a durable competitive advantage with great management is the Buffett we all know today. The "cigar butt" Buffett is not as well known. But that old Buffett made A LOT of money. He did not care about durable advantages of the companies he bought because they were selling so cheaply. All he cared about was profiting from that price discrepancy and moving on. I think any value investor working with a small amount of money really needs to take a look at the microcap space as the companies have smaller filings, are usually easier to understand and more prone to weird price discrepancies. They could also be frauds so one must always be willing to do his/her homework, think independently and go where others are not. This is the point Geoff is making (or already made).

Batbeer2 premium member - 8 years ago
Hi Docmoney

Take Precia - is makes scales. I do not see significant barriers to entry there.

Imagine I wrote two articles titled "In the long run it's a weighing machine".... one is about Mettler-Toledo and its competitive advantages. That article is guaranteed to develop into a good thread.

The other article is identical.... I just replaced Mettler-Toledo with Precia-Molen. I can tell you the second article is going to get a handful of votes and views. The type of thread that will develop looks like this:


I could repost my article on K-tron by substituting Precia for K-tron. It would make absolutely no difference. If it's not Mettler-Toledo..... silence (or worse).

The thing is, unlike Mettler-Toledo Precia and K-tron just make scales. For the record, I really like Mettler. Precia-Molen is about 50 years older and just as entrenched..... the company is smaller, its scales are larger.

In short, many micro caps I have looked at have barriers to entry.
Anders - 8 years ago    Report SPAM
Its like the bible, so many different studies, views and definitions...hmmmm...

I believe docmoney has a point here...

About the 'cigar butt approach', buffett warned against it in BRK1989 letter.. "Unless you are a liquidator, that kind of approach to buying businesses is foolish."

Moreover, during the partnership, buffett invested in 'generals', 'workouts' and 'controls'... however, it is true that he focused more on the quantitative standards over the qualitative factors in the 'generals' category.

As far as I know the mantra from buffett has always been 'dont lose money' rule nr 1.. And to do that you need first to understand the downside risk.. I cant remember the article but he once said that in order to do this, you would have to 'go into' the business.. act like you would own it 100%. That in my world means reading reports and monitoring the story to be able to and understand 'your' companies.

Excluding 1 annual report 2009 from Poujoulat, I did not see any other english documents on those three corporate websites making it difficult to appreciate risk..

Best Regards,
Moathunter - 8 years ago    Report SPAM
Buffett in his 1999 Berkshire AGM said:

“I could name **half a dozen people** that I think can compound $1 million at 50% per year -- at least they'd have that return expectation -- if they needed it. They'd have to give that $1 million their full attention.”


That’s the reality check. Of all the great investors Buffett knows, just half a dozen could make 50% p.a. with $1m.

And when Buffett has mentioned “50% p.a. returns”, in the next breath he says that having a small amount of capital is a huge structural advantage.

The reasoning is understandable. Any logical person maximising their opportunity cost will manage a focussed portfolio of say 5-8 stocks. And you can realistically only take a <1% position in each investment holding before hitting various problems.

That means the minimum threshold company size that you can invest in will rise each year from $2m cap… then $5m cap… $10m… $20m etc., resulting in an exponentially declining number of half-priced companies available.

Subsequently, the attainable annual returns drop off rapidly.

50% with $10k? Sure. With $200k? Forget it.

A more realistic investing goal for a full-time employee with <$1m capital is to beat the market by 15 percentage points each year over a couple of decades, before the AUM grows too much (added to conservative long-term market returns of 7% p.a. = 22% p.a.).

That's a very tough but certainly possible goal for perhaps a few thousand rational investors.

An article titled “How to make 50% a year in micro caps” should be taken with a dose of salt.

Someone here asked about Gannon's returns. If I recall correctly, he recently mentioned on his blog that he made somewhere around 15% p.a. average return over several years. Don't know the specifics like AUM or time / money-weighted IRR, but that is very respectible and puts a perspective on returns an investor can expect to make.
Sivaram - 8 years ago    Report SPAM

DOCMONEY: "While it is true that there is a higher chance a microcap rather than a large cap will be ignored and therefore misvalued, most microcaps have absolutely no moat."

I also seek companies with moat but let's not assume that moats produce high returns or that they are necessarily "better."

If you are a classic value investor--old Benjamin Graham or Buffett's hedge fund days--you don't need a moat. Stepping aside from Warren Buffett, who many cite to justify almost anything, just take a look at Walter Schloss. Superb investor; pretty much a classic investor who probably never invested in an S&P100 or Dow 30 stock (except when distresed or in some other special case).

Another thing with moats is that they are REALLY hard to evaluate in the LONG RUN! A lot of people--you see this on this site for instance--throw around the present market leaders and keep mentioning their moat but fail to realize that moats can dissapear, or that they can misjudge the strength of the moat. After all, many would have considered Kodak in the 80's to have a big moat yet would have suffered terribly in the 90's and beyond. Similarly, how many would have said that AIG didn't have a huge moat a few years ago? The moat--AIG was the #1 insurance company in the world, with huge barriers to entry in Asia, Europe, etc--certainly didn't save their investors.
Davethebooker - 8 years ago    Report SPAM
The Article is very Good , and the information and the ideas are food for thought. Doc Money brings up some valid points too , that are also interesting to think about. What about Phillip Fisher ?

Waddles Model ? Dale Carnaige ? This is what takes Buffet into the stratosphere. Spins, mergers, undervaluation short and long term , backruptcy , bonds , whatever.

Spot undervaluation . That is the game. It is simple .

Just wait . And when you say to yourself " I cant Believe " whether to a price , event or situation that appears unbelievable , and the company can survive this problem . Well you have a great Oppurtunity.

Will you pull the trigger ?
Cm1750 - 8 years ago    Report SPAM
Very good article and comments.

With the market high now, I prefer to own large cap stocks where I expect 10% IRR with limited risk of permanent capital destruction. According to Morningstar, GMO and other top investors, the large cap blue chips are the best risk/reward now.

Once the "sugar high" of stimulus and QE2 wears off, you could have a significant market drop (2012?), with "crappy" cigar butt stocks leading on the downside. You can then buy them.

GMO had a study showing owning blue chips are great on the way down, and swapping out into cigar butt stocks closer to market bottoms is where you really get the maximum bank for your buck.

You just need a shopping list of small/micro cap stocks to watch.
Grossinvestor - 8 years ago    Report SPAM
Hey Geoff,

i really like your writings, i am totally with you and just started with the German As. I set the goal to generate profits like that as well to make a living from investing very soon, when i finished my studies. I prefer that to a "normal" job, we will see if it works, i at least want to give it a try. So i am totally willing to do the work. Its not just being smart, its the persistence that made Warren so successful, he was willing to do the hard work everyone else did not want to do.

but here is one specific question to Poujoulat. I just read through the annual report and i am a little bit confused by the two different figures of profit per share they give for 2009. Financial sites I saw tell that the profit 2009 was 16,73, but i can find another profit per share information of 10,78. thats a large difference...

résultat net* par action ( net profit per share) 10,78 € * de la sociéte

résultat net (part du groupe) par action - Net income (Group share) per share 16,73 euros

résultat net dilué (part du groupe) par action - Diluted net income (Group share) per share 16,73 euros

If this 16,73 is right it really looks like a great investment opportunity, but otherwise its not as far as attractive as i thought at first.

did you already figure out where the difference comes from and in fact which of those two profits best reflects one share?

I found some German stocks with potential, i did not make a detailed analyzes yet, but if you like i could give you some German stocks that might be interesting from time to time.

Best regards!


Oliv23 - 8 years ago    Report SPAM
Hey Geoff!

I am a young french value investor and I am so surprised you found these 3 stocks. I have owned shares of CIFE for more than 2 years now, and shares of Precia and Poujoulat for more than 6 months. And as Pierre says, they are not famous at all in France.

I like those 3 companies.

CIFE has plenty of cash (some cash is even hidden in the balance sheet!) and generates profit even if it is decreasing lately. They just signed a partnership to build an airport in France and they will have 5% of the concession (I don't know if it is the good term in english) later which will provide some steady cash flows. The owner is a bit old now and the company may be sold in the next years.

Precia is very cheap in terms of balance sheet and in terms of profitability. One value fund became shareholder a few months ago, just after I raised my position on this stock.

Poujoulat is not so cheap compared to CIFE and Precia in terms of EV/EBIT for example. Unlike the 2 other companies, they use a bit debt (not too much) which is not so bad. But the results improved a lot and steadily in the past. I guess the growth will continue during the next yearsbut not so fast of course.

And yes John, the net income per share is 16,73€ in 2009. I can't have access to the balance sheet at the moment because my connection to the internet is really bad but I guess teh 10,78€ you mentioned don't refer to the consolidated balance sheet. You have to take the consolidated balance sheet to get the results of the whole Group.

If the price of these 3 stocks doesn't improve too fast, I will keep them in my portfolio for a long time I guess. This is the kind of stocks you don't have to worry about. You can keep it and sleep. They are cheap and from good quality. The shareholder is not diluted and is respected. Of course, the volume of stocks traded is very low just like every micro cap but the shareholder is respected by the managements.

Some people have some doubts about Poujoulat because they changed of market a few months ago. They are now listed on Alternext which is a market which is not totally regulated. But the management seems to be really honest so I don't think it is really a problem. They just want to save some money for the company. Sometimes it is complicated and it costs too much for a small company to be listed on a regulated market.

About Cife, the major issue is that the turnover decreases because the management wanted only business with a certain level of margin. Until now, it was good but I guess they will have to accept contracts with smaller margins now. Another question about CIFE: what will they do with all the cas accumulated? One part will be for the partnership they just signed but what about the rest?

Concerning Precia, maybe the low level of margin can be a problem in case of a big and long crisis would happen but I think Precia could resist and anyway it is a very pessimistic approach.

Thank you
Oliv23 - 8 years ago    Report SPAM
By the way, here is a link to an excellent french blog about value investment:


As Boutch2fr mentioned, blog.daubasses.com is really great too.

But I guess these 2 blogs are not so interesting for people who don't speak a bit french.

Best regards


Caque - 8 years ago    Report SPAM

I've just checked Poujoulat 2010 annual report and net income is definitivly 16.73 e/share in the consolidated accounts (excluding minority interest, which is negligible anyway).


Grossinvestor - 8 years ago    Report SPAM
Hallo caque, thanks for checking!

So do you think this 10.78 from page 84 is the parent company's profit from the unconsolidated financial statement? i think i never saw this information in any AR before.... Especially because in the summary they say that the per share information can be found on this confusing page 84.

But i think this really makes this stock an attractive purchase...P/E below 6, thats really nice. So I think I will make some more detailed research on the weekend.

Best Regards
Cthrasher142 - 3 years ago    Report SPAM

Geoff, I just came across this article and pulled up the three stocks you mentioned. Precia has been a winner, compounding at 22% over the last 5 years. The other two have not fared very well, with CIFE posting cumulative losses over this time. Do you have any updated thoughts on the quest for 50% returns?

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