Small Cap Buy and Sell Philosophy

Tom, I am a new subscriber and am wondering how much do you buy of each stock that you have listed and what is your sell and buying philosophy?—S. S. 8/20/10 
 
Tom Garrity: One can position in stocks over time, and the size of any given holding may be determined based on the risk profile of the company. The more information and knowledge we have about the company, the markets it serves and trading interest for its stock, the greater dollar amounts can be allocated.

For example, Satcon is the market leader in solar inverters, has a book to bill (business) extending at least a few years out. Therefore, we could be comfortable owning a larger position in SATC based on what we know.

Conversely, we would be more comfortable owning fewer shares in a stock with a smaller market share and low earnings visibility. Trading around a position can be effective in an effort to improve outcomes of returns in addition to building stockpiles. 

Finally, try and own round lots of a stock of at least 1k shares. My buying philosophy is based on investment theme (described some above). If a company is young in the product cycle and competitors are at bay because of a high barrier to entry, then buying more stock is desired. I'm not finicky on what price I pay for a share of stock. Rather, I'm more interested in my timing of that purchase in relation to the company's business and market momentum. I sell a stock when the market addressed by the company is no longer captive vs sales, based on a decline of magnitude in stock price (Small Cap Stocks can be volatile to the tune of 35%+/).

Tom GarrityThomas Garrity
Small Cap Investment Specialist, Analyst and Editor of Cabot Small-Cap Confidential

Tom Garrity is analyst and editor of the limited-subscription newsletter, Cabot Small-Cap Confidential. A lifelong investor, Tom has been a stockbroker, stock analyst, venture capitalist, and portfolio manager. His long career and varied experiences taught Tom to make investments only when the odds of winning significantly outweigh the risks. He applies this philosophy to every stock he recommends in Cabot Small-Cap Confidential.


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