The Japanese stock market has recently brought into focus precisely the kind of high-quality asset I find most compelling:

• it has a first-mover advantage and the largest scale in what appears to be a winner-takes-most niche, where a much better-financed competitor tried to replicate the business and failed.

• the two-sided network nature of the business model means larger scale improves the value proposition for both customers and partners, while raising barriers to entry for already limited direct competition.

• it solves a recurring and urgent problem for customers, where the cost of not solving it is far greater than the cost of the service itself, making price a secondary consideration.

• it is about as asset-light as a business can be, having grown revenue at a double-digit rate every year except during the worst year of COVID, without having to employ capital. Put differently, net invested capital has been negative in every year since listing, making operating ROIC theoretically infinite.

• it also benefits from negative working capital dynamics, which have allowed free cash flow to exceed net income in 10 of the last 14 years.

It is no wonder the company increased FCF by 12x over the 13 years since listing, which resulted in an 18% total return CAGR to early investors.

Fortunately, it is also run by a founder who is not the stereotypical Japanese cash hoarder, but someone who understands the importance of shareholder returns. Over the past 10 years, the company has returned, on average, more than two-thirds of free cash flow to shareholders through dividends and buybacks.

I know this may sound like I am overselling it, but if I had to describe what I consider a high-quality business, I would end up describing many of the characteristics this company has today. Luckily, I do not have to pay a high-quality multiple for it, as the business trades on a single-digit forward EV/FCF multiple. And yes, I did discount part of the cash pile in my EV calculation, just to be conservative.

So there is no special-situation angle this time…just a business I like very much at a price I like as well.

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1-2 years ago, Italian small and micro-caps were my favorite hunting ground; niche companies with attractive unit economics, dominant market positions, and long growth runways. The kinds of businesses that rarely IPO in the U.S., both because private equity often steps in before a founder even considers listing and because the cost and regulatory burden of going public are higher than on the Euronext Growth Milan market.

And when they do list, they usually do so at much richer valuations. Some examples of companies that fit that mold, and that I have bought in the past, include $LDB.MI, $RFG.MI, and $COM.MI.

That opportunity set has become less fertile over the past year, as Italian equities rerated sharply and the iShares MSCI Italy ETF rose more than 50%, drawing more attention to the space and lifting all boats. As a result, I haven’t done a full A-to-Z in a year and have mostly stuck to revisiting names already on my watchlist.

One of those companies, which I had previously flagged (to myself) as interesting, has fallen 44% from its July highs and now trades at 7.7x LTM EV/EBIT and 12x P/E on what I believe are depressed margins.

The company is what investors would call a hidden champion: a little-known specialty manufacturer that has dominated a niche corner of the audio market for decades. It competes on quality rather than price, most of its production is customized, and most of its products are sold directly to businesses. More importantly, its larger customers have stayed with the company for more than 20 years, with essentially no churn.

That has translated into exceptional economics: average ROE of 30% and ROIC of 42% over the 19 years since it went public, a strong and consistent organic growth profile, and not a single unprofitable year. Just as importantly, the family CEO, who has led the business since listing, has shown he can scale the company effectively, execute industry acquisitions successfully, and behave in a shareholder-friendly way.

That was enough for me to dig into the business in more detail, look at where the risks and opportunities lie, and build a valuation framework that points to a 20.1% total return CAGR.

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With all portfolio companies except $BCY.SI having now reported their 2025 results, it is finally time for another portfolio update.

Following satisfactory performance in 2023, 2024, and 2025 (discussed in the Panta Rhei article), my portfolio of global micro-caps continued its positive momentum in Q1 2026, rising 12.1%, compared with a 3.1% decline in the MSCI World (EUR) ETF—my opportunity cost if I were not actively stock picking.

It also outperformed the MSCI World Small Cap ETF (EUR), which was flat during the quarter. While I don’t believe investors should judge themselves against benchmarks over the short term, I use this one as a check on whether I’m actually adding value through stock picking or simply benefiting from a strategy of “going smaller.”

At quarter-end, the portfolio consisted of 12 holdings. The top three positions accounted for 48% of capital, while the top five made up 64%. Portfolio beta remained low at 0.62, essentially unchanged from the last update, with only two positions above a beta of 1.

Since the previous update, I initiated three new positions, exited three, traded in and out of two, added to one, and did not trim any. Cash rose from near zero to 7%, largely due to my most recent sale and dividends, and I expect to redeploy that capital soon. The portfolio also ended the quarter with no direct exposure to AI, energy, or commodities.

$SOFW.TA was the top contributor to portfolio performance in Q1, while $8771.T was the main detractor. Japan joined the U.S. as one of the portfolio’s main geographic exposures, and together they now account for roughly 60% of capital.

I once again wrote this update through the lens I care about most—and probably the only one I know: what changed in each business, why it matters, how it affected the risk-reward, and whether it changed my conviction or sizing.

I’m still looking for situations where few are paying attention and even fewer have done the real work, because that’s where fundamentals matter more than themes, sector calls, macro narratives, or market mood. After all, no investor ever steps in the same micro-cap twice, for it’s not the same micro-cap and he’s not the same investor.

What follows are the most important developments across the portfolio, along with my position sizing as of the market close on March 31, 2026. As usual, I’ll go from smallest to largest.

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(Japanese) SaaS micro-caps have become so ridiculously cheap lately that over the past month or so I’ve found it hard to look at much else. Even so, I’ve come to the conclusion that I’d rather not initiate a SaaS basket bet.

That’s not because I think the setup is unattractive. A diversified basket of these names may well outperform the market over the medium term. It’s just not a style I have much experience with, and I’m more comfortable with a concentrated approach where I can know and follow each company well, allowing me to reassess the thesis earlier, and hopefully better, than the market.

So the way I’d rather approach this selloff is by focusing on companies that are not pure software but are being lumped in as such and thrown out with the broader SaaS bathwater.

And that is exactly the case for the company profiled in the report below.

It does not really compete on technology. Its advantage lies in access to IP, built through long-standing relationships in the music and entertainment industry and through boots-on-the-ground sales work that no new AI startup can easily replicate.

In fact, this business shouldn’t be thought of as a typical SaaS company, even if a large part of revenue are recurring subscriptions. A better way to think about it is as a middleman, or perhaps a quasi-marketplace, that secures IP through trusted relationships and monetizes that IP by bringing a loyal audience into its ecosystem.

And just how powerful that ecosystem is can be seen in the numbers: less than 1% annual churn among subscribers, even lower churn among IP providers, and EBIT growing organically from ¥730M in 2020 to what should be ¥5.2–5.4B once results for the fiscal year ending March 2026 are out.

Nonetheless, AI-related fears seem to have taken hold among Japanese investors, sending the stock down by almost 40% over the past six months—even though the company has delivered strong results, raised operating profit guidance by double digits, and was not particularly expensive to begin with.

Today, the company trades at 8.5× EV/EBIT and at an even lower normalized FCF multiple. That’s due to its extremely asset-light, float-based business model, which has generated average FCF-to-EBIT conversion comfortably above 100%. And may be another reason the company is overlooked by Japanese investors, who tend to focus heavily on P/E multiples.

I know this might be a lot to take in without a full picture of what the company actually does, so it’s probably best if I end the executive summary here and let the full research, as well as notes from the conversation with the CEO, start below.

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As Pernas Research pointed out last Thursday, SaaS companies are down 27% YTD, while the S&P 500 is roughly flat. I guess his dataset covers U.S.-listed names with at least a $1B market cap. The performance looks even worse in small and micro-caps—and worse still in Japan.

Whether you’re new to SaaS or have been investing in the space for a decade, you’re probably feeling some level of pain/panic. Instead of thinking about which setups offer the highest IRR, you’re asking which ones are least likely to be disrupted by Anthropic. That is assuming you’re still invested at all.

I’d guess many aren’t even trying to assess what’s probable anymore, but are defaulting to worst-case scenarios and concluding the space simply isn’t investable. I don’t blame them. Seeing a stock get cut in half that I once considered “asymmetric” would—and does—make me react the same way.

That said, in environments like this, if you can separate the baby from the bathwater and avoid throwing both out while keeping the baby at a cheap price, there are likely riches to be made.

I wouldn’t consider myself a SaaS expert, or an expert on AI disruption. But I think I have found a case where Japanese investors have thrown a company into the “sell SaaS because of AI” bucket, even though AI is actually a big positive.

In fact, I wouldn’t really call it SaaS at all. It’s a data platform. Customers pay a subscription to access a proprietary database built from primary data. In this case, AI isn’t a threat—it’s a way to extract more value from that data. And that’s exactly what management has recently made its core focus.

More importantly, in last week’s earnings release the company announced its first price increase for existing customers in its 25-year history. The hike is meaningful and, as you’d expect, should flow entirely to margins. In most environments, that kind of news would be rewarded with a 10% or 15% post-earnings pop. Here, the stock was up less than 3%.

In the research below, I explain why I see AI as a tailwind to the company’s value proposition, what I think the price increase will mean for the financials, and why I believe it could be trading at roughly 3.9x to 4.6x EV/EBIT two years out.

Even if I’ve overestimated the pricing impact and underestimated churn, the stock is still trading at about 6.2x LTM EV/EBIT. And this is based on earnings generated in what is likely the worst end-market environment since the GFC. That’s for a business that has compounded EBIT at 18.3% over the past 20 years, 17.6% over the past 10, and delivered an average ROE of 27%.

I don’t think many are paying attention to this. The only reason I noticed it is because I’ve been following the company for some time.

So without further introduction, let’s dive in.

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Today I want to highlight what I think is one of the most overlooked Swedish serial acquirers I’ve come across in a long time.

There are a few reasons it sits in this “overlooked” bucket. First is size: at roughly $27M in market cap, it’s simply too small to attract much attention. There’s barely any discussion of it on Twitter, and you won’t find polished Substack pieces written about it.

Second, the company has a messy history, marked by unusually high turnover at both the board and management level. That legacy still weighs on perception, even though the situation today looks fundamentally different.

On this point, what I don’t think the market has properly priced in yet is that the new board, management team, and the new largest shareholder are all a clear step up from what existed historically. While the acquisition track record is still short (only two deals so far), the new board has, so far, shown discipline by buying niche, adjacent businesses at dirt-cheap prices. At the same time, management seems well focused on supporting the entrepreneurs behind the acquired companies, which is translating into strong organic growth across the group.

The new largest owner matters here as well. I’ve been told by a fellow shareholder that he’s a successful private investor, heavily influenced by Buffett-style thinking, with a CAGR of ~25% over 15 years in Swedish stocks. I couldn’t independently verify that, but based on my email exchange with him, it doesn’t strike me as implausible. I also spoke with both the CEO and the Chairman to better understand everything related to their M&A approach—from acquisition criteria and addressable markets to potential synergies. And I think the inorganic strategy will not only continue, but potentially accelerate from here.

Another reason the company is overlooked is how misleading the surface-level business description can be. At first glance, it looks far more cyclical and undifferentiated than it actually is. Dig a bit deeper and the picture changes: the group operates in narrow niches, competes on expertise and service quality rather than price, and primarily serves businesses and high-end consumers. In my view, that makes the earnings base higher quality and less cyclical than most investors would assume at first glance.

Valuation is the final piece. On trailing numbers, the stock already looks cheap at around 11× LTM P/E. At least relative to what you typically see in Sweden’s serial acquirer space. But that doesn’t reflect what I expect to show up in FY 2026, as the most recent acquisition starts to flow through, bookings convert into revenue and earnings, and newly hired sales staff begin to contribute. On my numbers, the company is trading closer to 4.5-5× forward EBIT and roughly 6–7× forward P/E, depending on operating leverage.

And I think SEK 1 of earnings should translate into more than SEK 1 of free cash flow in an average year. Over the long term, I see revenue growing at least 5% annually (albeit not in a straight line), with earnings growing at least at the same pace. This is before factoring in the upside from continued M&A growth at 2.5–5× EV/EBIT(A) multiples.

So yes, this is me bombarding you with the setup to help you decide whether this very long research report is worth your time. For those who think it is, let’s dig in.

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Earlier this week, I had a call with Michael Christenson, who has been CEO of Entravision ($EVC) since July 2023. I speak with management teams fairly often, but it’s rare that I come away as impressed as I did after this call.

Michael comes across as focused and tech-savvy, with a clear view of the long-term strategy and a willingness to make hard calls that are likely to be unpopular in the short term. He also runs corporate overhead extremely lean, understands how to build the repeatable systems required to scale the organization, and is pragmatic and disciplined when it comes to capital allocation.

I also like that he’s not promotional at all—his answers are honest, realistic, and backed by specific examples. He genuinely comes across as someone who keeps his head down and lets execution do the talking. That’s probably why you won’t find interviews with him online, and my guess is he wouldn’t have taken the call with me if I weren’t friends with one of the company’s largest shareholders.

I think his track record since joining Entravision speaks for itself, particularly in how he handled the strategic wind-down and execution in the AdTech segment, and in cutting corporate expenses by more than half.

He’s also put his money where his mouth is. After Meta shut down its ASP program—unfortunately taking roughly half of Entravision’s business with it—he bought shares aggressively in the open market and maintained the dividend. Earlier this year, he also cut his base salary and cash incentives in favor of more equity in the form of PUs and RSUs tied to stock performance, which makes me feel he’s very well aligned with shareholders.

The main reason I wanted to speak with him was to better understand the Smadex story since he joined Entravision: its value add, the competitive landscape, barriers to new entrants, the drivers of past growth, and the opportunity ahead.

As paid subscribers already know, Smadex matters so much because the risk-reward at $3.17 is very different from what it was when I first wrote it up at $1.93. That’s not because I think $EVC has become a pure Smadex bet, or that a slowdown in Smadex growth would kill the thesis. But Smadex has clearly become a much more important driver of upside from here than it was in the past, when it was growing more slowly, was less profitable, and made up a smaller share of the overall business.

And even though Smadex and the broader AdTech segment now make up more than 63% of EVC’s revenue in the most recent quarter—and likely around 55% for the full FY 2025—with revenue growing 104% and EBIT up 378% before operating leverage has fully kicked in, I still think it is the variable of the thesis that the market underappreciates the most.

After all, AdTech’s EBIT for 2025 should come in at more than $25M, with a current run-rate closer to $40M, while $EVC’s entire enterprise value is still only around $440M. And what’s left isn’t worthless, but a highly FCF-generative broadcasting business focused on a politically important Spanish-language audience, along with the most valuable spectrum assets relative to EV among publicly traded traditional media companies I’ve looked at. We covered the current state of both on the call as well.

So without further ado, here are my notes from the call with Michael. I hope they do the conversation justice.

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As paid subscribers know by now, in late December I increased my position in one niche company operating in an oligopolistic market. One that’s been taking share year after year while pricing its products at a significant premium. Since I first profiled it in September, the business has gone through a number of changes, warranting more frequent updates than usual.

Yesterday, I spoke with the CEO and CFO, both of whom joined the company last year and are now driving meaningful strategic changes, with manufacturing improvements likely to follow. Below are the notes and key takeaways from the call:

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On Saturday, January 10th, prices for NEW subscribers are going up.

The monthly subscription is going from $30 to $45 per month.
The annual subscription is going from $240 to $300 per year (a $25/month equivalent).

If you’re already a paid subscriber, or sign up by Saturday, your price will not change as long as you remain a subscriber.

The reason I’m raising prices ONLY for new subscribers is that it’s now been a little over a year since I turned on paid subscriptions, and I want to thank those who chose to support me and made it possible for me to dedicate all my time to The Mikro Kap. Grandfathering you in at the lower rate, in perpetuity, feels like a more meaningful way to show that appreciation than words alone.

And the reason I’m raising prices much more for monthly subscribers is that I want to encourage a base of longer-term thinkers. In the same way funds prefer permanent or “patient” capital, I prefer readers who judge me on my annual output, not on a monthly cadence. I don’t want to promise 3x actionable ideas per month or turn this into something meant to entertain on a weekly basis. I simply research a lot and write in depth about whatever I think offers the best risk-reward at the time. That approach won’t change with higher prices.

For reference, last year—which was both the highest-turnover year I’ve ever had and the year I found the most “actionable” ideas—I wrote 14 research reports on 17 new ideas and invested my own money in 12 of them.

But Mikro Kap isn’t only about new ideas. It’s also about constantly reassessing whether the initial thesis still holds through proper maintenance due diligence: closely following filings and news releases, speaking with management, and sometimes visiting companies in person.

If you’d like to read more about the publication, you can do so here:

In case you’d like to read more about my investing style, you can do so here:

Or if you’re curious how the returns looked for companies profiled in the first 365 days after I turned on paid subscriptions, you can do so here:

LINK

Again, a massive thank you to those of you who made this investing publication possible. I’m incredibly grateful and will do my best to make the subscription worth your hard-earned money.

Feel free to share this post with anyone who might find it useful.

David

With 2025 behind us, I’ve now wrapped up my third full year of sharing stock analyses and every buy/sell decision on Substack. Performance over that period:

2023: +29%
2024: +26%
2025: +51%

These are pre-tax returns in EUR (my base currency). And the actual tax bill in 2023 and 2024 was—and should remain for 2025—small, thanks to Croatia’s favorable capital gains rules (12% on capital gains and dividends, 0% after holding a stock for over two years, and no wash-sale rules).

With 2026 ahead of me, I wanted to reflect on my investing strategy—if you can even call it that. A quick caveat first: while a 37% CAGR over three years is something I’m happy with, three years of public performance obviously doesn’t qualify me to give advice, so please don’t treat this as such. This is simply one guy writing things down, to look back in ten years and see how much he’s changed and, hopefully, improved.

More importantly, there are many roads to Rome. The strategy and style that work for me won’t necessarily work for you, and vice versa. If you handed me $1B to run with a focus on options flow, or swing trading, I’d almost certainly underperform. At the same time, I know there are plenty of investors who absolutely crush it using exactly those approaches.

Although the more I invest, the more I believe there are exceptions to almost every rule in investing, the four main pillars of my approach haven’t really changed. I wrote about them in more detail roughly 2.5 years ago in My Life in Value article for anyone interested.

In short, I still prefer:

• Illiquidity. I like under-followed companies and obscure setups where I’m not trying to outsmart or compete with “professional investors,” but instead be early to something they’re not yet paying attention to.

• Downside protection. I strongly believe that buying things well matters more than buying good things.

• A clear path to value realization—accelerating growth, improving capital allocation (used to be my main focus), or material corporate actions that eventually force the market to agree with my valuation work.

• Doing deep enough work to be confident in points 1–3, and to know that a lot has to go wrong for the investment not to work out.

But for this article, I want to switch the focus to a few “frameworks” that have become more and more important to my investing style since I wrote that article. And to things I didn’t expect to matter as much when I first started investing, or even when I first started writing this blog.

Let’s start. I realized…

1. It’s often much easier to make a good add decision than a good initial buy decision.

This is for a few reasons. First, at least for me, true comfort—or discomfort—with an investment only comes once you’ve actually put money behind it and started to hold the stock. You see how the business performs, whether management executes on what they said, and you start noticing things you didn’t previously know existed or thought didn’t matter much. With the release of each new filing, you can then check whether what you believed needed to happen for the investment to work is, in fact, happening.

I think this is especially true in micro-caps, where things change far more often than in large-cap land—and when they do, the impact on risk-reward is much larger than it would be for a $20B-revenue company with three product categories and eight product lines. To give an example from just the past year or so (which I think many of you are already familiar with):

December 2024
$LDB.MI exiting its risky France business to fully focus on an underpenetrated HVAC market, using a sensible strategy of acquiring stable local businesses from retiring owners at attractive prices.

January 2025
$ALCO shifting strategy away from unrewarding citrus farming toward rezoning and selling its land—valuable assets that had effectively been “locked” on the balance sheet. Under a management team with a good track record of returning sale proceeds to shareholders.

November 2025
$EVC’s AdTech segment accelerating for a fifth consecutive quarter since the split into Media and AdTech, reaching 104% revenue growth last quarter and accounting for 63% of total revenue.

Or even just last month
$ICCC abandoning a 25-year pursuit of FDA approval to refocus on its high-quality core business.

In all four cases, something material changed that either took the downside off the table, improved the upside ahead, or both. And what’s attractive about underfollowed setups like these: you don’t have to worry that (a) good news gets priced in immediately, or (b) most investors even recognize that the news is good in the first place.

This is exactly why I like doing deep work before initiating a position—because without it, I wouldn’t recognize the change as an opportunity or be able to separate signal from noise. And it’s also why I’m so annoying about mentioning the Substack chat: I genuinely think some of the earnings / news coverage there can end up carrying more alpha than the initial research report.

So, in short, I like adding when the odds improve and a future that was once uncertain now has fewer negative scenarios. Or more likely and more material positive ones. Even if the price has already moved a bit.

Which brings me to another point.

2) No investor ever steps in the same micro-cap twice, for it’s not the same micro-cap and he’s not the same investor.

Sorry for the twist on Heraclitus’ quote, but I think this is also why doing A-Zs, getting familiar with as many companies as possible, and then staying on top of them matters so much. Even if it means you’re mostly reading useless 8-Ks.

Just as an initial small buy might turn into your largest position or something that needs to be cut entirely. In the same way a watchlist name that has been sitting in your “investing universe” for five years can, with one change, suddenly deserve your attention or your capital.

This is why many of my current ideas come on the back of historical due diligence, and why I try to adapt as results come in and theses evolve. In fact, usually some of the best opportunities end up being the ones that weren’t your cup of tea when you first found them, but over time—through strategic pivots, management changes, better capital allocation etc.—the setup improves while the share price goes nowhere. At that point, the risk-reward often looks far better than when you first came across the idea.

Okay, another related point.

3. Long consolidation

While I’m not a chartist (and don’t think I ever will be) reading Ted Warren in 2024 made me start paying attention to stocks consolidating near 52-week highs or 52-week lows. By consolidating, I mean a period of more than a year (the longer, the better) where a stock is range bound, usually accompanied by low volume.

I never invest solely based on a chart or trust it blindly, but I’ve noticed a pattern: in setups like these, the risk-reward at the beginning of the stock range is often very different from the risk-reward at the end of it, when I’m actually looking at the setup. And despite real fundamental progress and business changes happening beneath the surface, investors tend to ignore them. Either because they’re too impatient adding to what feels like “dead money,” or because they sell out in frustration for the same reason. This is especially true in bull markets, when everyone around seems to be making money left and right.

There were two good examples of this in Italy this year.

$COM.MI (the stock) had been consolidating for about four years until this spring. Over that period, management successfully integrated the huge WPG acquisition, lifted the (normalized) margin profile of the business, and paid down the “unwanted” long-term debt that came with the deal. One quarter later, the Q2 2025 results showed that the deterioration in the agriculture and industrial end markets had finally stopped and the cycle was close to a bottom. And, with a cleaner balance sheet, management then moved to acquire Nabtesco, further consolidating the industry. As a result, the stock was up more than 50% within six months.

$LDB.MI’s chart was also consolidating around a 52-week high and went nowhere for more than a year, even as the thesis was de-risked by exiting France and the upside improved materially through HVAC acquisitions completed in H2 2024. Only once that showed up in the H1 2025 results (something the market is now clearly excited about) did the stock reprice, rising roughly 130% since spring. Even though the impact these acquisitions would have on the financials was already apparent by the winter of 2024.

Again, this is just a bias around game selection, similar to a rule I outlined in my My Life in Value article about using low beta for illiquid, non-cyclical businesses as a north star when looking for underfollowed companies. I’ll still invest in businesses with charts that look nothing like this, and I’ll still buy stocks that aren’t low beta. In fact, I may even look back a few years from now and realize I simply had a good outcome that had nothing to do with a long, consolidating chart. We’ll see.

4. There’s a difference between thinking long term and holding long term.

While I approach investing with a longer-term view and a thesis (whether around business prospects, a special situation, or something else) that’s often a few years out, I’ve come to realize that holding something long term rarely ends up making sense for me. At least for my style and the returns I’m trying to achieve, while avoiding taking on excessive risk.

I like flipping a lot of rocks, which naturally brings new and interesting ideas onto my radar. And when those ideas offer a risk-reward that looks meaningfully better or more asymmetric than what I currently hold, it feels foolish not to reshuffle with the aim of maximizing IRR.

That said, I still think buy and hold can work if (a) you don’t have the time or desire to do a lot of rock-flipping and ongoing maintenance due diligence, and (b) your initial thesis on a business and the management’s ability to execute was SPOT ON.

Personally, I think combining a long-term view with a willingness to cut when the IRR math worsens and replace a position with a better idea is superior. The catch is that this approach really only works if you’re constantly turning rocks—finding new ideas and judging their risk-reward against a growing set of opportunity costs from both portfolio holdings and watchlist names. Over time, that process naturally makes you pickier and leaves you with only what you believe is truly “best” in the portfolio.

Also, given everything I’ve written above about how changes disproportionately impact micro-cap businesses, I think it would be silly for me to buy something and then not look at it for some arbitrary amount of time—just to feel like Buffett buying American Express, or to say I have a three-bagger over five years instead of a one-bagger over two. The first sounds more impressive, even though the math clearly favors the second—41% CAGR versus 25% CAGR.

Of course, this is the ideal case—moving away from something that’s worked but where the upside is now smaller or more uncertain. In practice, turnover is often also the result of mistakes I’ve made in assessing the risk-reward, or of being confident about the wrong assumptions in my valuation work. When I realize that’s the case, I get out quickly.

I don’t mind looking stupid on the internet, or exiting a stock I once thought was far more attractive than the facts that followed suggested. And if I catch myself rationalizing too much or getting emotional about someone pointing out flaws in my work, that’s usually a signal. It’s usually my body telling me there’s disconfirming evidence I hadn’t seen before, and that I should reassess immediately—or get out.

Unrelated, but this is exactly why the third pillar of the investing strategy I outlined in My Life in Value matters so much, and why “buying things well” beats most other approaches. When you end up wrong on a thesis—and you inevitably will—it’s far better to be wrong in an obscure value trap that no one ever believed had a bright future than to be wrong in a beloved GARP stock where everyone shared the same growth story. When that consensus breaks, there’s usually no downside protection left to shield you from the mistake.

Additionally, I think this approach fits my concentrated style of investing because I can’t afford to sit through multiple contraction in a large position and come out unscathed—or rather, I don’t want to if I don’t have to. I don’t mind selling winners, and I don’t mind selling losers. And I tend to prefer ideas that I’d consider one-foot hurdles—things that make sense to hold when they’re dirt cheap or cheap, but not when they’re fairly valued. Those are much easier to sell than wonderful businesses bought at fair prices, where returns depend on long-term compounding and where exit timing is inherently harder. And, of course, I’m lucky enough not to face overly punitive short-term capital gains rules in Croatia.

For example, I now hold zero positions that I held in H1 2023, even though keeping them would have resulted in a decent enough IRR.

5. Curiosity + attention span = “huh” moments

Although I’ve outlined some things here that have worked for me and that I think should continue to work, this was still an unpleasant thing to write. Because…when it comes to investing, I don’t think anything is set in stone, and I stopped believing in “investing strategies” some time ago.

Rather, what I truly believe is an evergreen truth for anyone fishing in the micro-cap seas is that your “edge” comes down to two things. The first is curiosity—something Greenblatt describes particularly well in his special situations classes, on page 245:

“Oh, really? Let me take a look.”

The second is attention span—the ability to research diligently.

So if I had to describe my investing process in a single sentence, it would be this: read, read, read, pass quickly on most ideas, and keep going until something good, cheap, or unusual makes me say “huh?” out loud, at which point I dig deeper to figure out what the “anomaly” is really about.

Opening my eyes to what might be an opportunity on my desk, then doing the detective work needed to figure out what actually matters and how that shapes the risk-reward of a given investment. Ultimately building enough conviction to decide whether to pass, follow along, or make the bet at the appropriate size.

Since I’ve already mentioned Greenblatt, it would be a pity not to mention Buffett as well. And Brett Gardner’s book on Buffett's Early Investments probably captures this best:

“His fluid analytical process allowed him to jump from investment to investment, always focused on finding value. From figuring out whether American Express’s competitive position was impaired due to the Salad Oil scandal to handicapping the odds of the British Columbia Power deal closing, he focused on solving the right problem. The prevailing thinking on Buffett far too often tries to box him in by repeating cliches about finding great businesses and great management teams. But it ignores how flexible he was in the variety of opportunities he scooped up, as well as the different types of research he performed to uncover information.”

And that’s it for the current Mikro Kap style—if you can even call this stream of thoughts that. It helped me reflect on a few things, but it’s probably not the best use of my time to do often, which is why I won’t be repeating this regularly.

Still, many of you have asked whether my investing style has changed over the years, so I hope this was a helpful and interesting enough answer for those who did.

If you’re still reading, happy New Year again. And thanks for sticking around!

I’m back to looking for those “huh” moments.

David

The Mikro Kap uses information sources believed to be reliable, but their accuracy cannot be guaranteed. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. Consult your financial adviser to understand whether any investment is suitable for your specific needs.

I may, from time to time, have positions in the securities covered in the articles on this website and reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

This is not a recommendation to buy or sell stocks. Do your own due diligence.

It’s time for the final research report of what has been a strong year for both markets and micro-caps.

I should start by thanking my friend gezzogero, who originally flagged this idea to me, saying it gave him “Lindbergh and Michele (Lindbergh’s CEO) vibes.” That comment pushed me to dig deeper—and the more I read, the more I liked what I saw.

This one is a boring Japanese business in a boring industry, but it’s running a strategy with a unique twist that peers haven’t been able to replicate.

The result is a business that’s grown revenue at a 13% CAGR over the past seven years—and done so with remarkable consistency. Filings show growth in every single quarter since listing, and available data prior to that points to year-on-year growth back to 2018, with the weakest year still posting 8.9% growth. At the same time, the founder-CEO’s obsession with costs has steadily tightened operations, driving margin expansion every single year and pushing EBIT growth to a 33% CAGR over that seven-year period.

I think the road ahead looks at least as bright as the historical numbers suggest (especially in the near term), yet the market isn’t giving the company much credit at 8–9× forward EV/EBIT and 9–10× forward P/E.

But this only scratches the surface. There are more interesting insights and important details beneath the numbers, so let’s dig in.

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But right on Christmas Eve, one special situation I covered back in September released what I believe is its most important press release in its history. While I usually keep updates in the Substack chat, this one reflects a material thesis shift and deserves a full email update.

For anyone who hasn’t read the full research report yet, I’d suggest starting there first:

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As you’ve probably noticed, I don’t publish portfolio updates right at quarter-end. I wait until every holding has reported its quarterly results. So now it’s time for another one.

In Q3 2025, the portfolio was up 34% for the year, and as of December 1st it’s up 47% YTD. Both figures are measured in EUR and reflect pre-tax performance.

I’ll be writing a more detailed reflection on performance and strategy in early January, since it will mark the third anniversary of me sharing my analyses and real-time portfolio moves publicly. For now, I can say that after quitting my job last year, I’m pretty happy with how my first full year of doing micro-caps full time is shaping up.

And I’m glad I managed to outperform the indices without getting caught up in the AI speculation and other distractions. The portfolio also stayed resilient during the April drawdown — it was only 2.7 percent in the red on the worst day of the year.

In the future, I’ll continue focusing on illiquid global micro-caps. Mostly the ones with lower beta than the market that don’t really care about passive flows or whether the MAG7 and SPY are up or down for the year.

Instead, what I hope will continue to matter most for my performance is whether the fundamental thesis is moving in the right direction — and that’s what we’ll cover today for each position today.

Also, a lot has changed since my last portfolio update in August. I sold three holdings, bought three new ones, increased the size of four positions, and reduced one larger position. So this article will also be my way of showing exactly how I’m positioned heading into 2026.

I expect my portfolio to continue having higher turnover than you’d see from a typical value investor. After all, I’m not in the “buy and pray” or “buy and never sell” camp. Instead, I’m trying to maximize IRR while taking as little risk as possible and owning whatever gives me the most comfort at any given time.

Let’s dig in.

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Why am I writing about B2B SaaS companies? What makes that model attractive?

(in no order)

• they sell software that companies and their employees rely on every day—and can’t really do their jobs without. Once it’s embedded in an organization’s workflow, switching becomes extremely difficult. In Wall Street terms, it’s “mission-critical.”

• as the last “S” in SaaS implies, the “service” model means subscriptions—and subscriptions mean recurring revenue. That recurring nature makes the business far more predictable and its unit economics clearer, both for managers allocating “excess” capital and for investors trying to assess normalized profitability through the cycle. It also makes the business easier to run and more resilient to industry or economic downturns (unless your customers go bust, of course).

• another related point is that customers typically pay upfront—either annually or in monthly installments—which creates float and makes cash flow run ahead of net income, especially during the growth phase.. That allows the business to expand more easily than it otherwise could, without needing to tap debt or equity markets.

• a sticky customer base, a low subscription cost relative to customers’ overall expenses, and a lack of alternatives compelling enough to justify the hassle of switching often translate into strong pricing power and gross margins of 60–70% or higher—plus excellent net margins once the business scales. As the customer base grows, each additional customer typically brings in far more revenue than the fixed costs (IT, admin, etc.) or OpEx associated with serving them (assuming the company isn’t running a dumb sales-and-marketing strategy). This creates significant operating leverage. And combine that with low churn and you get a highly-profitable, durable business. A 10% annual churn rate (about 0.83% monthly) implies an average customer lifespan of roughly 10 years.

• VMS (vertical market software), built to serve industry-specific needs, stands out because it typically faces more limited competition than horizontal SaaS—at least for the new clients. These niche verticals tend to end up with oligopolistic software offerings, and bigger non-VMS players don’t bother entering since the TAM is too small to move the needle for them.

• on the other hand, horizontal SaaS stands out for its resiliency in downturns and its ability to further monetize the existing customer base through upsells and cross-sells—without needing heavy ad spend to acquire new customers.

• most of the required growth and maintenance CapEx is limited to hardware/IT equipment and office build-outs, which means net income can be returned to shareholders without hindering the company’s ability to grow.

• everything is delivered through the cloud, so you can scale the business from a single office. There’s no need for teams traveling around to install software on-site like in the old on-premise days.

• most companies I’ve looked at have no meaningful customer or supplier concentration, so no single party has the leverage to squeeze pricing. And as a SaaS company grows its customer base, the value proposition often strengthens. Because, if you listen, those customers will give you the feedback you need to continuously improve the product.

But why am I writing about Japanese SaaS specifically? What makes it interesting?

(in no order)

• the opportunity set among listed SaaS companies in Japan is wider than in any other country. Using the (vague) screening criteria I applied, I came up with 40 companies in Japan, compared to only 19 in the U.S. and Canada combined—and coincidentally, also 40 for all of Europe.

• one of the main reasons so many of these companies ended up listed is that Japan’s local VC industry was (and still largely is) small and reluctant to fund SaaS. That pushed companies wanting to scale to go public earlier than usual—and it also kept competition for first-movers lower than you’d typically expect.

• related, many of these companies took advantage of the COVID-era frenzy, going public at absurd valuations while posting inflated ARR growth. Now the sentiment has swung almost to the opposite extreme. Despite finally putting up a solid year, most Japanese SaaS stocks have been hammered once again over the past 2–3 months.

• Japanese people aren’t exactly your San-Francisco-style early adopters. Digitization in Japan still lags much of the developed world. Many companies literally keep files on paper or run their operations in Excel. Culturally, the country leans toward manufacturing and hardware, not software.

• Japan was slow to digitalize internal processes, and the firms that did modernize often did so through customized on-premise software installed by large system integrators, which was an industry standard for decades. Only recently have companies begun shifting to cloud-based SaaS, with SMEs leading the way. Even today, Japan remains far more under-digitalized—or under-clouded, if that’s a word—than other developed markets.

• there are studies floating around suggesting that by the end of this year, more than 60% of mission-critical corporate IT systems in use will be over 20 years old. Replacing these outdated systems and going through a proper “digital transformation” should drive significant demand (especially for the two horizontal SaaS providers covered in this report). Enterprises know this, and the government has been pushing in the same direction for quite some time.

• related to the point above, an aging population and a severe shortage of skilled IT workers have made it necessary to automate redundant processes and boost the productivity of existing labor through software.

• a unique culture creates unique needs, and those local nuances make it difficult for global software companies to enter and compete effectively. This is especially true for VMS players, which usually operate in markets too small to attract serious competition. They’re not going up against the Microsofts or Oracles of the world.

• a lack of quality entrepreneurs and a weak risk-taking culture means the few who can scale and execute stand out even more. Again, this isn’t San Francisco—leaving a stable job at a system integrator to start a SaaS company is frowned upon in most Japanese families.

• I also think it’s part of Japanese culture not to switch solutions once they find something that “works.” The average monthly churn among the Japanese SaaS companies I’ve looked at is noticeably lower than that of their U.S. counterparts. For reference, two companies on this list that actually disclose churn come in at just 0.6% and 0.34% per month.

• Japanese investors aren’t used to understanding software stocks—they prefer net-nets, dividend names, and manufacturing companies. Meanwhile, low liquidity and the lack of English filings make these stocks unappealing to most foreign investors managing large pools of capital, even though they might view the underlying businesses as high-quality and cheap. These ignored pockets of the market are exactly where I like to look.

• lastly, based on the SaaS micro-caps I’ve looked at outside Japan in the past, Japanese names tend to be more profitable, grow faster, and trade cheaper on average. I didn’t bother to “backtest” this, but I’m pretty sure you could verify it with a screen.

As with any broad framework, there are plenty of exceptions to what I’ve outlined above. Probably none of these points apply universally, and each company still requires individual work to confirm whether the ideas actually fit.

Also, not everything is rosy—there are, of course, real risks. For example, for VMS businesses, even though you might enjoy 75%+ gross margins compared to ~60% for horizontal SaaS, you also run a higher risk of saturating your TAM much faster. Horizontal SaaS doesn’t face that same ceiling, but it does need far more scale to reach VMS-like net margins, and it has to deal with heavier competition in its sales channels—everyone trying to pitch a “better” solution to get a foot in the door of a large Japanese enterprise.

And since Japan isn’t San Francisco, founders don’t have access to anywhere near the same depth of technical talent you’d find in the Bay Area. That’s why you need to be super careful when a Japanese SaaS company talks about expanding overseas and competing with American peers—or avoid those stories altogether.

The last major risk, of course, is technological change, including everyone’s favorite buzzword: AI. Some will adapt, but many will be disrupted.

Still, I hope this 1,000-word bullet-point “brainstorm” helps explain why I’ve spent the past month digging through the roughly 40 small Japanese SaaS names that initially came up in my screen. I narrowed that list quickly, added a few I’d already researched, and ended up with 32 companies worth keeping on a watchlist. After spending 2–3 hours on each, I trimmed that group to 13 that merited deeper work. From there, I went through those carefully and ultimately came away with 4 I like most.

Two are VMS names, two are horizontal, and all four are micro-caps. Together they make up the Four Horsemen of Japanese SaaS—or at least that’s what my not-so-creative title calls them.

Let’s dig in.

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Below is my conversation with Joe K. Raymond — portfolio manager at Caldwell Sutter Capital, former analyst under Larry Goldstein, broker in OTC illiquid stocks, and author of what I consider some of the best case studies and untold stories on obscure micro-cap winners at joekraymond.com.

It’s not often you find an investor as skilled or an analyst as diligent as Joe. His perspective really resonated with me, and I’m thankful he agreed to what I believe is his first-ever interview online.

Enjoy!

For those who might not know you, Joe K. Raymond, could you briefly introduce yourself and give an quick overview of your investing strategy—what led you to pursue it, and what inspired you to start publishing case studies for the investing community this year?

I bought my first stock on E-trade while sitting in the back of 10th grade English class. I made $15 on it in an hour, which was double what I would have earned at my other job cleaning old gym equipment. I was hooked immediately.

I like to invest in things with low downside and good upside. This usually manifests itself in small and illiquid securities. This post shares some background on what led me to my strategy: 160x in a Month

I believe the philosophy you need to know about investing can be found in a few books (maybe even a few chapters). Once you have the right framework (which I define as fundamental value investing focused on upside/downside analysis), investing is mostly about pattern recognition and being able to quickly compare different situations—both past and present. That’s why I think it’s useful to look at as many case studies as you can. You want to know what worked, what didn’t, and why.

I’ve gotten to know a number of obscure stock investors who have been doing it for a long time, and I’ve collected a lot of fun stories. A couple friends of mine who write online encouraged me to share some of these stories publicly. So, I created a personal blog. It’s a small niche, but the response has been surprisingly enthusiastic. It has been a fun and serendipitous experience.

How has your approach evolved since you first started investing, and what experiences shaped those shifts? For example, from meeting Charlie Munger at 22, to your time as an investment analyst at SMP, and now in your current role as Portfolio Manager at Caldwell Sutter Capital.

Prior to meeting Charlie, I was trying to figure out the same stocks everyone else was trying to figure out. It really didn’t occur to me to look at smaller companies. Charlie inspired me to find a less crowded niche, which led me to inactively traded and tightly owned securities.

I’m a fan of Tim Ferris’ concept of finding “a category of one.” I try to just keep drilling down until there’s nobody else left. In reality, there’s always somebody else (which keeps it fun and interesting). It’s a never-ending pursuit.

During your time as an investment analyst under Larry Goldstein, what was the key lessons you took away? And what would you highlight as the one thing Santa Monica Partners does that truly sets it apart from other investment firms?

Larry is a highly determined analyst. He will call a company’s management every day until they call him back. Then he will spend three hours on the phone getting answers to his questions. A bit of this rubbed off on me from my time working for him (as he expected of me what he would do himself). I tend to be introverted and keep to myself, so this forced me to expand my comfort zone and develop confidence as an analyst/shareholder.

Larry Goldstein is well known for his (almost) “never sell” approach—Balchem being the standout example. What’s your view on that style compared to pursuing higher turnover, maximizing IRR, and minimizing opportunity cost? In your experience, when does “cheap + higher turnover” work better than “quality + low turnover,” and vice versa? And how do you personally balance price and valuation against comfort with the business and its management?

Every situation is different. You have to look at your opportunity set and decide what’s best using rational common sense and the opportunity cost framework.

If you have a $10,000 portfolio, you can probably find enough interesting tiny situations to where you’re constantly bouncing in and out of your best ideas. That would be better than just sitting on a single stock (even if it’s something like Balchem).

For example, I’ve been doing a low risk special situation this year that has produced a 50%+ annualized return net of taxes. But it’s not something you can get six figures into easily. It would be silly to be a “never sell” investor when you have something else that’s producing such a high IRR (assuming your net worth is small enough for it to matter). But if you have $20+ million, you are much less nimble and it makes sense to hold longer.

Generally speaking, I don’t buy a stock unless I’m comfortable owning it for at least a few years. This eliminates companies that don’t earn a decent ROE over a full cycle. It also eliminates situations with self-dealing management. I tend to err on the side of holding. Base rates suggest owning stocks over time is a good idea. So, unless I have a very compelling reason to sell, I usually don’t. Time is your friend as these sorts of businesses pile up earnings and compound in value.

Of course, for every rule there is an exception. I’m currently bidding for a stock that has breakeven operations and unsavory management. But it trades for 10% of net cash. It’s in the U.S. and it’s a Delaware corporation (jurisdictions I’m comfortable with). So, I’m willing to sacrifice on the business quality and the people if the price is sufficiently cheap.

This is where the pattern recognition comes into play and why case studies are so important.

How much leeway should you give on something like this? Well, it’s useful if you can compare it to other similar situations from the past. In this case, I wouldn’t want to pay 50% of net cash, but I would probably pay 20%. At 10% I’m happy to buy every share that becomes available (sadly, there aren’t many).

What has your experience as a broker in illiquid OTC stocks taught you about investing—things you didn’t fully appreciate before? How does the OTC market differ from other “exchanges,” and what does it take to actually succeed in that environment?

A friend of mine says in order to earn high returns in small stocks you just have to read more and care more than everyone else. I think that’s true. And I think anybody who commits to that can put up good numbers without taking a lot of risk.

Being a broker is interesting because you’re close to the market. You learn how buyers and sellers think and act. You see how market makers think and act. You know the mechanics of how the OTC market functions. And you get to interact with dozens of other microcap investors, many of whom have extensive experience in these sorts of stocks.

An interesting question is where do mistakes come from? I think mistakes come from blind spots. Now, imagine a specific stock where you have analyzed the company forwards and backwards, both quantitatively and qualitatively. You have read all the annual reports and modeled out the historical financials. You have attended the annual meeting and interviewed management. So, you know the company well and the people involved. Now on top of this, let’s say you also know who is selling shares and why they are selling them. You know their knowledge of the company and how they are looking at things.

If you have 10 different bets like this, what are the odds you lose over time? I would argue very low.

Being a broker has allowed me to get closer to the market, gain insights I otherwise wouldn’t have, and further reduce blind spots.

Do you ever invest outside of common equities—things like creditor claims, preferreds, warrants, or bonds purchased during Chapter 11 situations, similar to some setups you’ve highlighted in your case studies? How do you go about sourcing those ideas, or do they usually stem from your stock research?

We own or have owned preferreds, warrants, and bond-like securities. Often, these have involved some sort of conversion feature or some other interesting twist that we think offers returns on par with other equities we’re buying. I’ve never bought bonds in bankruptcy but have purchased new equity out of bankruptcy.

Ideas come from everywhere. Friends, clients, looking through lists of stocks, reading news/press releases, etc. If you look at every security on your chosen exchange, you will see when a new name pops up that you don’t recognize. Like everything else, this knowledge compounds over time.

What are your favorite “metrics” or signals for determining that few investors are paying attention to a company—that you’ve truly found something obscure? And how important is it to be “first to the room” versus simply being the smartest one in it?

I always love when a ticker doesn’t have a bid. These sorts of securities are usually hard to buy. But it’s good to be the only bid when some trust officer somewhere has to wind up an estate. It might only happen once every few years but it’s an exciting occurrence.

It’s important to remember you don’t get any points for obscurity (or complexity) in this business. Sometimes the best sorts of situations involve a fatigued “value stock” that many people know the name of, but few are up to date on or have recently considered. Some examples from my own experience (me and/or my advisory clients own shares in all three stocks mentioned below):

MCRAA - A boring old boot manufacturer in North Carolina. Perennial “value stock.” COVID and poor operating results pushed the price down to $18/share in July 2020. This was less than liquidation value and sub 5x normalized EBIT. People knew the company, but nobody wanted to be pitched the stock. Too boring, poor recent results,cash-hoarding management, etc. The stock goes on to produce a 38% IRR over the next three years.

MCCK - An HVAC manufacturer in Massachusetts. Price falls to $20 in June 2023. This equates to 55% of heavily depreciated book value, 78% of net current asset value, and 3x EBIT. Too illiquid and boring to excite anyone. Plus, the control shareholder likes to invest in precious metals. Fast forward two years and the stock has more than doubled due to strong operating results and big gains in the precious metals portfolio.

WSTL - Electronic communications manufacturer. About a year ago, WSTL traded for less than its net cash. The company was thought of as a “value trap” with breakeven operations and constant share dilution.

Here’s what I wrote in an internal memo:

WSTL has since more than tripled in price. Operating results have been stronger than expected and the company has repurchased additional blocks of stock.

As these three examples show, you don’t have to be “first in the room” or even the smartest in the room to make money without taking a lot of risk. Sometimes it’s just about following the same stocks for years and remaining open to any changes in price/value that create opportunities. Neglect is your friend.

What’s the most obscure stock you’ve ever come across—the kind that made you stop reading and think, “I can’t believe what I’m seeing?”

There are a lot of these. I don’t want to name any current names (for compliance reasons, and also because I’m bidding!). But I’ll give some examples (with obscured details). I recently bought shares in the following:

-A $500k market cap with $50mm of book value and $1.7mm of average annual earnings (0.3x earnings and 1% of book value).

-A profitable bank with a multi-decade history at 10% of tangible book value.

-An insurance company that earns 16% ROE and trades for 4x earnings with 6% dividend yield.

On average, these four stocks might each trade twice per year. So, they are very thin and obscure. But the values are undeniable.

SIMA is a good case study that was written up publicly and you can trace the results. Dan Schum wrote up SIMA in 2016 when it was trading for $0.65 per share (1x earnings and 18% of cash). A few years later, the controlling family forced out minority shareholders at $10. Here’s Dan’s original post: NoNameStocks: SIMA is the cheapest stock I know

There’s no doubt the U.S. micro-cap opportunity set was far richer when investors like Buffett and Goldstein first started out. What do you think is today’s equivalent of Buffett flipping through Moody’s or Walker’s Manual?

I’m not sure I fully agree that U.S. microcap opportunities were much greater for Warren and Larry.

Buffett had to sift through thousands of pages in the Moody’s Manuals to find Western Insurance. The few obscure stocks I mentioned above took equal effort. It’s not like stocks at 1x earnings have ever been easy to find.

U.S. markets generally were cheaper then (in the 1950s for Warren and 1980s for Larry). You didn’t have to be investing in microcaps to find good values and put up great numbers. Today, most U.S. stocks trade at historically high multiples. But you can still find tiny companies with clean balance sheets at 5-10x earnings if you look carefully. So relatively speaking, carefully selected microcaps might look a lot better today than they did when Buffett and Goldstein were trafficking in them.

And while you may have fewer investable U.S. microcap stocks to choose from, I think the people trying to dig these up is also fewer. Almost every annual meeting I go to includes the same 3-4 people in attendance. And all 3-4 of these guys have great records!

You were a varsity baseball player, so I’m sure the terminology resonates—what are your thoughts on the investing equivalents of batting average and slugging percentage? And how do you separate luck from genuine skill when it comes to those occasional outsized winners?

I was a singles and doubles kind of guy when I played baseball. I only hit one homerun in my entire college career.

Generally speaking, I invest in a similar way. I don’t like to lose money, so I mostly stay away from stocks with bad balance sheets, operating losses, new products, expensive valuations, rapid unpredictable growth, etc. I don’t want to put myself in a situation where I could permanently lose more than 2-3% of my total capital in a single position.

That said, the best investors I know find a way to hit for both average and power. They are like Shohei Ohtani with a 1.000 OPS. They find the good growing businesses with able and honest insiders at 5x earnings. Their hit rate is 80% and they have multi-baggers too. You can get both if you’re patient and turn over enough rocks.

What do most investors get wrong about micro-caps? What’s one common misconception you often see among people who invest in this space? And in your view, what qualities make for a truly good micro-cap investor?

There are lots of ways you can go wrong in microcaps. I think many people assume you need to find something that will grow from a microcap to a smallcap or midcap in order to make money. There is an obsession with 10-baggers and 100-baggers. This can lead people to take more risk.

Pretty much all of my microcap investments are still likely to be microcaps five years from now, and I’m fine with that. If you pay 6x earnings for something with a net cash balance sheet and honest insiders, you don’t need any growth at all to earn an excellent return (17% earnings yield plus cash returns plus multiple expansion). I find it much more useful to think about the downside first. If you buy things sufficiently cheap, the multi-baggers will come naturally without trying to sniff them out.

I’ve also seen people make mistakes trading microcaps. Unless I have something really great that I’m convinced nobody else has figured out, I’m content to sit on the bid. By contrast, I think a lot of people chase the offer when they like something. The push the price up higher and higher. Then a few quarters down the line when things don’t pan out exactly how they expect, they commit the same error on the way down. “Sloppy in, sloppy out,” as they say. You can use this to your advantage if you’re on the other side of the trade.

Have you noticed any common patterns among your best-performing and worst-performing investments? And is there a short case study from your own investing journey that highlights those lessons?

My worst performing investments have been situations where I’m buying a stock based on earning power, and those earnings end up being illusionary. PMD and CMPD come to mind (both 50% losses). I thought the companies would earn more than they did, and there wasn’t much asset or residual value left over when earnings disappointed.

My best stocks have been those where I have asset value protection coupled with compelling future earning power. For example, my best-performing investment to-date was ECTM, which I bought below liquidation value and ended up selling two years later 8x higher (plus dividends that covered my basis). I might do a case study on this one at some point.

So the best ones are the ones where downside is low and upside is big. Ted Weschler’s Dillard’s investment is another example of this on a larger scale.

If you had to give one piece of advice to me—or to anyone reading this who resonates with your approach—what would it be?

I find there’s too much time spent talking and thinking about things that don’t matter (what the market is doing, what the economy is doing, what other investors are doing, etc.). I’m guilty of this unproductive behavior too.

The reality is, if you’re a long-term fundamental investor, only three things matter:

1. The business

2. The people

3. The price

You should spend 95% of your time thinking about these three things. And if you’re comfortable with all three, when taken together, then you should buy the stock.

It’s incredibly simple, but of course hard in practice.

Where can people find you and learn more about you and your work?

My personal blog is joekraymond.com and I’m on Twitter at joekraymond.

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The Mikro Kap uses information sources believed to be reliable, but their accuracy cannot be guaranteed. The information contained in this publication is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. Consult your financial adviser to understand whether any investment is suitable for your specific needs.

I may, from time to time, have positions in the securities covered in the articles on this website and reserve the right to buy or sell any securities mentioned in this article at any time, without prior notice.

This is not a recommendation to buy or sell stocks. Do your own due diligence.

I had planned to focus my next write-up on the most interesting Japanese SaaS names I’ve found, but $EVC’s results from yesterday forced me to shift gears quickly. If you thought $SOFW.TA’s 56% growth acceleration yesterday morning was impressive, you clearly haven’t seen $EVC’s AdTech segment results in the afternoon.

For those who don’t follow, Entravision is a media company I wrote about back in April of this year. A lot has changed under the hood since then, and I initially thought investors were missing the hidden value there. It’s no surprise—they’ve lost their Meta business, made several divestitures, and their traditional media segment is the usual mess of impairments and restructurings, making the P&L look worse than the actual cash flow ability.

I now believe the risk-reward has shifted significantly for the better in the past 7 months since I invested, yet investors are still failing to properly value it, even with today’s 25%+ jump in the share price. This quick update is my way of sharing how I see the current reward shaping up.

The 104% revenue growth and 378% EBIT growth from Smadex and their AdTech segment have me eager to get this article out quickly. So my apologies for not diving into the usual level of detail, but honestly, this is the first time I’ve been involved with a >$250M revenue business growing triple digits. When I first opened the filing, I thought it was a typo.

So let’s dig into why I decided to more than double my position in $EVC.

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Today I’ll be taking a closer look at Rand Worldwide and its division, IMAGINiT Technologies—the largest Autodesk reseller in North America. It’s a company that’s been on my watchlist for nearly five years, ever since I first came across it in one of Alluvial Capital’s letters.

While $RWWI was once something of a micro-cap darling, there’s hardly any interest in it today. No surprise there—the stock is down more than 40% from its February 2023 all-time highs, and anyone who bought in over the past four years is now staring at red on their broker screen.

Adding to that, Rand—and Autodesk VARs (value-added resellers) in general—have been navigating major shifts over the past two years. The first was Autodesk’s rollout of 3-year subscription incentives, which temporarily boosted revenues. The second, more significant shift is Autodesk’s move to an agency model, under which it now manages billing and payment processing directly rather than through its resellers.

The first of these changes is a short-term headwind—Rand is now comping against the temporary boost from Autodesk’s 3-year subscription incentives. And that should flip into a tailwind by spring 2026. The second change poses a real threat, but only to smaller, non–value-added resellers, not to Platinum Partners like Imaginit (Rand). My research suggests that this shift will actually strengthen $RWWI’s position as the market consolidates on the supply side—allowing the big to get bigger.

This shift also introduced accounting changes that make reported revenue look lower, even though gross profit is unaffected—a nuance that likely led many casual observers to think Rand’s business was deteriorating. Add to that the fact that most newer investors “grew up” in the SaaS era and have limited understanding of alternative software distribution models, and it’s easy to see why Rand continues to fly under the radar.

At the current price, you’re paying 7.8× EV/EBIT and 10.6× earnings for Rand—a compounder that’s grown EBIT at a 24% CAGR over the past decade and is still riding on Autodesk U.S., which just accelerated to 16% YoY growth last quarter. And that valuation is based on what’s arguably been a softer, transitional year for Rand.

Moreover, all this was achieved through an asset-light model—without the need to invest in PP&E or hold inventory. That’s why Peter Kamin, the controlling shareholder (or as one subreddit once called him, “the Carl Icahn of OTC stocks”), had no issue returning 78% of net income as special dividends over the past decade and 93% over the past five years, supplemented by a few bolt-on acquisitions.

Again, the thesis is simple: you’re getting a high single-digit dividend yield (assuming the current payout ratio holds) and asset-light exposure to Autodesk’s growth—all at just 10.5× LTM P/E. Nearly all of the cash this business generates gets returned to shareholders, yet the opportunity remains both overlooked and misunderstood.

It’s overlooked for the reasons mentioned earlier, and misunderstood because truly grasping what kind of reseller Rand is—and what Autodesk’s shift to an agency model actually means—requires real digging. You have to go through competitor filings, listen to their earnings calls, and connect the dots from Autodesk’s own commentary. I believe very few investors have done that, which is why many still assume Rand’s model is at risk of disruption.

I set out to do exactly that and am sharing the research below—supporting my claims, exploring the nuances as well as discussing the expected IRR calculation, the jockey and the risks. That process gave me the conviction to finally initiate a position, after a fair amount of hesitation in the past.

And If you’re wondering why I disclosed the ticker above the paywall, it’s because $RWWI has been discussed online before and, at around a $500M market cap, it’s larger than the companies I usually cover.

With the thesis outlined, let’s dive in.

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Today I’ll be covering one of the most interesting special situations I’ve seen this year. At first glance, it’s not the type of company I’d usually write about. And if not for —a good friend and an investor I rate highly—I would have skipped it entirely. It’s in an industry I’ve never invested in, and on paper the numbers look terrible: negative net income every year since 2017. The exact opposite of the financially sound businesses I typically focus on.

Look deeper, though, and the red ink isn’t from a broken business. The core operation is actually outstanding: revenue grew at a 13.3% CAGR over the last decade, with steady-state EBIT margins north of 20%. That growth came organically, by steadily taking share from much larger competitors—even while charging about twice as much for its products. And it managed this in the middle of a brutal cycle, with the current year shaping up as the worst for its end market since 1951.

So what’s driving the ugly numbers? Years of heavy spending to secure an FDA license. That outlay has masked the company’s true earning power. But the process is now at the final step, with a decision expected by the end of October. If approval comes, the company opens up a much larger market where it would hold a monopolistic treatment and generate enough revenue to cover development costs—and plenty more on top. If not, development spending is already being cut back, and reported results will improve this year.

Either way, the core economics will finally shine through—and other investors will see just how high-quality this company is, and how cheaply the market is offering it right now.

As you’ll see, this setup leaves several possible outcomes depending on the regulators, the manufacturing partner and the management. And while I can’t pin down a precise IRR today, the scenarios where I lose money look few and unlikely, while the paths to good—or even great—returns are many and more probable. In my view, this one is a classic case of low risk but high uncertainty.

To get comfortable I’m seeing clearly through the fog, I spoke with the long-time CEO and the new CFO—a seasoned exec who left a ~$50B giant earlier this year and joined this ~$50M micro-cap. Those conversations only reinforced my sense that the company is at a pivotal moment, and I’ll weave in their insights throughout this write-up. For now, I’ve taken a small tracker position, with the intention to size up if the risk-reward tilts further in my favor as catalysts unfold.

If this sounds complex, it only gets more so as you read on—not because the thesis itself is complicated (it’s actually rather simple), but because it’s a hard-to-unwrap situation.

So I can’t promise you’ll find it exciting, or that you’ll walk away wanting to invest — and I understand anyone who stops here. What I can promise is that if you keep reading, you’ll be among the best-informed investors on this opportunity. And as new information comes to light, you’ll know what matters, what doesn’t, and how each development shifts the risk-reward. That will let you act while others are still parsing headlines and playing catch-up.

Sorry for the long intro. Let’s dig in.

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Welcome to another Mikro Kap research report. This year we’ve covered a lot of ground—different geographies, different industries—with the same goal: surface under-covered setups with the most asymmetric risk-reward.

That doesn’t change with this 10th deep dive. The situation is just as unique, and you won’t see it on any other Substacks. I was lucky to stumble on it early—already at letter B of another A–Z walk through the Singapore exchange.

This might be my longest report yet, but the thesis is simple: this company is redeveloping a specialized property that I estimate will sell for 84–145% of today’s market cap, with management intending to return the net proceeds as a dividend. Together with the existing cash pile (mostly tied up in the project) and you’re looking at 1.5× to 2.1× the market cap in net cash and property proceeds alone. If my valuation work isn’t wildly off, it’s hard to see how one loses money buying into this.

And you’re not just buying cash and a check, the thesis doesn’t stop there. You also get the core business—which isn’t some kind of melting ice cube. It’s grown revenue and profits in 8 of the last 10 years, and even in the middle of its toughest downturn to date it’s holding up surprisingly well, posting 24% EBIT margins.

So if my redevelopment math is even remotely close, the company’s EV will flip negative within 1.5–3 years—meaning you’re effectively being paid to own the core business. That looks like a clear mispricing, one that I think market will correct once the property is sold, the dividend is paid, and/or the cycle turns for the core business.

Without further rambling, let’s dive in. I’ll cover the redevelopment property—why it’s scarce, how I valued it, and the expected timeline—then move on to management’s capital allocation, the core business, and what it all means for the risk-reward.

In short, the setup was compelling enough that I sold two smaller holdings to initiate a 10.5% position.

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Welcome to another portfolio update. As you’ve probably noticed by now, unlike other investing blogs, I prefer to write these not right after the quarter ends but once all of the stocks I hold have reported their quarterly numbers.

The main reason is that I believe portfolio performance between earnings seasons is usually driven more by sentiment and other non-thesis noise—none of which says anything about whether my fundamentally driven theses are on track. I’ve also noticed that earnings season is often when most of my yearly outperformance or underperformance takes place.

I also find this applicable to any portfolio made up mostly of illiquid global micro-caps with (much) lower beta than the market. The ones that don’t really care about passive flows or whether the MAG7 and SPY are up or down on the year.

This lower correlation to broad indices is also a big reason why I have no trouble staying fully invested almost all the time, even though I think stocks in general are very expensive right now and don’t offer great risk-reward going forward—aside from a scenario where high inflation doesn’t crush consumer confidence and large American enterprises manage to squeeze out another season of strong pricing power.

In H1 2025, the portfolio was up 11% on the year, and as of August 24th, it’s up 23% YTD. Both are measured in EUR and reflect pre-tax performance.

I’m also pleased to report that 6 out of 12 of my holdings are up more than 30% YTD—measured either from the start of 2025 or from the time I pitched them this year if the position was initiated more recently. Only 1 of the 12 holdings I currently own, and 2 of the 17 names I’ve been involved with during the year, have posted negative performance YTD (or during my holding period if bought this year). And the main drag on my overall performance has been the USD holdings, since they were bought with EUR income.

That’s all I’ll say on portfolio performance, as I don’t want to be in the business of writing detailed commentary on stock moves each quarter—especially not on a random date in August. It’s not something I pay much attention to, nor do I think others should. That said, I will be writing a more detailed piece on performance in January, since it will mark the third anniversary of me sharing my analysis and real-time portfolio moves publicly. And a three-year time frame usually means a lower luck factor than a three-month time frame.

So for now, let’s stick to what actually matters: the key fundamental and thesis developments, how the current risk-reward looks, and what matters for the thesis going forward—along with a snapshot of my position sizing as of August 24th, 2025.

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