24) 51.4% per year for 7 years with Dan Schum

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Dan Schum

Investing in small, dark stocks

Dan Schum is 39 year old engineer living California with his wife and 3 kids. Schum started investing in 2013 with a lot of book reading. He focus on tiny companies with most having a market cap less than $5M, has invested his entire retirement plus some after tax savings in these stocks.

Started a blog nonamestocks.com in 2015 where he writes about stocks he owns. Some of the stocks Schum owns are dark so he has also written posts about dark stock related issues like SEC rules, otcmarkets categories, and brokerages that will allow this type of trading.

Stocks referred in this episode: InfuSystems Holdings Inc – INFU Greystone Logistics Inc – GLGI TEL-INSTRUMENT ELECTRONICS -TIKK IEH Corp – IEHC Technical Communications Corporation – TCCO Dynatronics Corp – DYNT Hydromer Inc – HYDI

51.4% per year for 7 years with Dan Schum

Transcription done by: Arianne Elnar

Unknown Speaker: [00:00:00] Welcome to Financially Free Podcast with your host, Ney Torres. One of the reasons Ney could retire when he was 25 years old is because he was coached by the best, and now through this podcast so can you.

[00:00:19] Ney Torres: [00:00:19] Welcome everybody to the show. Today, I’m interviewing Dan Schum. Welcome to the show, Dan.

[00:00:24] Dan Schum: [00:00:24] Thank you for having me.

[00:00:25] Ney Torres: [00:00:25] The reason I wanted to talk to you is because I was reading, and I only find you through another podcast, but your return on your stocks most major, and I’ve seen probably for any investor lately. Your webpage is NoNameStocks, people feel free to go there. You just spoke to your track record from 2012 to 2020. It’s amazing you killed the market. Obviously, I’m going to do whatever I can to interview you. Can you tell me a little bit about your story and then we can get into how do you do it?

[00:00:58] Dan Schum: [00:00:58] Sure, sure. Yeah, I worked full time as an engineer. And I do all the stock stuff kind of on the side as a hobby. So I research and I blog just in my spare time, a lot of time at night once the kids are in bed, and I didn’t grow up with anything financial. I don’t have any kind of financial education. I got into stocks because I was working at a startup in Los Angeles years ago about eight years ago. And it went bankrupt and so my family at the time, I had two kids and a wife, and we lived in Los Angeles and we had to pack up and move. Now we moved down to San Diego, which is a nice place to be anyway, so it could have been worse for sure but the experience really nailed down how dependent my family was on my income. My income was our only source of income and I had done well at work but the business they stopped getting investors or whatever, they shut down. And so I decided I wanted to find a way to like diversify my family away from my sole income. My wife had got me this audio book subscription for Christmas and so I started listening to book and I had heard of Rich Dad, Poor Dad like on the radio so i started listening at some of those books. And then I thought, he’s talked about starting a business and I thought I don’t want to start a business. It’s too much for me and then I thought, okay, I had heard of this guy, Jim Cramer. So I listened to some Kramer books and then he started talking about the stock market. And I said, okay, well maybe that’s something I could do, but his style is too wild for me. It’s not grounded. I thought, okay, I’ve heard this name Buffetts. I googled that and I found these books by written by Mary Buffett about Warren Buffett. And so I listened to a few of those and that’s when it really started clicking. But she talked about how he would buy these companies. It was all about these big, durable classic like big Buffett, durable, competitive advantage companies. But she laid out like a valuation metric, which was some kind of averaging PE and averaging growth, and then projecting out 10 years in the future, something like that. But it was actually like, Oh, here’s the actual formula, and it kind of tells you how to value these companies. I thought, okay, this is starting to make some sense, and I could do this just with my retirement money to start and kind of see where it goes. I started on that path and then I kept reading more and more and online I started to find this blogging community. And a big one that really influenced me was Old School Value. So I found that, I don’t know how, but it was run by this guy, Jae Jun who I heard on your podcast recently, which is like crazy to think that he sold the company. I didn’t realize he had done that, but his articles were just great. It was so informative. He taught me so much and he has these pages about like good blogs to follow good books to read, valuation techniques. He’s very analytical, he had this big spreadsheet that would do all kinds of calculations on values of business, I really learned more and more from him. And then he introduced me to lots more books. So over the next few years, like I just read book after book after book, and I’ve read all these things from Greenblatt and Buffett’s letters and Benjamin Graham and Klarman and you name it all kinds of stuff.

[00:04:10] Ney Torres: [00:04:10] You started reading a lot. Yeah, definitely old school values is a like great webpage. Jae, I want to say hi to you if you’re listening. Mary was also interviewed here two weeks ago. You seem to have followed the same path that I have followed same names, Robert Kiyosaki, all of those guys. I have met Robert a couple of times too. That’s how I ended up in real estate too. But your style of investing is completely different. How do you decided to start buying these small obscure stocks?

[00:04:39] Dan Schum: [00:04:39] Actually, it  started with Jae. He wrote one article about this company in few systems.  When I first got started, I thought I was going to be like Buffett, right? I thought, okay, it makes sense. Why buy your 10th favorite company when you can buy your second, or whatever he used to say. And he was very concentrated, or at least he talked about being concentrated. I thought I was too, right? I thought I would buy five stocks and they would be these compounders, and that’s what I would own. And so the first stocks I bought were those things like Mary Buffett had talked about like when I buy like Wells Fargo, Union Pacific. Value cheap versus a DCF, and they’ve been around and they’ll continue to be around that kind of stuff and so I held those. On the side, I was following these blogs and Jae wrote an article about this company InfuSystem, INFU, which was they do like nickel pumps. They’ve really taken off recently, but at the time the stock was at a buck or something. It was this small company. And there were some, I don’t know what the market cap well it was, but it was a micro cap. It was very small, there was some activists who had got on the Board and got to be president or something, and it was a compelling story. Jae had bought it and I thought it sounded really good, so I bought some. And so I had my portfolio up on Seeking Alpha and they aggregate all these news and they would have all these articles. And so on one hand, in my portfolio, I held like Microsoft and I held Apple and I held these giant companies that had tons of people talking about them and then I had this one tiny company InfuSystem, INFU and I just got overloaded with information on like Microsoft and these big companies. Like every day there would be five, 10 new articles and I just could not keep up and you read what these people are researching and it’s like, man, I cannot compete with them. These people look into the suppliers who make the chips that go inside the computer or inside the phone or whatever. They know what’s going to happen before it happens because they spend so much time and there’s so much money and competition on that side. And then I also had this little stock INFU which is just sitting there doing well and there’s no news, no nothing so it’s easy to follow. I ended up doing well on that stock and made 80% and eight months or something like that, and I sold out when it spiked up. It just really, I was like, this one worked out and part of the reason I think it worked out is because there was less competition and it was a lot easier for me in my lifestyle to digest just cause it was like the amount of communication was so much lower. On one side, you have these companies that just like you’re overloaded with information and on the other, these ones that are easier to follow because like they put out, I held the stock for eight months or something and they only had they put out like two quarterlies and that’s all I had to read. Like that was the only information that came out. And so I just thought, okay, I don’t think I can compete with all these big boys doing these. All the hedge funds and the billions of dollars are focused on the bigger companies because they have to be, because the little ones won’t move the needle and then you have a lot less competition on these smaller ones. I just kept moving more and more towards these smaller companies. I started following. Different people on Seeking Alpha that wrote about these small stocks. And I just kept going in that direction and I ended up selling out of all the big names I owned and then moving completely to the smaller ones. Eventually, I own this company Greystone Logistics GLG is like a recycled pallet stock, which also is doing well recently but I sold to Dell a long time ago. I was following that and someone asked me on some stock board like, “Oh, is there some stocks you like?” And so I was going to write this person back about Greystone and I started typing up my thoughts and I thought, Oh, this could actually be like an article or a post. Jae used to have this message board on Old School Value it’s not there anymore, but he used to and it was pretty small. So I felt more comfortable posting there and talking there. I posted my like little writeup on Greystone there and everyone really liked it and so that was my first time writing about a stock and I really enjoyed it because I got to know Greystone better than any stock I could ever own.  Before that, all the stocks I owned or because someone else owned it, and I liked how they described the situation so I owned INFU before because Jae explained it so well in Old School Value and I thought it was really good. This time with Greystone, it was different because I really took it in because I had to research it to write about it. I really took it in and got to know the stock and I kept going with it. With Greystone, that was the first time I contacted management and six months later, I had another, I thought that there was more information on Greystone. I could write another article. I wrote one up and that time I put it onto Seeking Alpha. I got a lot of great feedback there too. And then a few months later I had another company I thought I would write up because I kept researching. I was getting into this writing up companies and it was really helping me as an investor because I get to know it. I feel like I have to know it in order to like defend it in writing and there was this company Tel-Instrument Electronics, TIK. I researched that and I was gonna write it up, but I didn’t want to put it back on Seeking Alpha because they have this paywall that I don’t agree with the way they hide things so I decided to start my own blog and I thought, okay, well, I’ll write up, I have this one idea, I’ll write it up. Maybe I’ll have another couple ideas a year but I didn’t think it would get as big as it has, but I wrote that up and that was another one of these small, small companies. And then after I wrote that one up, like people started emailing me through my blog. So I held another one, IEHC which I still hold that one. I also found out about years prior in a different blog, a Whopper. Whopper Investments so I wrote that one up and then people just started emailing me more ideas for these little companies because I was writing more about them. And so I just started going further and further into this, down this path of like the small, small companies. I met a guy who found me through my website and he’s an older guy who’s been doing this for decades, and he thought, Oh, you like IEHC, maybe you’ll like these other ones so he named off a bunch of these little tiny stocks, and some of them were dark, which I had never owned any before. I’d never heard of what is dark and he focused a lot on like I was asking him why this works or why do you buy these? And he’s like, just open a long term chart, just look at that. If you open some of these tiny company like just a long term 20-30 year chart. You can see these times where the stock goes from 50 cents up to like eight bucks or something. You see these really giant moves and I thought, Oh man, that looks good. So I just kept going more and more in this direction. And now, now my style is very similar to this my mentor or this guy I met which is owning a lot of these companies, my own 50 or 60 of these stocks and they’re all tiny. I mean, most of the market caps that I own are less than 5 million. I have a few that are more but that’s only because I probably bought them when they were less than 5 million and they’ve grown. Some of the stocks I own are dark. Not all of them. Some are not on OTC, but most of them trade over the counter. I do have a few maybe that are like NASDAQ, but I’ve just kept going more and more down this path of trying to get away from the crowd. So what I try to do is go where nobody else will go, which is small and illiquid and ugly and if a lot of people are talking about it. I don’t want to look at it because I want to look at what other people are not looking at, because I think that’s where the opportunity is. It’s just less competition.

[00:11:57] Ney Torres: [00:11:57] I understand. I understand. So you will say you have around 50 to 80 stocks on it at any given time, right? What’s your position size?

[00:12:06] Dan Schum: [00:12:06] Most of them are very small, and that’s actually one thing I’m kind of struggling with right now. My portfolio has done very well and I sold out of a couple of really large positions this year. I have like, I don’t know, almost half of my portfolio is cash, maybe 30-40% something like that. And a lot of my positions are just if you own 50 stocks and they’re all about the same then that’s like 2% each. Right? So a lot of miner but these tiny, less than 1% positions and what I’ve been trying to do lately is like build those up as I can, but it’s hard because the stocks I look at are very illiquid. So a lot of them, they trade maybe half of my stocks trade on any given day. A lot of them, they won’t trade for every day. They’ll go weeks or months sometimes without trading through some stocks I’ve been trying to buy for years, so it can be hard to build up big positions in these stocks.

[00:12:53] Ney Torres: [00:12:53] If I had to guess the major winners, by the way, we haven’t mentioned this yet, but your your rate of return is around 51.4% a year.

[00:13:06] Dan Schum: [00:13:06] Yeah.

[00:13:08] Ney Torres: [00:13:08] That’s crazy but I guess that those greater terms came from say, 10% of your portfolio. Is that true?

[00:13:16] Dan Schum: [00:13:16] Yeah. The thing is these little, if I’m buying I want to buy stocks that will move easily and we’ll make big moves. So if a lot of the stocks, so what I look at in a stock is I want it to be illiquid. Right? I want it to be very small market cap. I want the stock price to be low. So I don’t want a low market cap with a stock price that’s $20,000 or something because people don’t buy $20,000 stocks, right? Even though it’s, maybe it’s worth 30,000, it’s not going to double or triple easily. But if you buy a stock that’s at a quarter that doubles or triples easily every day. There’s stocks, penny stocks that double, triple all the time. I want things that are low price, low stock price, low market cap, illiquid and low share count. I try to find stocks that have as low share count as I can. Some of mine are 1-2 million shares outstanding once they get over 15 or 20, it has to be kind of special for me to buy it because I want low share counts and when the news comes or when the volume comes, the stock price is going to do shoot up. What happens is a lot of my stocks kind of just sit flat and they don’t do anything. Some of them die. I have stocks that are down 90%. I have a bunch of them that are down over 50%, and it should because some of them don’t work out. But then the ones that do, like my big winner has been Hema Care, which got bought out earlier this year so that one I bought maybe five years ago starting at like 30 cents, and then they got bought out for 25 bucks. That one made me a lot of money and it was this one big giant move that I just kind of held on. And then there’s other ones, I have a number of them that have gone up 10X, 5X, and it’s these kinds of big moves that make the strategy work. So I have some companies that just die, some that just do nothing. And then I have just a few here and there that spike way up and then you have to capture that and that’s where the returns come.

[00:15:10] Ney Torres: [00:15:10] Which says a lot about your character too because the hard part is to not sell when the price doubles. Right? That’s really the problem. It’s not to find these great, great bargains. That’s when it starts going up. Just hold to your guns until again, get those X baggers, 10 baggers, whatever.

[00:15:30] Dan Schum: [00:15:30] Selling is hard.

[00:15:31] Ney Torres: [00:15:31] You based your decisions and volatility. I’m sorry, in fundamentals, I guess.

[00:15:37] Dan Schum: [00:15:37] Well, I do a mixture. I don’t really consider myself just a value investor and people that read my blog, some have called me a Speculator or whatever, which is fine. Part of what I do is gambling. Part of what I do is like technical analysis or like looking at charts. Part of what I do is value investing, but for sure, a lot of my sell decisions, probably most of my sell decisions are based on the chart and the volume activity. Because like I want to buy something that looks cheap and then everything I buy is in this bucket of like easily to move, right? So some stocks I buy movies easily, which means also like the pump and dump crowd, I think goes for the same types of stocks because they can move them easily and so sometimes. I’ll hold a stock and all of a sudden it spikes up for no reason. There’s no news, there’s no press release, there’s nothing. It’ll just double in five minutes and just one day it just like shoots through the roof and I think probably some chat board found it or whatever, and so I’ll sell into that because it’s this giant volume that you know is not going to stick around. It’s all sell into it. It drops back down and I’ll buy it again. Some of the games I have are from companies that actually turn out well and their quality, like Hemo Care was a quality company that I happened to find when it was very cheap. But a lot of those sell decisions, like if the stock is just moving slowly and it’s trending up, then why sell? Even though maybe it reached what you had thought was the price target when you bought it. Well, now maybe it’s different because no matter what you think about it, like the public is buying it and moving it up. So why sell until you know that you have to sell like you like until it goes so crazy that you know it can’t go any higher. It’s got to drop. It dropped down. So a lot of times the cells, most of the cells I do over the last few years are these times when either a press release hits and a stock, like volume goes through the roof and the stock doubles and I sell into that or there’s no news at all and the stock spikes way up and I sell into that. There was one the other day, TCCO, Technical Communications. They’re like this small company. I don’t know what the market cap is, but the stock price has been around a few bucks for a decade, but it has these big move. It has these big spikes, the share count is low. They’re in an exciting field of encrypted military communications, and they are very lumpy business. So when they come out with a press release, sometimes they’ll come out with a press release and announced some $5 million order, $10 million or something big, and the stock will double or triple, but then it comes back down because it’s not sustainable like the next quarter, they lose money again. Just the other day it spiked up again. 50%, they released a 10Q and there was a mention of a new order in there and the stock went on 50%. I sold some of my position not all of it, but then now it’s dropping back down. And so that one I’ve bought and sold, I don’t know, five times. I’ll just keep going with it because it just keeps happening.

[00:18:19] Ney Torres: [00:18:19] How big can you become with this strategy before you started having problems? Size

[00:18:23] Dan Schum: [00:18:23] problem?

[00:18:24] Yeah. Well, right now, yeah. I’m kind of running into that size problems. I have a number of these positions, like theymove but they’re not impacting the portfolio nearly as much as they used to. When I first started out, I could buy my whole position in a very illiquid stock in one purchase. When I started out, I started with just like part of my retirement. So I had this retirement fund and I thought, okay, I’m going to try buying stocks. So I just took like 5% of it that happened to be in this IRA and I thought, I’ll, I’ll do this account with my stocks. As I gained confidence, I took over more and more of it. Now I invest all of my retirement is done with these little stocks and then also outside of retirement, we have a brokerage account with the cash that we used to have sitting in the bank, we put in and that has grown. Now I’m kind of running into this where I have to get these bigger positions and so I’m trying and it’s kind of hard to get the bigger positions. Over time I might have to change a little bit what I do.

[00:19:24] Ney Torres: [00:19:24] They use of interactive brokers?

[00:19:27] Dan Schum: [00:19:27] No. Actually, brokerage I’ve had a big issue with. When I started out, I was using Fidelity just cause that’s what happened to have my 401k from some previous job and so that’s where I put my IRAs when I opened them, Roth IRA and then a few years ago, Fidelity all of a sudden stopped allowing you to buy OTC markets, stop designation stock. So after a stock deregistered from the SCC, right? They’re not no longer required to file reports to the SCC, and they then go move on to the OTC tiers and OTC markets maintains this stock designation list, which they sell to brokerages. If a company falls out of their good graces, meaning they’re not like filing the official way with OTC markets, often enough. OTC markets puts up a stop sign on the, on their page on that stock. And Fidelity subscribes to that stop designation list and they stopped allowing people to buy stop designation companies. This was a few years ago, and so one day I tried to put in an order for, I don’t know what stock, but all of a sudden Fidelity wouldn’t let me anymore. I moved some  accounts over to Options House and then like six months later, Options House all of a sudden gave me a message that said, you have 30 days to get your accounts out. They were doing the same thing where they were not allowing any trading of these dark companies, but they took it further than Fidelity. Fidelity would let me sell but not buy, Options House said, you have to get your account out. If you don’t sell your stocks, we’re going to liquidate and then just send you a check, which would be horrible for these illiquid stocks,right? Then from there I went to this company, Pen Trade. Pen Trade was like a smaller broker and they were fine for a while, and then they closed up shop last year and they were transferring all their accounts over to some other broker, which was not gonna be online. You’d have to call in everything, like a full service broker, which I don’t want. I moved to Schwab and I really liked Schwab now. So Schwab, I do everything through Schwab and I still have an account with Fidelity. So on Fidelity, I don’t do any buying of these dark stocks. Schwab lets me buy whatever I want a few years ago I did a lot of research into these different brokerages and I contacted probably 50 different brokerages and only two would let me transfer my accounts that held these dark stock that held OTC stocks and all the rest said, no, you can’t transfer. And very few said, once your account is in, we would let you buy those stocks. It’s getting harder in the industry to even invest in these kinds of stocks. But interactive brokers specifically, they don’t allow trading of, I think it’s gray market. And then they also have some rules about like some people have told me they have some rules about if there’s no bid. Because there’s no one else bidding than what you bid. Something like that.

[00:22:11] Ney Torres: [00:22:11] Yeah, for sure. I have had that problem before. You have to subscribe to market data, but if you don’t have market data yeah, they have a problem with that. All right. How do you find these stocks besides your blog? But yes, you will go to OTC markets?

[00:22:26] Dan Schum: [00:22:26] Yeah, that’s where I do most of my research. Yeah. So I do a lot of, I’ll look at the chart on big charts. I like to buy stocks that are at a low point on the chart. So when someone mentions a stock to me, the first thing I do is like open up a chart, five, 10 year, 20 year chart and I want to find it when it’s like at a low point, if it’s been rising and I’m not really interested in it because I want to buy at the bottom when no one else is looking. And then I’ll capture these bigger moves and then, yeah, I pretty much use OTC markets to like read all the filings and stuff, but I don’t do any screening. I have a pretty long list of stocks that I have to go research just now because people like contact me. So I’ve gotten very lucky because I started my blog. People just started replying or emailing me and saying like, Hey, check this one out. Oh, you like this, check this one. And then I’m on Twitter and I follow people on Twitter who like mentioned whatever stocks. I pretty much researched stocks that people mentioned to me most of my buying is stocks I already owned because I’m trying to get bigger positions and I’ll only stocks for years. And with the thought that that eventually something’s going to happen and it’ll go up. But you know, I’ll own stocks that say flat or losing money. There’s one like Gigatronix, GIGA. They supply to the military aircraft. Industry and that one. I’ve lost a lot of money on. I mean, I haven’t sold, but I’m down, I don’t know, 50% or something, but I keep buying it because it keeps sounding so good and they’ve been restructuring and refocusing their sales and like they project out that things are going to be better in the future. Of course everyone does. But so I keep buying it. I’ve held it losing money for years, but I think at some point it’ll make a lot of money. It’s a lot of what I do is buy these stocks that I already own. But yeah, it’s pretty much stuff I follow blogs still. I don’t do as much blog reading or book reading as I used to, but yeah.

[00:24:12] Ney Torres: [00:24:12] What’s next for you? I mean, you have all these amazing returns. It will be even it’s not really a problem to have that much money to keep investing. What’s next for you?

[00:24:23] Dan Schum: [00:24:23] Yeah, it’s a good problem and it’s one I’ve been looking forward to. I mean, it’s not like my strategy is not killed by my size yet, so it’s not like I’m stopping anything.  It’s just I’m adjusting my behavior mostly, so I am buying bigger positions than I used to which some of it is just my own psychology. When you type in an order and it feels large but then it’s also a game you have to play with these illiquid stocks because you can’t just put, you don’t really want to show the other people watching, like your size. You put smaller orders, but you have to buy a lot of times, many, many times. I’ll buy these stocks like over a long time, a month, years. I’m hoping for this one and what I’ve been doing is you know, increasing my position sizes. I think I’ll probably end up with just more and more stocks as well like my mentor that I mentioned that I’ve learned so much from, he owns like a few hundred stocks and his portfolio is way bigger than mine but he owns also these like little tiny companies. He just owns a ton of that I think he has more time to spend on this than I do. He spends all day researching, so he knows everything there is to know about all these companies. It’s harder for me because like I said, I’m doing this in my spare time so I can’t follow hundreds of companies.

[00:25:38] Ney Torres: [00:25:38] So that was my question. When are you going to make the jump?

[00:25:42] Dan Schum: [00:25:42] I don’t know. I don’t know, man. I’m just trying to take it one step at a time. Like there’s some stocks that I think are cheap and so I’m just buying those and then there’s some that are moving and I’m just watching those. There’s been a few recently that spiked up that I sold some there’s one Dynatronics that I wrote about DYNT. I wrote about it like at a buck and my whole post was basically my method of using the chart to kind of evaluate, like look, this thing is low share count. And it’s sitting at an area of support on the chart and it has had all these spikes in the past and I think it’ll have more spikes in the future. That’s the basis. And so I bought some, and then it didn’t take long and it did spike because of this Coronavirus stuff because they sell masks, but it went up like three times. I sold some, but now it’s falling back down, so I’m buying more of it.  TCCO recently had a spike. Same thing like I sold some guys. It comes back down and buying more.

[00:26:36] Ney Torres: [00:26:36] Where can people find you, by the way?

[00:26:39] Dan Schum: [00:26:39] Yeah, so my blog is nonamestocks.com and that’s where I do all my writing. And then I’m on Twitter as well @nonamestocks. That’s pretty much how I communicate. My email address and my blogs that people can email me about whatever. I do go on iHub and pretty much like read people’s comments or whatever on different stocks. Most of the stocks I follow, there’s no one commenting, but sometimes there’s people who comment and so I’ll follow their stuff. But mostly my activity is through my blog. I haven’t been able to write. Go ahead.

[00:27:10] Ney Torres: [00:27:10] Sorry. Do you think that if you focus more in, do you think you called pick that better, not better, but probably call you focus your position sizes on those 10% stocks that made it, or is it like a portfolio? I don’t know which one is gonna go up that much. It’s not that obvious, but sometimes one of them pop a lot.

[00:27:30] Dan Schum: [00:27:30] Yeah. There’s a mix in there because on one level, I’m buying all of these stocks that are the same type, right? So it’s like, I want all these stocks that are the same shooting fish in a barrel. I want the fish, the right fish in the barrel when you’re, if you’re going fishing, you want to fish in a pond where there’s a lot of, a big chance of catching one, right? You don’t want to go somewhere where there’s no chance. All the stocks I buy are, like I said, I want them to be illiquid, low share count, low stock price low place on the chart and they’re all like that. So from that point of view, any one of them could move. And I don’t do any commodities. I don’t really buy any like oil or gas stuff. Mostly, what I buy as these stocks that are like industrials. Right? And I want it to be kind of an exciting. Type of company, I don’t look that deeply into each company, but I want a lot of the ones I own are like medical or biotech or some sort of like electronics, software. Something that I think sounds exciting and has the potential to be very big in the future because I want these things that’ll move a lot. And so when I’m buying all these stocks like that, on the one hand, it’s like any one of them could move because that’s why I’m buying all these ones and they all sound very exciting to me at the time I buy. But then as time goes on and you keep reading the news, there’s certain ones that become more and more exciting, or as you keep following, you can see kind of the puzzle coming together more and more for certain companies. So I’ll keep buying more and more of that one. And that’s one reason I own so many stocks is to force myself to like follow those ones. I can’t personally like really follow stocks that I don’t own. I can’t get out of bed and read all the stuff about these stocks that I don’t own. Nearly as much as when I do own, even if it’s a small position. So some of my positions are very small, just because I bought it maybe a couple of years ago and the stock is down 75% so the position sizes is like nothing. It doesn’t matter for my portfolio, but because I own it, I follow it. And it’s that situation where you can find these ones that are turning around and you can see them or they change management. Oh, they focus on a new product. Oh, they start spending more on R and D. There’s one I own Hydromer, HYDI, which I first wrote about no, four years ago or three years ago. It is this small, small company that they do these like coatings. These different polymers. That they coat on different devices and I bought it originally, it was like the stock was at like 50 cents. It was very small company run by this guy who’d been running it forever. He was a founder and I bought it because they came out with this press release for like a new a new antibacterial soap that was not alcohol based. It was like green. He like had this very good story with the light. Green environment at the same time they had all these other coatings for like medical devices for surgical instruments and it sounded very exciting, but they were this tiny, tiny company run by this guy who had been there forever and the stock was at 50 cents. They ended up like stopping communicating with the public for a year. There was nothing, and I kept buying it because I thought, okay, they’re going to come back. I was emailing with the CFO, he was saying like, yeah, we’re going to come back to filing but the volume was nowhere cause they had not talked and nobody else was buying. I’m buying some here and there. Eventually they come out with a press release that’s like, Oh, we have a new CEO. So the guy who had been running the company retired and his son who was like a VP or something took over. So the son took over then there is another press release. I forgot. They put out a few press releases over the course of a month after they had not talked in a year, a year and a half and in one of those, they announced that they had sold a division. So here’s this company that I had not been making any money in, that I had been holding for a couple of years and still buying, just kind of following. And then all of a sudden they announced they sell a division. Well, it turns out when the stock was at a 45 cents or something, they sold one of their divisions for a buck 36 per share, and then they paid out at 25 cents dividend. This is when a stock’s at 50 cents and it was like, wow, that’s crazy. And it’s all because this new guy took over. It’s because the son took over and he wanted to reinvigorate the company. And so then he starts filing again. The stock price goes up to, I don’t know, around a buck or something and then they sold, they were in New Jersey or something. They sold their building there for a few million and they moved to North Carolina, and this is all because of the son, new leadership. And you’d only know it if you were one of the few people who kept following through the darkness of this stock. And now the stock recently has gone like really high. It’s up to like over two bucks now. It was over three recently because they put out a few press releases about how their hand sanitizer, which was the original reason I bought the stock is like in Vogue now because of the Coronavirus. And so they put out some press releases about how they’re supplying or they have contracts or willingness to supply this, like in big quantities to different companies or something. I forget. But they put out a few really good sounding press releases and people picked up on it. And so now the stock is way up, even though the company is still. They were filing financials for another year or something and then they stopped. So now it’s been another year. They haven’t filed any financials, but they’ve put out some press releases and the stock is up four times from where I bought it. This is one where I’ve kept buying more of because like this, like I said, the puzzle is coming together. Originally, it was a small position. That I bought just because it fit my style. It was small. It was iliquid. It was at the lowest low of the last 30 years on the chart low share count inside ownership and then over time I just kept reading about it and kind of following it and buying, buying, buying. And then now it’s might be my biggest position. It’s one of my couple of biggest so that’s kind of how these things go.

[00:33:12] Ney Torres: [00:33:12] Do you dream a winner’s down?

[00:33:14] Dan Schum: [00:33:14] No.

[00:33:14] Ney Torres: [00:33:14] Just let him run.

[00:33:15]Dan Schum: [00:33:15] Yeah, pretty much. I mean, the thing is like for my style for this to work, when you have some companies that just completely die like it, to do the style of investing, you have to be comfortable that some of your picks are going to be wrong and the company is going to just die, literally die. I have some stocks that I don’t think the company exists anymore. They’re not there. The stock still trades every once in a while because the tickers there, but like there was one company they put out a press release about and then they stopped communicating forever, but they put out a press release announcing basically they were selling everything. They were selling their domain name, selling the stock ticker, selling shelving, everything. And now still the stock trades every once in a while. But for it to work, you have to be able to capture these winners. And Hema Care is a good example. This one I held, it was rising steadily from when I first bought it up to the 25 bucks buy out like five months ago. If I would have sold that, like my returns would not be anywhere near what they are. So when something’s going well, you have to be strong enough to hold it and be lucky enough that you’re not wrong in holding it.

[00:34:12] Ney Torres: [00:34:12] And if you had to guess why will be a good return on his strategy like that. What do you think if somebody starts doing what you are doing called expect to make?

[00:34:21] Dan Schum: [00:34:21] I don’t, I mean, 50% is not sustainable. As well as it’s been going for me. Like a lot of it is driven by only a few big winners. I had another big winner this year BioAmerica. It was a stock I held for like four years and it spiked up because of this Coronavirus. They put out a press release announcing that they have some kind of coronavirus test or something, and the stock went from three bucks to 20 bucks in 24 hours. And I sold into that. If that wouldn’t have happened in a FEMA care wouldn’t have caught on, like my returns would be a lot less than they are now. My goal is like 15 to 20%, I’ve done a lot better than my goal over the last few years but I think this is the way. If you want to have a different return than the market, you have to do something different than everyone else. And that’s what I’m trying to do. So that’s why I go small, because I want less competition and the competition I want is worst competition. If you’re going to try to win a basketball game, you don’t go challenge professionals, you go challenge people smaller than you. Right? And so if you’re trying to win and investing, do you want to go up against the professionals that do this all day and who are highly trained and have departments and have all their whatever analysis stuff? Where do you want to go up against the people who are just at home? Maybe, not educated, maybe not looking as deeply, maybe more emotionally driven. So that’s what I do. And then there’s been studies, Tweedy Browne had this what has worked in investing that I read that shows basically the smaller you go, the more iliquid like the better returns. And there’s been books I’ve read about that show stocks that have done worse recently. Stocks that performed poorly over the previous five years do better in the next five years then a stock that has done well. So that’s why I’m buying these stocks that have come down. So a lot of stocks I buy, it’s like it was up at four bucks and now it’s come down to a dollar and I think it’s an overreaction and I think if I wait long enough, it’ll go back someday took four. So I buy it when it’s down.

[00:36:20] Ney Torres: [00:36:20] For sure. Any of you think about what Buffett used to do back in the day? Yes. He will look for fundamentals by a company under net current asset value but he will not be able to see financials for a whole year until he gets the next Moody’s manual.

[00:36:35] Dan Schum: [00:36:35] A lot of these ones are there. They communicate very rarely.

[00:36:38] Ney Torres: [00:36:38] Yeah, yeah, yeah, for sure. I understand what you’re doing. I actually will feel very comfortable doing what you’re doing if you have a good position sizing. That’s the name of the game, actually. Of course, you’re not going to buy a random stock with, I don’t know, 50% of your account, but if you started putting in 58 positions, some small amounts. I guess you focus in some more than others, of course, depending how comfortable you are, but it makes complete sense. Well, thank you very much for your time, Dan. I really appreciate it. And one last question. We, know we can find you at nonamestocks.com.

[00:37:09] Dan Schum: [00:37:09] Yes.

[00:37:11] Ney Torres: [00:37:11] What will you tell yourself if you were starting all over? Like you go back in time, you have a minute to talk to yourself. What would you tell yourself?

[00:37:19] Dan Schum: [00:37:19] Stay with it and keep going on the path away from the group and keep reading. Those have all really helped me.

[00:37:27] Ney Torres: [00:37:27] Awesome. Really love it. Thank you so much for your time and see you in the next occasion.

[00:37:31] Dan Schum: [00:37:31] Thank you. Have a good day.

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Financially Free Podcast with Ney Torres
Episode 23