Pretend I’m a 6th grader…
When I get down to business with the CEO of a microcap I’m considering recommending, my first question starts like that.
***By the way, if you missed my note yesterday—I’m preparing to release brand new research on a $2 electric vehicle (EV) stock. For reasons I’ll show you, its technology could become mandatory in all new EVs… causing it to grow 20X in one calendar quarter and potentially be a lucrative takeover target for Tesla.
If you’ve followed me for long, you know I rarely make predictions like this.
That’s why, today and Monday, I’m sharing more important background on this stock and how I conduct my research process. This $2 EV stock is a great opportunity, I believe, to collect large capital gains in a relatively short period of time. But it’s definitely not for everyone.
So, please read this note and the one I’ll send you on Monday before acting on the new research I’m releasing on Tuesday, October 18, at 9 am EST.***
Now, back to today’s essay…
I always try to shake hands and meet with the CEOs of the microcaps I recommend in person. There’s just no substitute for sitting with a guy and talking to him. I discover things in five minutes that would be impossible to unearth any other way.
The simple fact is people run companies. Most investors forget this. All my best microcap recommendations—including MGNI (+422%), Kopin (+399%), and EXPI (+375%)—came from companies with great CEOs.
I’ve talked with the CEO of the $2 EV microcap a few times…
He’s impressive—and he has the three qualities I look for in a CEO…
#1: Are you a great communicator?
Enphase (ENPH) was my most successful stock pick. I recommended it at $1.14/sh.
It’s now worth $250/share and is one of the largest solar companies in America.
Enphase’s elevator pitch was perfect: it invented the microinverter—which allowed rooftop panels to safely go on millions of regular houses for the first time.
Simple, right? That’s great communication.
A bad communicator would have said something like:
“Our microinverter improves upon traditional photovoltaic arrays, which use string inverters to convert the DC to AC that could be used in the home, which was not particularly safe or efficient.”
See the difference?
Don’t get me wrong; a CEO must know the intricate details behind how his product works. But any decent engineer can do that. A CEO must also be able to summarize how the product makes people’s lives better in a concise way that a 6th grader could understand.
If he can’t do this, it means one of two things.
One, he’s a bad communicator. If a CEO is a bad communicator, I’m out.
Two, the product doesn’t make people’s lives better… which is even worse.
Why is good communication so important? Because the vast majority of investors aren’t professional analysts like I am. If a CEO can’t effectively share his vision with the masses, he’s excluding 99% of the population from ever buying his company’s stock… which keeps a lid on the stock price.
Said differently, it’s easy for a small stock to 5X, 10X, or better if nearly everyone’s a potential investor. It’s hard to buy into something when you need a PhD to understand what the company does.
#2: Are you a straight shooter?
This is all about honesty and transparency.
To determine if a CEO is a straight shooter, I ask:
What keeps you up at night?
Here’s a secret: All great CEOs worry a great deal about their businesses.
If they pretend everything is hunky dory, they’re either lying, or they’re a terrible CEO.
No business is perfect. Business is all about fixing problems. Before I consider recommending a company, I have to understand these problems. If a CEO tries to deny they exist, it’s an easy “no” for me.
CEOs who talk like politicians can dazzle inexperienced investors. We don’t want to be dazzled; we want the truth. A CEO who’s frank and honest is one I can get behind.
Transparency and honesty are everything in this world.
#3: Are you confident… but not cocky?
This one comes down to soft skills.
Confidence is an important trait in a CEO. He must show outward confidence that his business will succeed in order to give investors confidence.
Most CEOs have plenty of confidence. You don’t become a CEO by being meek.
The problems arise when a CEO is too confident… or cocky.
Sometimes cockiness is obvious—flashy gold watches and obnoxious sports cars.
More often, you have to draw it out. Most people who reach CEO status are self-aware enough to hide obvious signs of cockiness.
That’s why I ask: Where do you see the company in five years?
There’s a wrong and right way to answer this question.
The wrong way: they insist they’ll “beat Amazon” or some other pie-in-the-sky fantasy.
The right way: show me a clear path to rapid revenue growth by using reasonable assumptions.
Tell me what you’re going to do, when you’re going to do it, and the results you expect to achieve.
Hearing that tells me I’m talking to a CEO who is accountable, grounded, and humble.
I’m talking to a CEO I can invest my own money in… and recommend my subscribers do the same.
Okay… you’ve found a promising microcap with a groundbreaking technology and an A+ CEO…
There’s one last step before you decide to invest.
On Monday, I’ll be sharing a new essay on how to de-risk microcaps.
De-risking is about taking a microcap—which are inherently risky—and checking off boxes that make it less risky.
Say you’ve got a microcap that can shoot up 2,000%—which is my middle projection for the $2 EV stock, even if it’s not acquired by the likes of Tesla.
Well… is there a 1 in 100 chance of that happening?
Or a 1 in 2 chance of that happening?
Big difference, right?
De-risking helps tilt these odds vastly in your favor.
More on this on Monday.
Have a nice weekend.
Editor, Project 5X