Strategies for Micro cap

  1. Differentiate between a breakout stock or a broken stock. Breakout stock are low-priced, undervalued and have specific catalysts in the near future that put them on the threshold of breaking out to much higher prices.
  2. Cat 1: Fallen Blue Chips (e.g. S&P with less than $10)
    • Analyze whether the company can turn around
  3. Cat 2: Undiscovered Growth Stocks
    • Often companies in not a limelight industry
    • Steady growers of at least 15 percent for past 5 years
    • Decent insider ownership of 10 percent or more
    • Or explosive growers with earnings growth of at least 100 percent
    • Low debt to equity
  4. Cat 3: low Price to Book value
    • Take into account only sellable assets
    • Low debt
  5. Cat 4: Under the radar biotech
    • check out
    • Steal ideas from top managers
    • Find out more from medical professionals
  6. Cat 5: Invest Globally
  7. Look for what Wall street missed. Reach the 10Q and 10K. Use qualitative research to have an edge
  8. Do proper portfolio sizing
  9. Cut loss and let winners run and take profit along the way if fundamentals can’t sustain
  10. Beware of high spreads

Options Trade Strategy Selection

To select your strategy, below are some useful questions

  1. Which market(s) are you going to trade?
  2. What is the direction?
  3. What is the time frame?
  4. What is the volatility of the underlying and its options?
  5. What is the risk/reward?

Risk Management:

Before the trade:

  • What is the risk/reward ratio of this trade?
  • What is the probability of success?
  • What is the maximum loss acceptable for this trade?
  • What is the expected return and target profit of this trade?
  • Does the new trade maintain the balance or diversification of the portfolio?

During the trade:

  • Has the trade reached the maximum allowed loss?
  • Has the trade reached the target profit?
  • Is the reward of keeping the trade open worth the risk?

After the trade:

  • Did you follow the risk management rules on this trade? If not, why?

Tips on risk management:

  • Create a money management policy
  • Define a position sizing policy
  • Maintain a diversified portfolio
  • Adjust the trades or exit when it goes bad
  • Buy portfolio insurance to protect against black swan events


Other investors’ strategies

Chris Rees

  • Buy Rules
    • low debt, less than 50 percent
    • Focus on tangible book value
    • Look at realistic earning potential
    • Enter when it’s half of (book value and earning potential)
  • Sell Rules
    • Take profit if the stock approaches your estimated fair value
    • Sell if market, sector, company specific risk increases
    • Sell if stock becomes overweighted in the portfolio
    • Sell if find a better opportunity
    • Take profits if you can lower your overall portfolio risk
  • Personal website:
  • Recent recommendation: CPLP (Target 4.5), PWE (Target 3.5)

Bob Krebs

  • selling puts and covered call
  • Sell when 20 days MA crosses below 50 day MA
  • Always look to buy back cheap options. Buy back option when you have a 75 to 80 percent gains to free up the capital
  • Avoid catching falling knife

Mike Koza

  • Look for short-term market “disconnects”
  • Successful investing requires a major time commitment to stock research
  • Don’t accept company figures when analyzing a stock
  • Avoid value traps
  • Sells when the ratio of intrinsic value to price falls below 1.25

Kai Petainen

  • Don’t just look to popular investing sites for investment ideas and strategies. Trolls and Google scholar for academic papers for new ideas
  • uses F-score, or Fraud score
  • Develop
  • Developed 11 variables to screen for long
    • Low P/B <5
    • Positive return on assets
    • Positive return on equity
    • low debt to equity (generally less than 30 percent)
    • Relatively low price-earnings multiple
    • Price at or near its 52 week high
    • Five year revenue growth rate of at least 10 percent but not more than 40 percent (if revenue growth is too high, like 80 percent, generally avoid)
    • low F-score (roughly equivalent to (net income – cash flow)/assets
    • Low short interest
    • Institutional buying
    • Insider buying
  • Find stocks that have smart money, value, growth, and quality attributes
  • Avoid story stocks
  • Develop a sell discipline and stick to it
  • Don’t follow the flavor of the moment investing style
  • Don’t data mine excessively

Alan T.Hill

  • Go where the money and growth are
  • Do your homework! Read and follow up the leads
  • Diversify
  • Minimize mistakes

Jack Weyland

  • Look at short interest relative to average volume on the feel of negative sentiment in a company
  • Seek out promising companies that are undervalued because of temporary setbacks or hiccups
  • Seek entry points in stocks after sellers have dried up and signs of accumulation are beginning
  • Look for companies that serve an unmet medical or health care need
  • Avoid companies with short interest
  • If the market appears to be overbought, hedge your portfolio
  • Diversify but don’t overdo it
  • Try to invest without emotion or bias no matter how promising or likable a company or its treatments are
  • Avoid the sunk cost effect. Cut your losses and move on

Randy McDuff

  • Find stocks that are being ignored by Wall street
  • Seek out companies with strong business models, preferably monopolies, duopolies, or oligopolies
  • Focus on enterprise value/EBITA rather than price/earning ratios
  • Beware of false confidences like “Invest in What you Know”
  • Use government sites or academic sets like or

Andrew Swann

  • Don’t invest in gold stocks – especially junior miners – unless you are prepared for extreme volatility and losses
  • Do you own due diligence before committing significant amounts of capital
  • Avoid leverage and set aside cash
  • Ride the coattails of smart people
  • Only invest in things you understand
  • Seek out special situations
  • Cut your losers when they fail to execute

Justin Uyehara

  • Above all, be flexible. Trades the trend
  • Listen to what the market is telling you
  • Sell Rule: Don’t get too greedy

John Navin

  • Uses Fibonacci analysis, Elliott Wave theory
  • Buy stocks at support level and sell stocks at resistance levels
  • Pay attention to moving averages
  • Use sentiment indicators as contrarian tools such as
  • Avoid story stock
  • Don’t mess with double short ETFs or if there’s too much fine print, avoid it
  • Use stop losses when stocks sink 5 percent below your purchase price
  • Regarding profits: If your trade produces a 25 percent gain, sell one third. At 50 percent gain, another one-third