The $1.3 Billion Secret That’s Embedded in Your Brain
Oct 26th, 2004 | By Penny Sleuth Contributor | Category: Investing Strategies, Penny stocks, Technology*** Small-cap stocks led the way in yesterday’s trading session. Highfliers like CoBiz (COBZ:NASDAQ), PrivateBancorp (PVTB:NASDAQ) and Genlyte (GLYT:NASDAQ) rose 6.5%, 5.2% and 5%, respectively, according to Investor’s Business Daily. As a result, the small-cap S&P 600 Index rose 0.7% for the day. It is up 7.3% on the year. Not bad considering the almighty S&P 500 actually lost a point yesterday and is down 1.5% year to date. But this information should come as NO surprise to small-cap investors.
I don’t care whether the market is in bull mode or bear mode (like it is now). Growing companies rise. And despite what your broker may or may not tell you, most of the truly growth-oriented companies are found in the small-cap sector. For instance…
*** Of the 8,854 publicly traded companies, Multex Net (a Reuters-based stock screener) tracks, only 679 have grown their top and bottom lines 25% or more year to date. And guess what? Of those high-risers, 411 are small-cap stocks with a market cap of $1 billion or less. In other words…
Sixty-one percent of the top growing companies on the market right now are small-cap companies. And folks, these are exactly the kinds of companies you want to own.
*** Since Jan. 1, 2004, a grand total of 496 stocks have risen 100% or more. And 95%, or 470, of those are small-cap stocks. Bet you won’t see that stat in any major investing newspaper or magazine. And I’ll tell you why…
*** Who in the world has ever heard of such companies as Avalon Digital Marketing Systems (AVDS:Pink Sheets), Alcohol Sensors Intl. (ASIL:Pink Sheets) or even A Novo Broadband Inc. (ANVB:Pink Sheets)? Almost no one. They are all tiny companies that reside on the OTC Pink Sheets market — the most feared and misunderstood group of stocks in the world. Rarely do they ever get mentioned in the mainstream press. You never hear about them from your broker or money manager. And you sure as heck aren’t investing in them for any sort of 401(k) program. But they are three of the top-performing stocks on the market today, rising between 7,400% and 59,900% each.
That’s the power of small-cap stocks.
So how can you find some of these top performers to boost your own portfolio? I have two suggestions…
*** Every Tuesday, my colleague Carl Waynberg writes his GRIP Alert for Penny Stock Fortunes. For those of you who don’t know, Carl tracks the OTC markets exclusively. He looks for the tiniest companies on the market that have Growth, Relative strength, Insider buying and a low Price to sales. It’s a great strategy — one that has already found a 270% winner in the past month and a half.
If you aren’t already a subscriber to Penny Stock Fortunes, you aren’t receiving Carl’s GRIP Alerts.
To sign up, click here: www.agora-inc.com/reports/PNY/indiaB01/.
*** Finally, my partner in crime, Irwin Greenstein, recently read an interesting book called The Tipping Point by Malcolm Gladwell. It’s all about how small events can lead to huge changes. And one of the most interesting case studies in the book shows that companies with 150 employees or less tend to be more efficient, more profitable and better companies to work for. It’s a point that is definitely worth knowing as a small-cap investor. In fact, it’s a point that could be worth as much as $1.3 billion. Check it out…
Irwin, all yours. And don’t forget, you owe me that steak dinner tonight. The Bengals came through against those overrated Broncos on Monday Night Football…I told you so.
The $1.3 Billion Secret That’s Embedded in Your Brain
A section of the human brain holds the secret rule to building a $1.3 billion empire. That portion of gray matter reverts back to the intuitive tribal survival know-how that today is adopted by the most successful corporations — a rule that could hold the key to picking the most profitable small-cap stocks on the planet.
Harkening back to our hunter-gatherer ancestors, this deep-seated code has been the real secret weapon of the Roman army of 100 B.C., the 16th century German mercenary Landsknechts and…Vieve and Bill Gore of Newark, Delaware.
Never heard of the Gores? Sure you have. This husband-and-wife team started a company in the basement of their home that went on to revolutionize the outerwear industry with something called GORE-TEX. And thanks to Bill Gore’s perseverance, he codified this rule and, moreover, used it to build a $1.3 billion powerhouse whose products conquered Mount Everest.
Called the Rule of 150, it proves that when an organization gets bigger than 150 people, things break down. Communications deteriorate. Morale drops. And revenues suffer. Why?
Because the Rule of 150 is wired into the neocortex of our brain. The neocortex is our ‘new’ brain, the most recently evolved outer layer that sets us apart from primates. It lets us solve problems, plan the future and set goals. Compared to the raw rage exhibited in the animal kingdom, the neocortex evaluates our feelings and emotions before we react with regrettable consequences — such as firing a valuable employee on the spot.
The Rule of 150 isn’t some harebrained idea. Anyone who wants to make a killing in small-cap stocks should know about it. In fact, here at Penny Sleuth, we did what we do best. We investigated the Rule of 150…and the results were truly startling.
Because we discovered that the Rule of 150 has the potential to identify the most lucrative small-cap stocks — which skyrocket in price 1,240.4%, 1,388.9% and an astounding 5,291.9%.
Let me explain…
After careful analysis, Bill Gore realized that when a plant employed more than 150 people, things got ‘clumsy.’ When a group exceeds 150, people can no longer form meaningful relationships with each other. They can’t match faces with names. And they can’t communicate effectively.
So he developed a system that, as it turned out, followed the Rule of 150 to a tee. At W.L. Gore & Associates, each plant has 150 people or less, buildings must be separated (for example, by a parking lot) to keep folks from meddling and the management structure is lattice-like — meaning that everyone’s title is ‘associate’…giving a forklift operator full access to someone with the responsibilities of a vice president.
Bill Gore’s research was a turning point for the company. He proved that at 150 people or less, everyone in a facility gets to know each other. Ideas are easily shared. Jobs are assigned to the best possible person. And managers tap into the group’s ’social memory’ for faster, more accurate decisions.
Essentially, each division manager at W.L. Gore & Associates runs their own startup company. And as with most startups, there is a shared sense of responsibility that brings out the best in people. Enthusiasm and morale run on a constant high. The folks in R&D are eager to share information with marketing, which works with sales — all in a streamlined, ad hoc organization that gets new products to customers in the fastest, most economical way.
Bill Gore accomplished what many bloated CEOs could never figure out: how to retain that highly charged small-company atmosphere in a billion-dollar organization.
Today, when W.L. Gore & Associates adds a new plant, it’s no larger than 50,000 square feet — the best size for a 150 people to work in. When a business unit reaches 150 people, it’s divided into two. When a person is interviewed for a new job, they have to talk to all the associates in the group.
The Big Payoff
The Rule of 150 has paid off for W.L. Gore & Associates…big time. And it can for you, too, by looking for the same small-cap culture that Gore has nurtured for 46 consecutive profitable years…with revenues reaching $1.3 billion.
Skeptical? Well, we ran several scans on our high-end Multex Net system, and here’s what we discovered…
First, we searched for companies that had a year-to-date price gain of at least 100% — the outcome was 450 companies, or 5%, of the 8,854 companies tracked by Multex Net. Of those 450, we queried for companies that had 150 employees or less and the results were 292. Then we applied our small-cap criteria by narrowing down the 292 to those with a market cap of $1 billion less…giving us 288 companies that have the potential to capitalize on the Rule of 150.
OK, that was interesting, but we decided to dig even deeper. And what we uncovered were small-cap stars with growth rates that defy gravity…
Let’s start with Ionatron, Inc. (IOTN:OTCBB), which develops and markets energy-weapon technology for sale to the U.S. government. If you think that sounds like science fiction, check out its stock. On Dec. 26, 2003, it was trading at a miserable 47 cents. Today, at 10:33 a.m., the last trade posted was $6.30 — a gain of 1,240.4%. That’s real money.
Next up, we found Universal Guardian Holdings, Inc (UGHO:OTCBB). It provides
security products and services that prevent terrorism and security threats to corporations and governments. Given how hot that market is, it shouldn’t come as a surprise that its stock rose from 9 cents on Dec. 29, 2003, to $1.34 at 10:26 this morning. There’s nothing terrifying about that profit: 1,388.9%. (Although you may want to be slightly terrified that the SEC is investigating the company.)
And last but certainly not least is Aptimus, Inc. (APTM:OTCBB), an Internet advertising network. On April 16, 2003, Aptimus closed at 37 cents. But at 10:32 a.m. this morning, the stock had last traded at $19.55 — recording a breathtaking gain of 5,291.9%.
While you may not want to spend $3,000 per month for Multex Net, you can do your own scan using free screening services and search engines.
The one thing to look out for is a company that fits the Rule of 150. It’s not a guarantee of finding a sure winner, but if it’s good enough for James Boric…
Happy investing,
Irwin Greenstein
October 26, 2004
P.S. In the upcoming Friday issue of Penny Sleuth, we’ll delve into The Tipping Point, the book and marketing theory that James touted in his observations today. And speaking of tipping, I’m looking forward to a hearty cabernet sauvignon to accompany that steak dinner tonight with James. If I have to pay up, might as well go for the real good stuff.
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