I am very excited to be able to offer the twenty third in my series of posts asking Pro Traders (Investors) about their psychological processes. Delving a little into how it feels to them when trading / investing. The good and the bad. How this has changed over time and what preparation they do mentally for performing as a trader / investor.
One of the key features for me was that I wanted traders / investors with experience who have been through the mill over the years and of course those who were kind enough to broach this subject publicly. This I hope gives developing traders / investors more to learn from.
I’m very fortunate to have a great line up and this week is:
Trader: Ian Cassel
1) How long have you been investing?
I started investing my own account when I was a teenager. I lost it all very quickly. Around this same time I started looking at smallcaps and microcaps. I quickly fell in love with the microcap space because of the accessibility of management teams. While in college I skipped a lot of classes to travel and visit microcap companies. I had a couple of successes that allowed me to build up capital only to lose it again and again. Over the next few years and into Graduate school I continued to learn by losing my own money over and over again. Then all of a sudden I started losing less money. I did some advising work for a few microcap companies right out of graduate school while managing my own account. In 2008, I quit advising and became a full time private investor focusing on microcap companies.
2) What style of trading / investing do you practice (technically driven, fundamental, systematic, a combination etc)?
There are 23,000 public companies on all US and Canadian Exchanges. This statistic might be a surprise but over 8,000 of these companies are below $50 million market capitalization. This is my playground, the smallest of the small. In general, I’m trying to find the diamonds amongst the dirt. I’m looking for great high growth companies that are profitable with great share structures, meaningful management ownership, with little or no institutional ownership. I try to find unique companies in an emerging trend where there aren’t many public comps so that a high scarcity value propels the stock once the rest of the market awakens to the opportunity. In general I’m trying to buy undiscovered and undervalued great companies that have the potential to get very overvalued.
I’m a concentrated investor normally investing in six companies, and I will hold them as long as management executes and the story or trend doesn’t change. I’m a high contact, high due diligence investor that enjoys the process. The “edge” is knowing your investments better than anyone else. It will give you an early indication on when to sell before the masses and the conviction to hold for big gains. I try to find the companies sub $25 million market cap, and sell them at $100+ million when they become institutionalized.
The stocks I buy are very illiquid so it can take days, weeks, even months to buy a full position. In most cases I take a 2-5% position of a company to stay under filer status. I don’t use technical analysis when I buy because the stocks I’m buying might only trade $5,000-$10,000 of volume per day so TA is rather useless. If a company is successful, the stock increases and so does the volume so TA can become more useful when selling.
3) How do you feel when an investment goes against you?
As long as the story (aka investment thesis) doesn’t change it doesn’t bother me. If the story does change, I sell. Since I spend a lot of time talking to management, contacting customers, suppliers, other investors, there is an initial let down because of the emotional energy I put into the due diligence process. However, because I’ve lost a lot of money in my investment career it has helped me to emotionally detach from my investments. I’ve learned to move on quickly.
4) How do you feel when an investment goes for you?
I feel great, but I don’t let it go to my head.
The biggest mistake an investor can make is to develop an ego. Your ego clouds your judgment and slows your thinking. Only fools think they know it all. Investing is a life long education and its teacher is loss.
I will continue to have losses and make mistakes, but I can continue to increase my success rate, and most important, decrease the time it takes for me to realize I made a wrong decision.
5) How have these feelings changed over your trading career? (Can you recall how you originally used to feel and elaborate on how this has changed over time?)
You cannot learn the real lessons in investing by sitting in a classroom or reading a few books. You have to experience investing by going through every emotional extreme from going broke to making a lot of money. I went broke several times in my early 20’s. Losing all your money either motivates you or you give up. Either way losing money is the best educator there is. After you fight and claw your way out of the hole, you have made it. I had to claw my way out of the hole a few times.
The same goes for making money. In an early season of my investment career I made a lot of money and starting buying cars, Rolexes, etc. I wasn’t mature enough at the time to deal with the success. Tying this back into “ego”, you will normally make your biggest investing mistakes after a big win. Soon after these early successes, I made bad investing decisions because I thought I knew it all, and Mr. Market broke me again.
You need to go through both extremes.
Over time I’ve refined my investment philosophy, and I pass on a lot of companies. I try to invest in the best companies with the best management teams I can find. My decision making on both the buy and sell side have also become much quicker.
6) Do you have any practices that you do away from the trading screen to help you mentally and emotionally handle trading?
At the beginning of each day I spend 30 minutes reading or listening to something that will inspire me. I try to stay passionate and keep my motivations in check. I listen to a lot of leadership lectures and even sermons and try to take bits and pieces and apply them to my life. I’m also quite the fitness fanatic. I try to get out everyday in the middle of the day for 1-2 hours to keep my body in shape. I found it’s very unhealthy to sit in my office from 6am to 6pm.
I get very active in the investments I’m in, and if I can positively influence managements to make the right decisions, hundreds if not thousands of employees, shareholders, and company stakeholders will be positively impacted. I take that very seriously.
In 2011, I founded MicroCapClub.com which is a private social network for experienced microcap investors. There is no subscription fee or monetization. It’s an agenda free zone I like to call it. The site is meant to be an idea generator for the membership. We also produce educational articles on our public blog. Our membership ranges from Peanut Farmers and Construction workers to Attorneys and Doctors to Small Institutions and $15 billion PE Funds. Administrating the site is almost like a full time job except I love to do it.
A couple other things..
I’ve learned that nothing you can purchase will ever make you happy, so finding good uses for your wealth is very important. You won’t be remembered because you made $5-10-20 million in the market. People turn ideas into millions everyday. But you will make a legacy if you get passionate about a cause and use your wealth to change lives.
Always surround yourself with people that are better than you. Your friends have far greater influence over your future than you think. If you want to be successful, start hanging out with successful people. If you want a better marriage, hang out with other couples that have a great marriage. Your life will change for the better.
7) Have you always done this?
Most of the things I do outside of my investing have also evolved. It’s sort of what getting older is all about, becoming less selfish.
8) If not, how have you learnt to deal with the feelings that come up when trading?
9) Can you describe a time in your trading life which really rammed home the point that so much of trading comes down to psychological factors?
Here is a lead in to an article I wrote on this subject.
When I was in college (1999-2003) I worked for a local stockbroker. He was a top producer and well known in the local area. During those years I witnessed an entire boom and bust cycle. In the office I was the person that answered any questions clients would have to save my boss the time, effort, and annoyance.
We had over 1,100 clients, and when the markets crashed I think I heard from all of them over a 6-month period of time. I witnessed sadness, anger, hopelessness, and despair. I would go to work, the markets would drop again, the phones would ring, I would get the sh!t kicked out of me, rinse-repeat. When I met with my old boss just last month he reminded me if I wasn’t there during that time period he would of quit. I was the first line of defense, a human punching bag.
This experience was probably the best education I would ever receive. First hand seeing how human emotion and the stock market are intertwined helped prepare me to be a better investor. What I witnessed during those couple of years saddened me, but I was also disgusted. It made me numb and since then I’ve always been able to distance my emotions from the markets. http://microcapclub.com/2014/03/master-your-emotions-before-you-go-broke/
10) If you could give aspiring traders / investors one piece of advice about emotionally handling the market what would it be?
Stay Cool. Keep a level head and you will have an edge on most other market participants. Persevere when you are tested on the extremes of taking losses and gains. Lastly, stay passionate and motivated and keep your goals centered on what really matters in life.
I’d like to thank Ian Cassel for sharing about the way he tackles the market from an emotional / mental side of things and for his willingness to allow me to post this as a free resource in the hope that traders who have been in the market for less time or are thinking of entering can perhaps pick up some A-HA’s.
If you are interested in finding more out about Ian Cassel you can find him:
Previously in the series:
Charles Kirk - read it…..here
Matt Davio - read it…..here
David Blair - read it….here
Mike Bellafiore - read it….here
Mark Holstead - read it ….here
Brian Shannon - read it…. here
Mike Dever - read it…. here
Anthony Crudele - read it… here
Derek Hernquist - read it … here
Ivan Hoff - read it… here
Brian Lund - read it… here
Greg Harmon - read it… here
Michael Bigger - read it… here
Jon Boorman - read it…. here
Darrin Donnelly - read it….. here
Stephen Burns - read it…. here
Tony Rohrs - read it…. here
Bruce Bower - read it…. here
Richard Weissman - read it… here
Larry Tentarelli - read it… here
Chris Ebert - read it… here
David Merkel - read it… here
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Disclaimer: Embrace The Trend / Richard Chignell does not provide investment, financial or product advice. If you are going to trade / invest it’s at your own risk and you must take responsibility for your actions.