Earning The Right

To learn more about microcap strategies or the Rivemont MicroCap Fund, check out this post and see the disclaimer at the bottom.

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A decade ago, I was at an investing crossroads. I had started investing in microcap stocks but was also exploring real estate after taking an extensive private course. I knew I wanted to become an investor - I just wasn’t sure how.

I had started attending real estate networking events in Montreal to meet new people and potentially find deals to invest in.

One night, the event organizer announced on the stage, in front of maybe 50 or 100 people, that he was in touch with a private lender who had repossessed a house and was looking to unload it at a discount. The way he described it, it sounded like a sure money-maker.

I quickly walked up to the host, took the private lender’s contact information and called him up. A few days later, I was visiting the house. When it came to price negotiation, the lender told me he wanted to sell the house at a bargain price to take a tax loss on the investment, so we’d have to set the ‘‘official’’ price relatively low, but then I’d have to give him more cash under the table ($20,000 from what I recall).

In hindsight, I should have turned it down in a heartbeat, but I was so eager to do my first deal that I thought about it for a couple of days. I weighed the pros and cons. In the end, my mother gave me the best (and most obvious) advice. She said: ‘‘You’re not going to start a real estate investment career by doing something illegal on your first deal.’’ That was it. I turned it down.

I eventually left real estate and focused 100% on microcaps, but that deal stayed with me for some reason.

Why did I think I earned the right to find a sure money-maker on my first deal after I had taken a course and attended a few networking events? Why was this private lender extending this opportunity to me? The guy must have had a solid network of other real estate investors. And he offered the deal to some nobody attending a networking event? That made no sense. Something had to be wrong.

The same thing happened several times as I moved into microcaps.

One example in particular came my way in late 2020, near the peak of the COVID bubble. Electric vehicle stocks were all the rage at the time. Tesla was close to a 10-bagger that year alone. I was offered the opportunity to participate in the private financing of Tevva Motors, a UK-based electric truck maker.

The deal came from an investor in my network, who had heard about it from someone in his network. The valuation looked unbelievably low and attractive based on the financial projections, the amount of money previously invested in the company, and the public comps. I was told that the corporation was getting redomiciled from Jersey Island, a tax haven, to the UK, and the existing investors wanted to set the transaction price very low for tax purposes. However, they were diluting themselves 30% at that low valuation in the process. Something smelled fishy.

That question lingered in my mind again: how did I earn the right to invest in such a great opportunity?

I didn’t. Something had to be wrong.

Thankfully, I passed on the deal.

I recently looked up the company, and of course, it never went public. It’s now insolvent.

Every time I see an opportunity that seems overly attractive, even too good to be true, I ask myself if I’ve earned the right to have access to it. If it comes from a personal relationship that I’ve cultivated over several years, and I’m this person’s first call, then yes, I deserve it. It makes sense that this person would share an exclusive, high-probability-of-success opportunity with me.

If it comes out of left field from someone who knows someone, from an IR firm I barely know, or from a US investment bank that cold-calls me (and even harasses me to look at their deal), there’s no way it’s a good one. It just doesn’t happen.

The North American stock market is one of the most competitive and efficient places on earth. There’s no way I’m getting pulled into a fantastic deal out of nowhere without having worked for it.

So the lesson here is two-fold:

1. Always be suspicious if something looks too good to be true. Most importantly, does it make sense that you have access to it?

2. Work hard and cultivate relationships that put you in a position to earn those opportunities.

There are outstanding opportunities out there, believe me.

But you must earn the right to find them.

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Disclaimer

This publication is for informational purposes only. Nothing produced under the Stocks & Stones brand should be construed as investment advice or recommendations. Mathieu Martin, the author, is employed as a Portfolio Manager with Rivemont Investments. This publication only represents Mathieu Martin’s own opinions and not those of Rivemont. Rivemont may own positions and transact on any securities mentioned in this publication at any time without prior notice. At the time of this writing, the Rivemont MicroCap Fund does not hold any positions in the companies mentioned. Always do your own research and consult a professional before making investment decisions.

If you’d like to invest in small public companies, check out this post.