Geoff Gannon On Value Investing: “Something Has To Jump Out At Me”

Gannon On Investing founder Geoff Gannon was only 14 when he started investing. Though he said he didn't know what value investing was at the time, he started out by focusing on balance sheets' past earnings. “My dad gave me an article about Ben Graham,” Gannon told Benzinga during a recent interview. “That got me into reading [two of his other books]: Security Analysis and The Intelligent Investor. I became a real value investor after that. Then only 5 or 6 years ago I started writing about investing on my blog, Gannon On Investing.” With several years of value investing experience under his belt, Gannon said that the advantage of using a value approach in the small and micro cap space is that a lot of people, even people who are more investment-oriented, think of small caps and micro caps as a real gamble. “They don't consider margins of safety,” he said. “They don't have people applying as many value ideas outside of blue chip stocks or micro caps.” He gave Berner Dental as an example, saying that if it was a big cap, it would be trading at the $25 range. Instead, it trades at $17. “Craftmade (CRFT), where there is a hostile bidder who is trying to buy them around $8 and the stock is probably $5.30,” he continues. “In big caps that's not going to happen. Enough people are betting that something will happen there. So I'd say they're pretty big. You do get 30-50% in micro caps if you're willing to look for them.” Granted, Gannon says that with micro caps comes an increased level of risk. “You have to be compensated for the risk and you have to be compensated for the work,” he insisted. “Most of what I do is a lot of work in finding these companies in the first place. There's also risk in micro caps that I don't buy [because] they're young companies.” Gannon adds that the biggest thing he looks for is a real and obvious bargain. “Something has to jump out at me,” he said. “I like to look for a long history of free cash flow. I look back 10 to 15 years. You can find this all on Edgar. I [am] also, like Graham, looking for current assets, accounts receivable. Inventory isn't ideal, but it works. I'm looking for a good balance sheet. Most have good balance sheets. Craftmade doesn't, but the others do.” Read the full interview or listen to the podcast right here on Benzinga.