Sound Advice From Gannon On Investing Founder Geoff Gannon

Geoff Gannon isn't shy about giving advice. As the founder of Gannon On Investing, Gannon provides tips and helpful information for new and veteran investors alike. Benzinga recently had the chance to interview the expert blogger, who told us that when it comes to compelling investments, he really likes Barnes & Noble BKS. “I bought Barnes & Noble right after the board announced they were going to evaluate strategic alternatives,” he said. “That was during the proxy fight with Ron Berkel. The company is controlled by the founder Len Riggio, he owns 30-35% of the company. In 2008, Ron Berkel started buying stock in the company and kept buying until he got until around 20% when the board put in a poison pill to try and stop him. He was able to get another hedge fund – he does not acknowledge this, but this is the theory – to buy up about 15-20% of the stock to help him out.” Contrary to the speculation, Gannon said that it was not Bill Ackman's Pershing Square Capital Management that helped him out. “They are still in Borders, but they were in before Berkel. Berkel came after Ackman, so Ackman doesn't have any Barnes & Noble anymore. So Berkel lost the proxy fight last month and their company is up for sale. It is very heavily shorted. Only about 25% of outstanding shares are freely traded.” “It's up for sale now and there will be some people interested in buying,” Gannon continued. “Riggio winning the proxy fight makes it tougher because I am not sure people think he will let go. By the end of this year we should know if there are any bidders.” Gannon said that, when evaluating stocks, he focuses on a large margin of safety. “If I think a stock is worth $15 dollars, I try to pay $7.50, and I don't pay more than $10,” he said, adding that he tries to look for a lot of consistency in the past record. “I'm not good at predicting the future,” he continues. “I just look for an overwhelming past record and a big discount – hopefully a 50% discount from what the stock is worth. So if I'm wrong, I don't lose money, I just end up losing some of that 50% I was wrong by.” When asked if enterprising small cap value investors generate better returns than those who focus on the mid to large cap space over a long period of time, Gannon said that yes, they do. But the key word is enterprising. “To the extent that you do work and you have some sort of skill analysis at picking stocks – to the extent that you're a stock picker – it will amplify your returns, being in micro caps instead of large caps,” he said. “But if you're a mediocre investor, it's not going to help at all to go into micro caps,” Gannon warns. “The key is that the work that you do will get you more of a return in micro caps. If you're right in big caps, usually your return is going to be less. If you're right in micro caps, it is usually going to be bigger. But in terms of if you're wrong, you are not going to do any better in micro caps. It just amplifies whatever skill you have been able to develop. It doesn't really give you better returns if you don't have some stock picking ability.” Want to hear more? Then check out Benzinga's full interview with Geoff Gannon.