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Microcap Heaven: New Long Position Rises 7X

90% of my trading activity revolves around microcap's. These trades provide the greatest opportunity, when timed correctly. This year has been a recordbreaker, with 2 companies rising 5X, NBEV and CATS, and just this week a new long position jumped 7X. That never would've happened with large-cap companies. Sure, I did buy Amazon at $75, and now it's trading at over $800, but it took years, and I cashed out long before any significant gains. I don't have the patience for a multi-year year hold.

My first microcap was one in which I was deeply involved. I had just graduated from engineering college and was working 100 hours a week designing the world's first micro-respiratory monitor to be used in intensive care wards. 4 years later, we sold our company to Johnson & Johnson, and I received a block of JNJ stock. This was a big win, and tremendous fun, but it took 4 years and 100 hour work weeks.

I'm still putting in the occasional 100 hour work week, but I'm now involved with multiple companies simultaneously and usually on a short-term basis. I conduct my due diligence, often over 100 hours per company, establish a position based on a near-term catalyst, and exit immediately prior to or following the catalyst. My motivation for the extensive due diligence is to establish enough confidence in a trade to take a large position. Small positions can be entertaining, but are meaningless in terms of generating real returns.

Microcap trading involves risk, because most of these companies ultimately fail. That's why timing is crucial. I recently had lunch with a high profile CEO and he believed that 98% of all microcap's fail. I don't think it's that high, but that's definitely in the ballpark. For that reason, microcaps are trading vehicles, not investment vehicles. But, these companies provide the returns I'm looking for as long as I am disciplined and force myself to buy at bottoms and exit on spikes. Discipline is necessary because as humans we are wired to do the opposite.

That said, I do occasionally see trading opportunities in large-cap companies, and have profitably traded Tesla, Baidu, and others, but in order to generate reasonable returns, I use the leverage I can obtain through options.

I'm currently working on 3 trades, one in the cannabis sector, one large-cap with a major catalyst in November, and one microcap with multiple catalysts. I expect each trade to provide a minimum of 2X returns. 2 of these trades have greater than 5X potential.