The Size of the Swimmer Matters

When we consider the oceans, lakes, rivers, and streams, we are amazed by the variety of life in each of these ecosystems. The oceans have giant swimmers and microscopic ones as well. The same is true of each environment. We are amazed by the size of the blue whale and blue tuna is an amazing creature as well. When I am fishing, it is great fun to catch a largemouth bass. In my aquariums I have often also had small White Cloud Mountain minnows. The blue whale can live 80-90 years, the bluefin tuna might live 20 years, the bass perhaps 16 years and the White Cloud around five years. The whale is 200 tons, the tuna 2,000 pounds and the bass perhaps 12 pounds. Because the White Cloud is only 1.5 inches, it is exceedingly light. It seems the bigger you get, your life expectancy could be longer.

What is swimming in your investment ocean? Whales?

The Fish in the Stock Market

Most investors have whales in their portfolio of investments. They buy shares of Amazon or Apple or they invest in ETF’s that contain these whales. That is a good strategy, as it is likely that these companies will live even if conditions aren’t ideal because of their sheer size and resources. Some also buy tuna investments. These are like mid-cap stocks. They aren’t giants, but they have lived long enough to grow to a size that makes them less likely to fail. Examples include Steel Dynamics (STLD) and Sonoco Products (SON). Then there are the bass in the investment ecosystem. These are the small-cap stocks. One way to see these types of investments is to look at a popular ETF: IJR (iShares Core S&P Small-Cap ETF). You would see companies like Brooks Automation, Stamps.com, and Badger Meter.

Finally, there are the tiny companies, known as micro-caps. These are the minnows. They are high-risk but also have the potential for an amazing return. Unfortunately, many of these businesses don’t last a long time. The die, don’t grow or are eaten by other bigger companies.

Finding A Pool of Minnows

Because there are so many minnow investments, it is silly to try to sort through all of them looking for gems. One way to approach this problem is to buy a fund that specializes in micro-cap investments. IWC, iShares Micro-Cap ETF, has 1,268 investments. This, of course, means that no single micro-cap with spectacular results will greatly influence the value of the fund. By the same token, no single failure won’t destroy the value of the fund either.

Finding One Good Minnow Using AAII

If you are open to a bit more risk, then finding one good minnow might be the way to go. In my case, AAII provides ideas that may be worthy of investment. In the October 2020 AAII Journal, two companies were added to the “Model Shadow Stock Portfolio.” One was KTCC and the other was TITN. The first is an information technology investment while Titan Machinery Inc is an industrial stock investment.

AAII October 2020 Journal Article with minnow focus
AAII Shadow Portfolio performance.
AAII October 2020 Journal list of minnow investments
AAII Minnow Selection Criteria for Micro-Cap Investments in the Shadow Portfolio.

I used Seeking Alpha to look at some of the characteristics of both of these companies. Neither pays a dividend, so that isn’t a compelling reason to buy. However, I like several things about Titan. I like the diversification of products, the new and used aspects, the rental part of the business and the geographic diversification. It almost feels like they are trying to do too much but  they have been swimming since 1980. The other plus is that they are an industrial company, and I am looking to add some industrial stocks to our portfolio.

Because TITN doesn’t pay a dividend, is it growing? Looks like it.

Titan’s Company Profile From Seeking Alpha

Titan Machinery Inc. owns and operates a network of full-service agricultural and construction equipment stores. It operates through three segments: Agriculture, Construction, and International. The company sells new and used equipment, including agricultural and construction equipment manufactured under the CNH Industrial family of brands, as well as equipment from various other manufacturers. Its agricultural equipment includes machinery and attachments for use in the production of food, fiber, feed grain, and renewable energy; and home and garden applications, as well as maintenance of commercial, residential, and government properties. The company’s construction equipment comprise heavy construction machinery, light industrial machinery for commercial and residential construction, road and highway construction machinery, and mining operations equipment. It also sells maintenance and replacement parts. In addition, the company offers repair and maintenance services that include warranty repairs, off-site and on-site repair services, scheduling off-season maintenance services, and notifying customers of periodic service requirements; and training programs to customers. Further, it rents equipment; and provides ancillary equipment support services. The company operates in Arizona, Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin, and Wyoming, the United States; and Bulgaria, Germany, Romania, Serbia, and Ukraine, Europe. Titan Machinery Inc. was founded in 1980 and is headquartered in West Fargo, North Dakota.

Getting My Minnow Net Ready

What Will I Do? I will add TITN to my watch list. If there is a dip in the price of the shares, I will scoop up a small position. I might buy 50 shares to start, and then add another 50 at an opportune moment. Then I will patiently wait to see if my minnow thrives. The risk is rather small,  because I have many whales and tunas in our portfolio.

Full Disclosure

Cindie and I own shares of STLD and SON as long-term investments.