After publishing our first written Skull Session with Tim Heitman on September 4, I wanted to keep the series going with some stock picking conversation.
For now, I’ll be calling these chats: Investor Notebook…
So, for the second edition, we’re featuring Sergi Mascaro, an investor who has been involved in the markets since he was a teenager and has developed a differentiated approach to finding small companies, early.
Over the last several weeks, I’ve been doing a good deal of communicating with Sergi. So many of his X posts talk about stocks I own, or are being covered at the Microcap Investing Cliff Notes Substack and GeoInvesting, like OCC 0.00%↑ and $SCIA.
Sergi is the founder of Eden Funds and has built his process around finding companies going through early inflection points. His background in physics and CFA studies gives him a pretty analytical mindset, yet he’s not interested in making investing complicated. He talks a lot about knowing companies for years and how that helps him to move quickly when the facts change.
There’s a lot in this conversation that should resonate with microcap investors. We get into his research process, how he thinks about stock price action versus the underlying business, what he looks for in management, why he likes site visits, and how he handles a stock that falls sharply even when the business continues to improve. He also shares stocks of he finds particularly interesting right now, including Manitowoc (NYSE: $MTW) and Guerrilla RF (OTCMKTS: GUER.
Here’s the full conversation.
Skull Sessions is a collaboration with Geoinvesting.com, a full-stack microcap research platform and MS Microcaps LLC , home of the Microcap Quality Index (MSMqi).
Standard Questions
1. Tell us about your investing journey, before and after investing. What is your investing framework and research process like today and how has it evolved over time?
I will try to make this long story as short as possible without losing the essence of my investing journey.
I started moving in the market when I was 15, in 2010. I was curious about the market before, so I don’t know if there is a “before investing” moment. I had some money saved and wanted to grow it, so my dad introduced me to the stock market at that time. I was very young, but I spent a bit more than one summer trading and trying things like shorting banks, so I lost 50%, or $1,500, and when my mum discovered that loss, she prohibited me from touching the stock market ever again.
A few years later, when I was studying physics at university, I came back to the market and mainly read a few Technical Analysis books from gurus, and nothing made sense to me, especially when comparing it to Quantum Mechanics theories that I was studying back then. Even so, I had to try again and lost some more money, obviously.
Finally, when I was 22, I started studying for the CFA Exams, and at that time the real party began, because it was when everything started to make sense in my mind. I am almost 31 now, so I am a very young investor with a lot to learn still.
2022 was a big hit for me mentally, because in 2021 (a very strong year for my PF) I came into too many unprofitable stories with untrustworthy management teams. At that time, I was just getting introduced to the formal and professional investment community, working in a hedge fund for the first time, and everything imploded very fast, including my personal account. In addition, during those 2 years I started following a few more experienced investors as if they had God’s word, which was a very significant mistake. Since then, profitability, track record, trustworthy management running the business, and thinking independently have been very important aspects for me.
Currently, my investment framework or research process is about going after companies that are going through an early inflection process, and trying to make it easy and simple. I don’t want to fight the market at all. Many of my top picks right now are from companies that I know well and have been following for 4–5 years, and this experience allows me to identify and aggressively act on the inflections earlier than others, enjoying early the also-known-as discovery process. Of course, I am every day checking new candidates to add to my long list of followed companies, but this is usually a slower process, even though I have recently made some improvements to my idea-generation flow that have allowed me to increase the number of new discoveries.
2. If someone asked what makes you different as an investor, what would you say is your edge?
My analytical mindset, the way I was introduced to investing, and how my process was built. The ability to act very fast and aggressively or to change my mind overnight if necessary, including elevated turnover. Having a very long list of companies that I know very well and have been following for years.
All of those can be edges versus other investors.
3. What kinds of companies or investment opportunities are catching your attention right now? What are stocks you’re excited about today, and what is the market missing?
I will try to surprise the reader with unknown stocks that I like very much.
1. The Manitowoc Company (NYSE: $MTW).
Manitowoc manufactures and sells cranes. The company experienced a strong cycle in 2008 and, since then, there has been no cycle, but the proportion of sales from services is increasing, coming at an increased margin.
Recently, their backlog has improved 40%+ and the company should be a beneficiary of tariffs, including a positive ruling on anti-dumping from Japanese competitors. Manitowoc is also seeing demand from data centers, and at some point a cycle of renewing the cranes bought during the 2008 boom will start, given that most of them are 15 years old versus a 9 to 10 year normal life. The thesis sums up noticing some significant improving demand factors. If the company grows from the current $2.4B in sales to their target of $3.0B, it would be trading below 4x EBIT. Plenty of upside in that case, coming from just a small improvement.
2. Guerrilla RF (OTCMKTS: $GUER).
Guerrilla is a radio frequency chip supplier that shifted from low-margin telco and auto markets to higher-growth catalog markets. Catalog serves drones, military, test and measurement, and satellite telecommunications. At a recent interview, management shared that the demand signals they are observing in the UAS and counter-UAS segment are something that they have never seen before.
The company is increasingly exposed to the higher-growth, higher-margin verticals that now represent more than 60% of the company and are growing in excess of 140% in Q2. This shift allowed Guerrilla to move to profitability, printing $1M in EBIT in the last Q2 (important to note that the company has some significant warrants and preferred stock), but I suspect there is a lot more to come, given that backlog more than doubled to $13.6M, against $8M in revenue in Q2, up 49% YoY. Guerrilla is currently traded on the OTC market, but it recently shared that they are working to uplist to the Nasdaq, which I expect could be a strong catalyst in addition to the underlying inflection in the business, coupled with accelerated profitability.
4. When a new idea enters your radar, what does your research process look like before you’re willing to invest?
The best ones I know I have to buy in just after 5 minutes. This is because if they are coming from the list of companies that I have already followed for years, it means that something big changed or happened. Maybe a surprise, maybe something I was hoping to happen. And suddenly, an ugly duckling becomes very attractive. A recent example of that is Camplify Holdings (CHL.AX), which I have been following since 2021. I sold all my shares years ago because management was unable to run the business at profitability, which was a red flag. Also, they made a large acquisition that I didn’t like and it finally imploded. Now, suddenly, they turned the business around and did $2M net profit in one half against a $10M EV, after cutting costs significantly and improving the M&A integration issues that they had.
If the new idea is a new discovery, I like it very much when it is obvious just from researching for a few minutes.
Investing is not like a Quantum Mechanics model. The easier it is, the better, because it will make sense to more investors and it will attract more capital faster. The easier part is when the discovery process starts and you are just there before others. That said, most of the process begins after buying. Talking to management again, researching deeper into previous company cycles, understanding expectations, the type of investor owning the stock at this moment, the macro tailwind, what is driving the change, talking to competitors, customers or former employees. In summary, understanding what is going on, and starting to dream of what can materialize in the future.
Personalized Questions
5. You’ve written about stocks experiencing very large drawdowns even after positive business developments. Also, sometimes a company reports a great quarter and the stock still falls. When that happens, how do you figure out whether it’s just market noise or a sign that your investment thesis needs to change? How do you decide when a falling stock is a great opportunity versus a sign that the market knows something you don’t?
This is a good question because part of my investing framework is making it simple. Don’t fight the market. When the market is going against me I am paranoid, as I respect it too much. But even so, sometimes it starts simple but… the market is changing every day and it suddenly gets more complicated for a company that you now know very well… So, what to do now?
An example of that is $OCC, a stock I bought for the first time at $2.5 in December 2024. The progress made here has been tremendous and the last report was an outstanding achievement that was almost a dream for me. Even so, the stock is at a 50%+ drawdown after reporting Q2 and I don’t think at the peak the valuation went too high; it was still well below peers.
The way I go through this challenge is the following:
1. Selling to protect the capital and mental wellbeing is always a possibility, but this comes at the cost that maybe you will need to rebuy everything higher and very fast, suddenly. And the anchoring bias is very real.
2. Researching further. Talking to competitors, customers and former employees. Visiting the company if necessary. Understanding if this is only an issue with your stock, the peer group or the industry is also helpful. Every three months a new report comes that can change the picture and the narrative again.
3. Diversifying from investing. My day-to-day bills are not paid using investing money; I have another job or profession. But, if lucky, investing can be a very strong boost.
Coming back to OCC, which fits the question, what was going on with this company is that management sold some stock after the report, affecting the momentum. This has been further accelerated by the AI bubble fears and drawdowns in AI stocks. But everything I am finding here is positive… So this is challenging because I have no reason at all to sell, but I respect the market very much, and for now I am not looking to sell. At the end, it comes down to sizing a bet, with luck, timing and patience also playing a role.
6. You’ve said that a great investment analyst needs to also be a great stock analyst. What do you mean by this?
Writing an investment thesis is a great task, but sometimes when you finish it you can start reviewing it again because things changed fast.
I would never look at the investing process while taking away the understanding of the stock moves, what is driving it and why. My personal view is that the market tends to know things and is in general very clever, so the stock price and its variations are variables that I respect very much. For me, it is equally important to analyse the investment case well versus analysing well what is driving the stock moves or the trading dynamics, and this has little to do with technical analysis but with understanding expectations, the type of investor inside it, and previous stock and business cycles.
7. A lot of your X posts break down the numbers behind a business rather than just the story. When you’re researching a company, are there go-to metrics you find yourself coming back to the most, and why?
It depends on the sector, company and moment of the cycle.
For cyclical companies, at the top, valuation multiples are worthless (this is where being a good stock analyst makes an extra difference).
For hardware companies, I like to watch the incremental gross margin and inventories over a few sequential quarters as leading indicators.
But if you are looking for inflections to the better, usually the first sign is called by the management team in the commentary section, which tends to be the first signal of an inflection to the better… but rarely the first signal of a top.
8. You seem to enjoy digging into companies that aren’t getting much attention. What’s usually the first thing that catches your eye and makes you think, “I need to learn more about this business”?
I don’t tend to do theme investing, but this can happen naturally. As a new theme emerges, I tend to find more inflections there. The first thing I like to see in a new stock is a very strong move to the upside, which means a significant surprise happened. Then I want to know what the surprise was, why it happened and if it opens a new door.
It can also happen that I find a bigger company, which will always move earlier, and then try to find a close and smaller peer.
For the companies that I already know, one quarter or one press release can be enough to reassess the full case.
9. When we last spoke, you were on your way to the United States to do some site visits. Have you done site visits in the past? Do you find them useful? What are you looking for?
What I can say here is that when you invest in a company, you are partnering with its people and management team. Knowing well how they think, what their interests are, and whether you can trust them or they will end up lying to you is very important. One of the best ways to discover that and understand the business better is through a site visit. And this makes more sense when the market is going against you.
10. Please give us one person you would like to see us interview.
I would like to know more about Simeon Research.