I randomly met Dean Pernas about two years ago after stumbling into a The Casa de Montecristo Puerto Rico, a cigar bar in Old San Juan. We pretty much connected right away, as friends and as investors.
So for this Skull Session, I invited Dean, alongside Lukas Milosic, for a conversation that went well beyond stock pitches. We spent a lot of time digging into how Dean researches companies, builds conviction, uses AI tools, and thinks about identifying strong businesses before the they look pretty.
Dean comes from a chemical engineering background, but is not “spreadsheet-only way investor.” He doesn’t treat investing like a static exercise. Instead, he thinks in terms of systems that are constantly in motion: management decisions, customer behavior, competitive pressure, and broader industry shifts all interacting at the same time.
The core idea behind what he calls “Motor Investing” is really about tracking that movement, whether a business is gaining momentum or losing it before the financials fully reflect it.
A big part of our discussion also centered on how investing research itself is changing. Dean is already using AI tools for idea generation, screening filings, and mapping industries faster than traditional workflows allow. At the same time, we talked through the parts of the process that AI can’t replace… things like understanding management quality, deciding when site visits actually should occur, and learning how easily you can talk yourself into or out of an idea based on the wrong things.
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)
Q&A with Dean Pernas
1. How did your engineering background shape the way you invest today?
Dean Pernas: “It’s your job as a chemical engineer to make sure things don’t deviate. You want static conditions, production consistency, quality consistency day in and day out. Whereas investing is very dynamic. Things are always changing, there’s tail risk involved, and you’re constantly adapting. I found being a babysitter of large plants or well sites pretty boring for me. I always loved investing, and my brother and I have been doing it for close to 20 years now. We just loved researching companies, researching industries, talking to management teams. It’s almost like a game of poker.
When the market crashed in 2020, we thought it was the right time to pursue investing full time. We also realized there was a complete lack of high-quality stock research that was backed by an actual audited track record. A lot of firms show you the two stocks that worked and ignore the other 98. We thought there was demand for transparent, high-quality research.”
2. Why are you selective with microcaps?
Dean Pernas: ”In microcaps you rely heavily on management execution and strategy, and we find that to be lacking severely in many cases. These businesses are often fragile. There’s significant key-man risk or customer concentration risk where if one thing breaks, the whole business can go belly up.
Unless the demand environment changes significantly, we typically stay away from microcap land. A lot of management teams are also overly promotional and salesy, and we don’t like that at all.”
3. What is “Motor Investing” and how is it different from “Moat Investing”?
Dean Pernas: “We codified our philosophy into something called ‘Motor Investing.’ Just like the motor drives the motion of a car, the motor in a company drives its future financials. The motor is the interplay between internal and external elements. Does the company have the right strategy? Is management executing? How are customers evolving? How are competitors evolving?
We like that analogy better than moat investing because Buffett’s moat analogy conveys something static… like there’s a moat and that’s it. We don’t think business quality is static. Moats can strengthen or weaken over time, and customers evolve too.
Our sweet spot is when the motor is getting stronger, the potential energy is building, but the financials don’t yet reflect it. That’s where we like to play.”
4. How do you actually generate investment ideas today?
Dean Pernas: “We use both quantitative and qualitative processes. We run screens, but we also spend a huge amount of time reading industries and trends. Once we find a trend we have very high conviction in… for example AI penetration increasing and more time being spent on AI every day… then we look for companies that can benefit from that trend.
The process changes depending on the environment. The screens we used during COVID are different from what we use today. It’s dynamic.
We’ve also built AI tools internally. For example, if we’re looking for companies pursuing volume-led growth instead of price-led growth, we built an AI scraper that goes through every 10-K filing and identifies those companies for us.”
5. How should investors think about AI as part of their research process?
Dean Pernas: “AI is extremely helpful for quickly bringing yourself up to speed on an industry. It compresses the amount of time required to learn dramatically.
It also helps with idea generation. Sometimes you know an area is going to be important, but you don’t know which company is the best way to express that theme. AI can surface names you might never have found otherwise. That said, you have to be careful. ChatGPT sometimes just agrees with everything you say, so you need to pressure test your own ideas. You can’t treat it like holy text.
As investors, you have to adapt constantly. The second your methods become stale, that’s dangerous. AI is only getting better, so the more investors lean into understanding it, the better positioned they’ll be over time.”
6. What made Capstone Green Energy such an attractive opportunity?
Dean Pernas: “Capstone makes microturbines. Essentially very small turbines ranging from about 100 kilowatts up to 10 megawatts.
Historically, the industry was terrible. Almost everybody lost money. Capstone itself emerged from bankruptcy with about a billion dollars in NOLs. But then two things changed simultaneously. First, a new CEO came in and began making operational improvements, including bringing manufacturing more in-house. Gross margins improved dramatically.
Second, the demand environment completely changed because of AI. Data center power demand exploded, and the electrical grid became constrained. Companies increasingly needed off-grid power solutions. Capstone’s products suddenly became highly relevant because they could provide fast deployment compared to the years-long backlog for large turbines.
So you had a management team making the right operational changes combined with the best demand environment imaginable. That combination created the opportunity.”
7. What are some investing mistakes that fundamentally changed your process?
Dean Pernas: “One mistake was American Outdoor Brands during COVID. I thought outdoor activity trends would continue much longer than they actually did. In hindsight, I had no real predictive ability around long-term human behavior changes after COVID. Management also bought back stock aggressively at valuations they shouldn’t have, which made us more skeptical of buybacks in certain situations.
Another major lesson came from Endor, a German sim-racing company. Demand exploded during COVID, but management completely failed to scale operations fast enough. Then Chinese competitors entered the market and wiped them out. The CEO had too much control and not enough pushback internally. That taught us an important lesson about microcaps and founder-led businesses: if leadership becomes overly confident or insulated, things can deteriorate very quickly.
A lot of investing is separating true signal from noise. That’s much harder than most people realize.”
Key Takeaways
Great investing often comes from identifying businesses whose future earnings power is improving before the market fully recognizes it.
Dean Pernas’ “Motor Investing” framework focuses on strengthening business momentum rather than static concepts like traditional “moats.”
Microcaps only become attractive when there is either a major external demand shift or unusually strong management execution.
AI is rapidly changing the investing workflow by improving industry research, idea generation, filing analysis, and pattern recognition.
Management meetings and site visits can provide insight, but they can also create false conviction if investors mistake noise for signal.
Many SaaS businesses may ultimately benefit from AI adoption rather than be disrupted by it, particularly those with strong customer workflows and adaptability.
Long-term portfolio performance is primarily driven by concentrated, high-conviction core positions rather than short-term catalyst trades.
Stocks Discussed
META Platforms (Nasdaq: META) : Discussed as an example of a mega-cap opportunity where market panic around TikTok, Apple privacy changes, and metaverse spending created a deeply undervalued setup.
Capstone Green Energy (Nasdaq: CGRN): Microcap turnaround benefiting from AI-driven electricity demand, constrained power grids, and improving execution under new management.
Sprout Social (Nasdaq: SPRT): SaaS company the market may be overly discounting despite AI potentially strengthening its long-term value proposition.
Bandwidth (Nasdaq BAND): Software company benefiting from AI-related communications infrastructure and changing enterprise workflows.
American Outdoor Brands (Nasdaq: AOUT): Used as a case study in misjudging post-COVID consumer behavior and overestimating the durability of pandemic-driven demand trends.
