How I went through A to Z list of Canadian stocks in OTC Markets & What I found interesting

Sorry about the Anime-ish title; Stocks Discussed: $BQE.V, $TTZ, $ROMJ, $Y, $HMM.A, $MJDLF, $TCW, $PBL

I went through a list of 2400 Canadian stocks on OTC Markets from A to Z. The idea to go through all the stocks is hardly new. Buffett already mentioned it and we call it Brute Force. A to Z journey involves going through every stock. It was gruelling to do this and I understand why many do not attempt this endeavour. However, I also found that this was the best way to pick stocks. After all, being exhaustive triumphs any other smarter way to pick stocks.

2400 stocks whittled to 20-25 stocks which went into my watchlist. Of the watchlist, around 5-6 of them are actually interesting and we have taken small (<2.5% positions in them). Also, in the process I found my 2nd largest (20% of portfolio) high conviction position that was not covered by many hedge funds, not a fin-twit favourite and an illiquid small/mid cap. With good fortune, this company just announced they would be buying back 5% of outstanding shares! Consider me a happy shareholder.

This post will have 2 parts - I will talk about how I went through this process, my learnings and how you can run this as efficiently as possible. Second, we will look at the interesting stocks that popped up from this exercise.

Most efficient method to go through 2400 stocks

Now 2400 is a lot of stocks. I went through this exercise in a span of 2 weeks while having a day job. So how did I do it?

The fundamental idea is rather quite elementary - I designed a process and stuck to it. It really starts and ends with the process. The gruelling part is you become a mechanical turk, just following the same recipe over and over again.

For this to work, the process has to be simple. Simple processes are painful enough to apply 2400 times. A complicated process is simply going to be impossible or worse discouraging. Remember we at least want to spend 20-30 seconds on a stock. 30 seconds per stock might not seem a lot. But that is still 20 hours of work if you go through 2400 of them!

How do I design this process?

I am wary of prescribing an already designed process. 'Follow this checklist and fortune may be yours’ seldom works and honestly, sounds like a scam.

I designed the process basis my investment style & circle of competence. I will discuss the broad guidelines using which everyone can design a process that suits their style.

Step 1: Design the Rejection Criteria

This is the most critical piece of the process. It really does not matter what the acceptance criteria. If you remove everything you don’t need, what will be left are what you need. Also, in this process of getting from 2400 to 25, you are going to be doing a LOT more rejection than acceptance.

Following were my rejection criteria:

1. Junior miners, small mining companies & Crypto based ones

2. Companies with no revenue or development stage

3. Biotech, Financial Services

4. No history of positive earnings or cashflows (last 5 years)

5. Highly levered (Debt to EBIT > 4)

I had 5 rejection criteria and if a company fell into any of these 5, it was a reject. No questions asked. We move on to the next one. How did I come up with these? I didn’t follow any procedure but simply used what works for me. I am not a commodities investor or a crypto bro. So they got into the rejection criteria.

Once you get these set of rejection criteria, it is time to start. You would be surprised how quickly you get at rejecting a company. Sometimes even the name would be a dead give away. ‘JACOB MINING RESOURCES’ is going to be an immediate reject.

Now you might be thinking - But Mr Unfair, what if you reject a good junior miner with some hidden asset play and royalties because of this process?

You have a point there. This process has its shortcomings. We cannot go a mile deep on every one of the 2400 names. So we might miss out on these. But what we are optimizing for is not to pick up all the good ones. But rather ensuring we do not pick up any bad ones. Ideally we want most, if not all the ones we pick, to be good ones.

There is a tiny difference in the two approaches. Of the 2400, say there are 30 amazing picks waiting for me. My objective is not to get all 30. Life is not a Pokemon game that way. If I can pick up 15 of those 30, I am happy. If I can pick up 5 of those 30, I am happy. But if I pick up 40, of which 30 are good and 10 are bad, I am not happy. That’s why rejection is more important than acceptance.

Step 2 Execute

Didn’t I tell you this was an easy process? That’s it. Once you get the rejection criteria, it is off to the races. Start rejecting. If the company does not meet any of the rejection criteria, look at them. If you like them, add it to your watch list. If not, move on. And you have to do this only 2400 times. So, god speed and good luck!

With that, let us go to second segment. The stocks I found from this process.