Today I am introducing a new type of article for Espace MicroCaps readers. I decided to start doing short interviews with successful investors to add variety to this blog.
In this first written interview, I had the pleasure of asking questions to Michel Bédard, an active member of the Espace MicroCaps community. He is an engaged participant on our online forum and posts under the nickname “midard.”
Michel is a self-taught, do-it-yourself investor, and he stands out for the high number of interesting new investment ideas he brings to the community. It really is impressive how often he gets it right!
In this interview, you will learn more about his background and investment strategy.
Espace MicroCaps: Hi Michel! To start, can you tell us about your professional background?
Michel Bédard: My story has not always been rosy. I lived a poor childhood as my mother was alone to support a family of three children, so I didn’t have access to university. I graduated in auto mechanics at the end of 1981 when one of the worst recessions was hitting Canada. Inflation was 12%, and the Bank of Canada had raised interest rates to 19%. Many car dealerships had to close and it wasn’t easy to find work. I had to work for the minimum wage for a few years before things started to get better.
I participated in a Quebec government program during the recession, which paid half of the employee’s salary. I worked for a small company that made electric steam boilers as part of a dual-energy program. I learned how to assemble electrical panels by myself. Later, to improve my working conditions, I found a job with Siemens Electric, a German company. I went back to school to attend evening classes and, at the age of 32, I completed a Certificate of Collegial Studies in Industrial Electronics at the Teccart Institute.
In 1999, after twelve years at Siemens, the closure of the factory was announced. I immediately found another job at DT Kalish, which had just been acquired by a US public company called DT Industries. We used to assemble pharmaceutical packaging lines, which were turnkey projects for pharmaceutical clients such as Merck Frosst. Unfortunately, this job was short-lived. DT Industries, when it bought Kalish, had promised annual bonuses to executives based on the profits generated from the acquisition. This led to an accounting scandal and the stock, which was listed on the Nasdaq, was suspended during an accounting review. This link provides an overview for those interested.
It was the beginning of the end for the Montreal plant. The announcement of the transfer to the United States was announced shortly after. It was my second plant shutdown experience in less than two years. Despite this setback, I found another job immediately in a packaging equipment company, and I have been working there since 2002.
Espace MicroCaps: How did you start investing in the stock market?
Michel Bédard: I started investing towards the end of 2006. At the time, there was a television show on Canal Argent called “Dans le feu de l’action” with Michel Carignan. He was teaching how to find buy and sell signals on stocks using technical analysis. He did it with such simplicity that I thought to myself: why not try it? Today, I occasionally use technical analysis, but I only buy if the fundamentals of the company are solid.
Espace MicroCaps: How would you describe your investment style? What are your important criteria?
Michel Bédard: Due to my increasing age and some past health problems (kidney failure, which led to a transplant in October 2019), my investment style has become more and more conservative. I have an RRSP portfolio managed entirely by a financial institution according to my risk tolerance, and a TFSA portfolio that I manage myself. This one includes microcaps, which carry a little more risk. In microcaps, I avoid investing in companies that have no revenue, and I also do not invest in mineral exploration and natural resources. When a recession happens, the price of commodities crashes and I want to find stocks that can weather the storm.
Most microcap companies are not profitable. I try to find those that have organic growth before they reach the profitability inflection point. For patient investors, Bluerush (TSX-V: BTV) is a good example right now.
Espace MicroCaps: What are your process and favorite resources for finding new investment ideas?
Michel Bédard: I believe that intellectual curiosity is the best process for finding new stocks. By being interested in everything that is happening in the news, we can discover trends that will spur growth in some industries in the days or years to come. You can then search for stocks in these industries.
Take the COVID-19 crisis, for example: I bought Mediagrif (TSX: MDF), which offers e-commerce solutions, at $3.90, Goodfood Market (TSX: FOOD) at $2.80 and Viemed Healthcare(TSX: VMD), which produces ventilators, at $5.70. By following the news, I noticed that e-commerce was exploding, food retailers were not able to meet the demand, and there was a shortage of ventilators in hospitals.
I often use sites like Stockwatch for the news and the charts they provide, CEO.CA for insider transactions and news, Sedar for MD&A’s and some blogs like Espace MicroCaps. The learning process also involves reading news from various companies I’m not familiar with. I take random companies and look at what they do, visit their website, etc. This allows me to know the market a bit better every day.
Espace MicroCaps: How many companies do you generally hold in your portfolio?
Michel Bédard: About six microcaps, as well as small caps and fixed income securities to balance the risk in my portfolio.
Espace MicroCaps: Under what circumstances do you decide to sell a position?
Michel Bédard: I sell a position when the company’s situation deteriorates, such as the loss of a significant customer or when the outlook is grim for the next few quarters. I will also sell when a stock becomes overbought and I can no longer justify the valuation. If I still believe in the company’s potential, I can sell a third of the position to repurchase it later on a pullback.
Espace MicroCaps: What was your best move so far, and what is your favorite stock currently?
Michel Bédard: Xebec Adsorption (TSX-V: XBC) is, without a doubt, my best investment so far. I think Xebec is a stock to own for several more years.
Espace MicroCaps: What was your worst mistake, and what did you learn from it?
Michel Bédard: When I opened my first brokerage account in 2006, I bet on speculative mining exploration stocks. My portfolio was entirely in natural resources when the financial crisis of 2007-2008 occurred. Needless to say, it ended up badly. Shortly after, because of my environmental values, I decided to invest in lithium in Quebec and I bet on RB Energy (Canada lithium). The mine was completed and in production, but unable to obtain 99.9% pure lithium, which is the grade needed to manufacture electric vehicle batteries. The process modification required $78 million in investment. RB Energy was finally placed under the protection of the Creditors Arrangement Act in October 2014.
I learned my lesson and I was done with the mining sector.
Espace MicroCaps: What advice would you give to a new microcap investor today?
Michel Bédard: The worst thing to do is to invest blindly. Anyone who invests in a microcap company should do their research on the company. Most microcaps are illiquid. Patience is required, and you should not expect immediate returns. I suggest taking a small starter position and accumulating as the story unfolds.
Always look at the market capitalization. Sometimes, companies with little or no revenue end up with a market cap of more than $100 million. Personally, this is not my style. I like to see revenue growth every quarter.
Beginners should also watch out for speculative bubbles. In the past few years, we have seen bubbles in marijuana, blockchain and now COVID-19. A speculative bubble is like a big party, but the hangover can be severe.
Each investor will experience successes and failures in the stock market. It’s important to reflect on our failures to prevent them from happening again.
Espace MicroCaps: In closing, do you have a final word or something to add that we have not discussed?
Michel Bédard: One thing we don’t often talk about is the role of luck in investment returns. You can own a company that suddenly announces the biggest contract in its history, makes an extraordinary discovery, or receives a buyout offer.
Thus, I wish you all good luck and prosperity!