Sure the biggest idea like is Barnes & Noble (NYSE: BKS). Alot of people are short that stock but I'm on the other side. A good buy and a hold microcap is Birner Dental Management Services (NASDAQ: BDMS). They run dentists' offices in Colorado, New Mexico, and Arizona. A good net/net, Ben Graham liked to buy stocks below net current asset value, is Solatron Devices (OTC: SODI). A good turnaround/hostile takeover is Craftmade (PINK: CRFT) they distribute fans, lighting, and furniture.

Sure. I bought Barnes & Noble right after the board announced they were going to evaluate strategic alternatives. That was during the proxy fight with Ron Berkel. B & N is controlled by the founder Len Riggio, he owns 30-35% of the company. Around 2008, Ron Berkel started buying stock in the company and kept buying until he got until around 20% when the board tried to stop him. He was able to get another hedge fund which he does not acknowledge, to buy up about 15-20% of the stock to help him out.

I would say over the years Buffett has changed alot. When he started his partnership in the 50's and 60's he ran it alot like Graham. However, starting in the 70's he got interested in advertising agencies, the Washington Post, some media. Started buying things where value is intangible. I guess alot of that influence is Charlie Munger, Berkshire's vice chairman. He got introduced to him around that time and started thinking more about intangible assets. That lead him down to Coca-Cola, and Gillette, and things like that.

No I don't think so. Graham never managed a huge amount of money. He tried to maximize returns and would pay out most of the capital gains every year in his fund. Buffett has always retained all the assets. Berkshire has never paid a dividend. He's too big to invest in the Graham type things. His performance if the 50's and 60's would have been about the same. Starting in the 80's on he was just too big to apply Graham's ideas and too many people were using Graham's ideas. It was getting hard to find obvious tangible asset bargains so he had to go into media and advertising companies.

Yes I would say the stock market today is alot more efficient. Graham started in 1914, just before WWI, and the firm he started for did not have any stock analysts. Graham was the first person in that firm to do stock analysis. Bond investment was serious then but there was really no stock analysis. Because of Graham's thinking about things it changed from thinking stocks were completely speculative to people thinking about it as investments and really studying it. When Graham started very few people owned stocks now you have alot of people going to Wall Street and working there. Also, in the last 20 years plus you've had a huge change with computers so its really easy to scan for things Graham liked.

Yes, I think you can do analysis, even on large caps that get the kind of returns that justify active management. Stock price is kind of set at the place where people disagree about the price of a stock. In large cap stocks what you get a lot of the time is everyone is paying attention to a stock. Barnes and Noble is a good example. You've got a lot of people shorting the stock. I'm taking a different view of the stock that they are. They hate it. I say it's not that bad. With small cap stocks, you don't have as many people paying attention, so they don't hate it, they just don't know about it. You don't have as much - there's not contempt for the stocks, they just don't know about them. With large caps you have to buy the stocks out of favor.

The advantages of using a value approach is that a lot of people, even people who are more investment oriented, think of small caps and micro caps as real gamble. They don't consider margins of safety. They don't have people applying as many value ideas outside of blue chip stocks or big cap stocks. Berner Dental - if that was a big cap I think it would be trading at the $25 range, instead it trades for $17. Craftmade, where there is a hostile bidder who is trying to buy them around $8 and the stock is probably $5.30. In big caps that isn't going to happen. Enough people are betting that something is going to happen there. So I'd say they're pretty big, usually 30-50% in micro caps if you're willing to look for them.

Yes, there's two things, you have to be compensated for the risk and you have to be compensated for the work. Most of what I do is a lot of work in finding these companies in the first place. There's also risk in micro caps that I don't buy, they're young companies. The companies I buy usually aren't that young. They're promotional companies. It's probably more of an accident they're still public. A lot of them are young and haven't turned a profit for low. Those are risky. Or they're not well known and not very liquid.

The biggest thing I am looking for is a real obvious bargain - something has to jump out of me. I like to look for a long history of free cash flow. I look back ten to fifthteen years. You can find this all on Edgar who do FTC reports. I also, like Graham are looking for current assets, accounts receivable. Inventory isn't ideal, but it works. I'm looking for a good balance sheet. Most have good balance sheets. Craftmade doesn't, but the others do. Not a lot of debt. Usually in a niche. Stocks that kind of aren't a small fish in a big pond - I look for one without many competitors, with a really small part of the market. If they've been consistently profitable in this section for a long time, they're likely to continue this going forward.

I think if you kind of look at the total return and try to figure an annualized return, probably three to five years. It doesn't normally take that long. I take a aworst case scenario of ten years. If this takes ten years to get to its intrinsic value, I should get at least 8-10%. I try to avoid situations where stock price might be 30% less than intrinsic value. But it might take a long time to get there. So I look for half off. Or like with Berner Dental, they buy-back and pay dividends. If they're doing that, it's different because you're getting paid every year.

Basically I focus on a really big margin of safety. If I think a stock is worth $15 dollars, I try to pay $7.50, and I don't pay more than $10. Big margin of safety. I try to look for a lot of consistency in a past record. I don't do much at looking forward. I'm not good at predicting the future. I just look for an overwhelming past record and a big discount - hopefully a 50% discount from what the stock is worth. So if I'm wrong I don't lose money, I just end up losing some of that 50% I was wrong by. I don't lose any of the money I put in, I just don't get the profit.

Macro risks are real. I'd say the biggest risk is the threat of a multiple contraction. But that's a risk even with big caps. You look back ten years, Microsoft, Coca-Cola, GE - a big reason their ten year performance isn't phenomenal isn't because the businesses aren't doing so well is because they started with a high key ratio, and now they're so much lower. The only way to avoid that is by focusing on what a private buyer would be willing to pay, and for that you have to look at the balance sheet and look for a discount. If the stock is selling for less than what it would liquidate for, then it doesn't really matter what happens with the overall market. If you can buy a discount down to the assets on the balance sheet, then you can get around market sentiment, but if you're paying for earnings, then a market change will hurt you.

Yes, but the key word is enterprising. To the extent that you do work and you can be a stock picker - it will amplify your returns, being in micro caps rather than large caps. But if you're a mediocre investor, it won't help at all being in small caps. The key is really that the work that you do will get you more of a return in micro-caps. If you're right in big-caps usually your return is going to be less. If you're right in micro-caps it is usually going to be bigger. If you're wrong, you are not going to do any better in micro-caps. It just amplifies whatever skill you have been able to develop. It doesn't really give you better returns if you don't have some stock picking ability.

The worst investment decision I ever made was probably buying Vaxgen (OTC: VXGN). I bought it around $0.50 and it now trades around $0.30. It had more than $0.50 in cash when I bought it and I thought it would liquidate. They talked about liquidating and they didn't. It was probably the worst because they didn't liquidate and then they tried to merge into another company for less than the cash on their balance sheet. I probably lost at least 25% on that and I would've lost more if I hadn't sold out when I did. I only sold out because it looked like management was going to try to merge into something for less than the cash they had. That was a real disaster because I thought I had bought something for less than the cash on the books and it turned out really badly. The best investment was probably Village Supermarket (VLGEA). I bought it late 90's maybe 2000. It's a grocery store that runs shoprates in New Jersey. It was my best decision not because of annualized return of 20-25%, but because you could buy and hold. So for 10 to 15 years it has been doing 20 to 25%. That's an example where the p/e on it was 5 or something like that, price of sales was ~0.1 and the price on book was ~0.5. It was just really undervalued on all those measures. What happened was it did well but its not a growth company. Maybe sales grew 4-5% a year, if that during those 10 years, but the market totally changed its valuation and probably thinks its worth 15-20 p/e when before it thought it was worth 5. So that's where most of the return comes from.