Invest Well & Live Free

Small Cap Millionaires Ordinary People Making Extraordinary Profits

Module 3 – Automation

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The nuts and bolts of filtering efficiency

Finding great ideas and stocks that are gaining traction in the market with institutional investors
is fundamental to your success. However it’s not always easy to find what you’re looking for with
all those names in the stock pages.


Screening tools are available on many trading sites such as TD Ameritrade, Questrade , and
most bank owned self-directed trading platforms. Other sites such as Finviz ,TMX Money and if
you’re a professional you may have access to Bloomberg all of which are great sites for intial
screening. We will spend some time in our video section on Finviz and TMX money just to give
the learner a feel for the initial filtering process.


Top hedge fund managers learn quickly to find the best ideas. They recognize you have to look
in places others are not looking and act quickly when the security is beginning a breakout move.
We have adopted that philosophy utilizing screening tools and custom made tracking reports to
look where others may not currently be looking. clients receive detailed portfolio reports and specific corporate reports
we view as important. We have developed and tested a process for picking small cap GARP
(growth at a reasonable price) oriented stocks, which, combined with disciplined portfolio
management has returned phenomenal results since our inception.

Investors can use the various screens and techniques shown in our training materials to hunt
out many quality ideas that you or your advisor may wish to place in your portfolio. However we
have simplified the process materially for you if you become a member.


Our proprietary data retrieval process automatically sorts out the best opportunities given our
specific criteria. Automated data retrieval underpins the process by generating hundreds of
stock names for review that includes colored indicators to make it easy to see which stocks are
“moving.” Internally we refer to this as a Tier 1 review.


Our principal habitat is the USA Nasdaq, TSX and Venture Exchange (TSX)V) but other U.S.
exchanges are also available to us to explore when the opportunity presents.



Co. Name
10 day average volume
Dividend rate
Shares outstanding
Market cap
Institutional Holdings


We generate a report for small

cap equity stocks that have a

market cap less than $500 million.

Our large cap report includes

market cap of $500 million to $2



The Phase 1 criteria selection

generates a report similar to the

one that is displayed below.



Price Change
52 week high
52 week low
50 day price average
200 day price average


The Phase 2 criteria selection generates

another report similar to the one that is

displayed above.


Application of Indicators

Once the data table is clean through the small cap process we calculate the following indicators:

  • Volume Change – this compares the most recent trading volume and compares it to the 10 day average volume. If the percentage change is > 50% we use conditional formatting to turn the cell green. If the volume is < -50% the cell turns red.
  •  Price Change – current price change over previous day is calculated: green is > 5%; red is < -5%. Anytime the price moves greater than 10% especially with volume or through a support or resistance moving average (MA) we would consider that to be material.
  • 50-200 Cross – this is a simple binary calculation that tracks whether the 50 day average has exceeded the 200 day average.

    At this point we have a nice table with colorful indicators, but well over 1,000 stocks to look at. Since we are interested in the best stocks to look at we found some qualifying factors to cull the list to a more focused list. These are the factors:

  • Average Volume Traded – if the stock’s weekly average volume is less than 15,000, we would consider it an illiquid stock, and the stock is removed from the list. This speaks to We generate a report for small cap equity stocks that have a market cap less than $500 million. Our large cap report includes market cap of $500 million to $2 Billion. The Phase 1 criteria selection generates a report similar to the one that is displayed below. The Phase 2 criteria selection generates another report similar to the one that is displayed above. the stocks’ liquidity in the market. We need at least 15,000 shares per week trading or enough volume to exit 100% of our position over the course of a week.
  • Institutional Holdings – our experience suggests that the percentage ownership by institutions is an important factor. We eliminate stocks with less than 2% ownership and more than 40%. Too little ownership implies the company is not being followed; too much ownership means the opportunity may be too well known and valuation to rich.
  • Industry Focus – We take a macroeconomic view of the key industry sectors and then screen for what we believe are the best opportunities. We can modify this sector list at any time to find the best opportunities given sector rotation dynamics. 
Tier 2 analysis and trading: 

Once the top candidates are selected we then begin a process of selecting only the best opportunities and complete our Tier 2 quantitative and qualitative analysis before engaging the trading process. Those selections end up in our portfolio reports.


The detailed Tier 2 analysis and trading process is available to members through webcasts and
private coaching sessions.


What we screen for and why:
1. Habitat:

Let’s look at some of the initial metrics we screen for. The first thing we want to do is understand
the market that were looking at, where do we want to be investing and why. I call it the investing
habitat or universe. If you are not comfortable investing in foreign markets, then I recommend
you leave them alone. I have no competitive advantage trying to figure out what is happening in
the small cap space in China; therefore it makes no sense for me to look at stocks in those
markets even though I believe at a macroeconomic level there may be some great growth
opportunities ahead. We stick in the market we know best and only venture out when very
confident. We are principally Canadian small, mid cap and occasionally large cap in orientation.
We will also look at the USA small cap universe on occasion.


There is a fine balance between too narrow a habitat and too wide. If you are to narrow you can
limit your opportunities, to wide a net and you catch nothing. There is an old Chinese
expression; “He who chases two rabbits catches none”.


Better the devil you know. There are plenty of opportunities to build wealth in the North
American small cap space so that’s where we look. As discussed we also prefer GARP oriented
stocks and our screens are set up specifically to look at those opportunities. We will on occasion
set up a specific growth screen for a particular sector if the macroeconomic view moves us
there, for example, Junior Mining, but this is rare and we are very selective when we do so.
Canadian based energy companies are commonly seen in our special situation portfolios, as we
have much easier access to sit down and talk to management teams directly as we reside in

Calgary, Alberta. Anything we get more detailed information on can enhance our qualitative
analysis and may increase the chance of a successful trade.


2. Trading Volume:

The second thing we look at is trading volume changes and how they compare to the 10 day
average trading volume. Trading VOLUME TO ME IS ONE OF THE KEY METRICS we follow
we only look at small cap stocks that trade at least 15,000 shares a week.


I can’t tell you how many times I have been stuck in, and been whipsawed around in these thinly
traded small cap stories. You need weekly trading of at least 15,000 shares to provide an
appropriate level of liquidity. It should also be noted that you should never try to own more
shares than you could liquidate under normal weekly volumes. For example, you purchase
5,000 shares of XYZ corp., but it only trades 1,000 shares per week on average. If you had to
get out for any reason in a hurry, you have no buyers and you would be bid down to the bones
to get off the stock. You would be better to own 500 shares of XYZ you could sell, than 5,000
you would get stuck on.


Material volume moving up or down is one of the early signs that individuals or institutional
investors are either BUYING or SELLING the stock. Simply said volume is market interest, if the
interest is good its buy volume, if the interest is bad its sell volume, if zero market interest zero


Volume often moves ahead of price in many trades. We have developed a process to grab
streaming daily volume and look for anomalies from the normal trading patterns of the stocks in
our habitat.


be material to your decision making. If we see a stock with any abnormal weekly or daily trading
volume we would identify it as a red or green flag and act accordingly by either buying or selling
the stock.


It is important to note however volume is only 1 metric we use so, we would certainly look at all
other key criteria before executing any trades, none the less it is a key metric we watch with
great interest.


Our volume ranges: Volume Change – this compares the most recent trading volume
and compares it to the 10 day average volume. If the percentage change is > 50% we
use conditional formatting to turn the cell green. If the volume is < -50% the cell turns


IF trading volume IS MOVING ,15 TO 20% either up or down from its normal weekly range we
changes these will get acute attention .


3. Price Indicators:

Price and moving averages: Price is dictated by the fundamentals of supply and demand.
The bid price is what someone is willing to buy the stock for, the ask price is what someone is
willing to sell the stock for, the difference between the two is the bid ask spread and can be wide
for small cap stocks. Larger cap highly liquid stocks generally have small bid ask spreads.

Higher demand and less supply = increase in price
Less demand and more supply = price decline

Price is a key indicator; we measure the current price, weekly changes, 50 day and 200 day
moving average changes, and 52 week highs and lows.


Price appreciation:
If the stock price is appreciating that would indicate there are more interested buyers (increased
demand) and the buyers are willing to pay more given the limited supply available. We call that
bidding up the stock.

Price and volume appreciation is a buy signal= Price appreciation on the back of a
material volume change is confirmation of market interest.


When price is retreating that is an indication that there is less interest in the stock. There will be
more available supply from the sellers than there would be demand from buyers, so the price-
bid goes down.

A declining price in an indication that there is less interest in buying and less interest in
the stock

We look at current price, closing price for the day, and compare that to the normal weekly and
annual range and look for material variations.

How far has the price moved up or down from its normal range this week?

How far has it moved relative to its 52 week range?

Has it crossed a 50 day, or 200 day moving average?


Tier 1 price and volume BUY signals:
Volume up and price appreciating more that 5% will get our attention. Price moving greater than
10% with any significant volume we would consider very material. Combined with moving
average breakout to the upside (50 day moving average has crossed over the 200 day moving
average- and the 9 day moving average has crossed the 50 day moving average), we would
consider that to be a very material event.


4. Shares outstanding, Market cap and Institutional support :

Shares outstanding and market capitalization:

Shares outstanding= Number of shares issued by the company
Market capitalization= Number of shares issued X Stock price


The number of shares outstanding can vary between companies greatly. The number of shares
outstanding is based on how many shares the company has issued into the market.
Generally the smaller companies have fewer shares outstanding; however, that is not always
the case. When you’re buying stocks you are in essence buying an equity ownership interest in
the company. Ideally you want maximum revenue and a minimum number of shares issued.


Institutional Support:
Target 2-40%

We drive this number from quarterly fund data. The percentage number indicates how much of
the stock is owned by professional investors. A number less than 2 indicates there is not much
formal institutional support while a number greater than 40 may mean there just too many
institutions owning it and that growth may be limited.

The number is used as a guide only as the data is somewhat dated, given we receive the data
at quarter’s end and the managers could have made some buys or sells along the way.

We also use it as a trend indicator for stocks in the portfolio. By tracking which funds own the
stocks we hold in the portfolios. If I notice that the stock has been trending down or up and the
institutional indicator is also trending down or up that would be a sell or buy signal for me.


If a stock has no institutional support it could mean a couple of things.

Firstly, it is simply too small or not developed enough for the manager to buy. Even small cap
funds have targets for market capitalization, liquidity, and revenue growth. If the company is just
not hitting the targets it may not be eligible to enter the fund and would be passed over not
because there is no interest but because it’s just not poised for growth. In some cases the
company may not have mainstream fund support but if you look deeper could have some
private equity support on initial financing. This could be an indication that the quality was there
but the story is simply not mature enough to attract the larger fund managers. The other option
is that the concept has been looked at and passed over; this is a huge red flag.


For that reason we like to see some institutional support, we like to see that a professional due
diligence team has looked at the company and decided that there was in fact a good concept,
solid management, earnings or earnings potential, and liquidity. We use the institutional
ownership number only as a reference point to validate other metrics we are looking at.


Applying the lessons learned


-Utilize a systematic process in determining the best stock opportunities

Volume often leads price

-Trade within your habitat

-Review institutional trading activity


Bob is looking for a small cap stock in the energy sector as he thinks the market is in the right

spot for a big win in that sector. Bob should:

     a. Listen to his old buddy Al at the bowling alley for a recommendation

     b. Talk to Sarah’s advisor and get appropriate advice before buying any stock

     c. Throw darts at the stock pages

     d. Review the top five picks from the small cap success newsletter and review additional

         fundamental research to confirm his decision.

     e. B & E


Correct answer E