August 7, 2012
Written By Chloe Lutts Jensen
It’s time for a new installment in our Dick Davis Digests contributor interview series. Today, I’m pleased to introduce Tom Bishop, editor and publisher of BI Research. Read my conversation below for his list of things to look for in a small cap stock, thoughts on investment bloggers and his single most important piece of advice.
Chloe Lutts: When did you start publishing BI Research? Why?
Tom Bishop: I started publishing over 30 years ago in 1981. I saw a lot of investment letters that didn’t make very good cases for their new stock recommendations, sometimes just boilerplate, and then you didn’t get any sort of regular follow up on these stocks, or if you did it was very brief. I thought I could do better on both counts.
Ironically, at Cornell I started out in Chemical Engineering, decided that wasn’t for me and, having enjoyed some writing courses, came to a crossroads between switching into journalism or business. I got my MBA in finance (figuring I could always write on the side if I wanted) and now, of course, write an investment newsletter. It’s funny how things work out.
CL: Can you give us a brief explanation of your newsletter’s investing system and philosophy?
TB: I am a fundamentalist by nature. GARP probably describes me even better: Growth at a reasonable price (P/E). That saved me from the dot com bubble. I like a stock I can understand, explain to my readers and make a good case for hopefully doubling (or better) in the next one-to-three years. While I was at Cornell, I developed the roots of my BI Ranking system, which is a weighted index of about 12 variables including various earnings measures, PEG, relative strength, street sentiment, financial strength and so forth. And with some tweaking along the way for what works today I still lean heavily on these variables for picking recommendations and knowing when to sell.
CL: You focus on small stocks–what do you look for in a stock to recommend it in the newsletter?
TB: I focus on smaller cap stocks, but also recommend a few mid-caps, especially when times get a bit dicey, because those small caps can sometimes take you on a wild ride. In addition to the factors above, I like a stock with a “hook.” I rarely if ever recommend a stock that’s just a good company. For BI Research, it needs a good story you can sink your teeth into and say that’s why you’re buying the stock.
Cabot Stock of the Month just targeted another big doubler that’s beginning to look a lot like First Solar, which landed us a 321% gain.
Like First Solar, this company is riding a wave of profit growth–but it’s in the massive global energy sector where it is not only on the cutting edge of technology but also has a monopoly-like position in its sector as it continues to steal market share and profits from its competitors.
Once you see our full write up on this, you’ll see why we are convinced beyond a doubt this company will hand investors another 50% profits this year and another double soon after that!
CL: Can you give us an example of a stock with all those elements?
TB: Okay, for example: Star Scientific (STSI). The company has an anti-inflammatory nutraceutical called Anatabloc, whose active ingredient is anatabine, which it has patented in every way it can imagine. As you may know, inflammation is now being fingered to be at the heart of many of today’s ailments, from arthritis, Crohn’s disease/inflammatory bowel disease and thyroiditis to heart disease, cancer and even Alzheimer’s. Most people taking Anatabloc report less aches and pains (inflammation), whether it’s chronic ones becoming significantly reduced or fewer after strenuous activity. There is strong evidence that anatabine can lower C-Reactive protein levels (an important inflammation and cancer indicator) and can lower amyloid production (which causes build up in the brains of Alzheimer’s patients).
Anatabloc is in clinical trials for both, with C-Reactive protein results due out shortly. Fred Couples is the company’s product ambassador for Anatabloc and he stated that his C-Reactive protein level went from 6.5 to 0.5 while taking Anatabine. Fred’s a very popular golfer, on the senior tour now, and in fact just won the Senior British Open–a lot of guys on the tour are taking Anatabloc. The first Anatabloc TV ads just began airing, you can watch one on YouTube here. Good timing. Most exciting, John Hopkins is currently testing it in clinical trials for thyroiditis (at their expense). Millions of people have this, and the head of Endocrinology at John Hopkins has said on more than one occasion that nothing seems to work on thyroiditis other than Anatabloc. I could go on and on.
CL: More generally, what’s one important piece of advice you think more investors need to hear?
TB: Never put all your eggs in one basket–or, should I say, too few baskets. Stay diversified. Having been around the block for 40 years, I have seen it all. Anything can jump out of the woodwork and go wrong–and often enough does, especially with small caps … and investors will overreact to the latest news, good or bad in either direction.
CL: What do you see as the biggest challenge in the market right now?
TB: When I started out, I typed the newsletter on a typewriter and used whiteout to edit what I had written. For a brief period in the early 1980s until I got my own fax (and PC), I’d drive to a store to pick up faxes on those occasional days when one came out with news on one of my companies.
Today, news is available on the Internet the instant it comes out, and between news and other commentaries and blogs, it’s a constant stream that’s almost impossible to keep up with. And blog writers can say anything they want, and with the help of the Internet, they make sure you can find what they have written. Investors often take it as gospel, and with fees for trading at $9 now instead of $300, they can spook like a school of minnows, creating violent swings in a stock price within minutes. Articles (by shorts for example) that only a handful of investors would see years ago are now on the Internet for all to see right from the get go. It’s a tough environment out there (that I think needs more SEC scrutiny), and tougher to get an edge than it used to be.
CL: Before you go, let us get to know you better—what else do you like to do besides investing?
TB: I enjoy playing golf, fishing (fresh and saltwater) and gardening (I think I planted too many zucchinis. Make them stop!) … and investing. I am one of the lucky ones who turned a hobby into a career.
CL: Is there anything else you’d like to add?
TB: Anybody want some zucchini?
Thanks again to Tom Bishop for taking the time to talk to us today. You can find out more about his newsletter, BI Research, here.
Wishing you success in your investing and beyond,
Editor of Dick Davis Investment of the Week
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