Stocks that soar 178% in six months don’t come along every day. But that’s the first-half gain that made Invivo (NVIV) our best-performing Investment Digest Top Pick of 2013 at mid-year (read my mid-year update on the Top Picks for more info).
The stock has now corrected slightly from those all-time highs but remains up about 135% year-to-date. Choosing Invivo—a development-stage medical technology company—as a Top Pick for 2013 was the bold and ultimately brilliant move of Tom Bishop, Editor of BI Research.
I interviewed Tom about his small-cap stock picking methodology, and other topics, last August. I light of his recent success in our Top Picks contest, I thought
I’d share his interview again today.
Here’s our conversation:
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.
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?
For the record, Tom’s current advice on Invivo (NVIV) is to hold (after cashing in about 25% of his position at higher levels). If you want to know about his next great pick before it doubles, just click here.
Wishing you success in your investing and beyond,
Chloe Lutts Jensen
Editor of Investment of the Week
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