How does a micro / small cap get on the DTM5 radar and find its way into the strategy?

The DTM5 process always starts with a macro observation –  For example:  G7 nations are engaging in unlimited easy money policies and driving debt to GDP ratios levels that will cause a restructuring of how our economy functions and social and political change

Then the observation turns to questions that lead to understanding:  What are the impacts?  How can I invest in and profit from this?  Do my abilities / knowledge / experience allow me to participate in this successfully?

And the hunt begins for investments that will benefit from the expected impacts of the observation.  

I generally commence my search in the micro / small cap sectors looking for earlier stage companies with a combination of attributes that I outlined in my post ‘What makes the DTM5 strategy unique’.   This is the Analysis….aka the ‘Special Sauce’.   https://dtm-5.blogspot.com/2020/12/what-makes-dtm5-unique.html

Refresher – I’m looking for merit and leverage.    Merit = Qualifying the legitimacy of the business model, balance sheet, capital structure and management;  Leverage = The business’s value has the chance to expand exponentially based on the observed impacts of the thesis. 

If no strong candidates emerge I’ll consider ETFs which will stand to benefit from the impacts of the observation.  For reasons outlined in the ‘what makes DTM5 unique’ post, I prefer direct company investments (most based on the potential upside leverage they can create).  But ETF’s will do in a pinch! 

Then comes the Action…..Does it hit the watchlist, or is it a candidate for the DTM5 strategy right away?  Is it on the bench or on the floor?  Inclusion of a new investment means the benching of an existing one.  How is a position built?  How is a position exited?   How are timing and trading executed?  Is there a process?  The action component of the strategy is something that deserves its own series of posts.  Its a work in progress, and I’m following a certain set of parameters about how I build out the DTM5.  Keep in mind this is a long term strategy – but being long term doesn’t mean there can’t be a dynamic approach to maintaining (or improving) asset class exposure, taking advantage of opportunities or realizing gains, or lowering risk.  More on that another time.   

Finally, it occurs to me as I write this that I’m working here with a version of the OODA loop.   If you haven’t heard of this, It is a great tactical decision making process that is taught in military and business circles and has wide applicability to decision making.  A cool blog on the OODA loop can be found here:  https://fs.blog/2018/01/john-boyd-ooda-loop/

Drifting off on a tangent here, but learning about the OODA Loop and its applicability is cool. The feedback loops from each stage back to observation really resonates with me.  This is the process of checking and re-checking the merit of the investment and analysis back to the macro observation.  Its the opposite of ‘Set and Forget’ which many log term strategies espouse.   Also, The orientation portion, and Boyd’s inclusion of ‘cultural traditions’ and ‘genetic heritage’ is a stab at understanding the limitations of inherit cultural bias.  For an investment process, I think I’d consider ‘Cultural Traditions’ and ‘Genetic Heritage’ as the generational biases that have shaped / bordered our thinking about change and emergent trends / technologies.  And it is safe to say that we are all highly ‘bordered’ by our lifetime of structure and learning that make orienting to change highly difficult.   I’m thinking here of a commercial that states ‘When the future arrives we often don’t recognize it’.  I think its very true.