218: Shaun Factor – The Ways of a Small Cap Whale

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What's good everyone? Welcome to episode 218. And featuring on this episode is Sean Factor. Sean is an Australian small cap trader with twenty years in the game. He's also a co founder of 180 Markets, a firm that provides investors with direct access to capital raises. We don't spend too much time on Sean's backstory, instead we get straight to Chattan about his trading approach and how instinct plays a large part, as well as anticipating what sectors are likely to heat up in the near term.

And given the substantial volume that Sean trades, I get him to explain how he goes about building into positions and of course getting out of positions, which is often timed with what he describes as a liquidity event. Then towards the end we cover a topic not yet covered on any previous episodes, capital raising. So Sean firstly explains the motivations for companies to raise capital, then how he spots a good deal, how the raise amount and discount to share price is decided.

When capital raising is perceived as negative or positive by the market, so on and so forth. And that's all from me. Here is my interview with Sean Factor. I know you've been trading like I think it's twenty five years or so. I'm sure there's a lot we could go into there, but I'm really quite interested to

really hear more about how you're trading now, the sort of things you're doing now. Um, and then also just to get a better understanding of what happens when companies raise capital and that type of thing. So Let's kind of just focus on those two things, but I will ask you first of all, you know, if you just think back over those those last twenty five years. Can you recall any defining or like pivotal breakthrough moments? There definitely were

a few that um I can go through and it wasn't an actual moment. It was it was more an actual just getting confirmation that what I was doing was right. And a lot of that is going through good patches where you work out a a good strategy and and it works more often than not and I do definitely remember it was probably early two thousand and two, two thousand and three where

I realized I was pretty good at what what I was doing and I had developed a strategy that was right for the market at the time. And I think that's what it comes down to because the market changes so much. And there's so much different factors that affect the market. You gotta w when you when you've got a strategy that works, it won't work for every market. So a lot of the strategies that I use in a good market definitely would not work in a bad market.

And it's all about, I guess, getting more confident in your own ability to pick winners and ability to read the market and to adapt to the changing situations. Yeah, there's been quite a few moments along the way that you get pretty Pretty happy with yourself that you're doing something right. Yeah.

Can you speak a little more to the importance of good patches? I think that's probably quite quite crucial, isn't it? That's right. Well I think what's important when you're trying to trade the market over the long term is that you take advantage of the good patches and you don't overtrade in the bad patches.

So what I mean by that is in the bad part patches you still stick around, but maybe your trading size goes down to about twenty percent of what you trade in a good patch. And the good patches are Look, I mean, at the end of the day, there's a lot of extraordinary good patches and extraordinary bad patches. But last year was an extraordinary good year for trading.

It's a and in a year like that, you just gotta make hey while the sun's shining and you gotta take advantage of of the volumes and the liquidities and I wouldn't say over trade, but If you couldn't make money last year, then you're not gonna make money in the in any sort of market because last year we had A lot of people staying at home that weren't traders and became traders and just added so much more volume to the market that it really made trading easy.

No normally in a average to good market you have one hot sector and that makes I mean, you that's where our market's great because in there's different sector a lot of different sectors and once you get investors scrambling over stocks in a certain sector, you can really you can make good money. But last year we had so many different goods sectors. I mean uh some examples. Well I remember cannabis stocks just went nuts but for about two or three weeks.

And we had lithium stocks and just whatever. There's I mean, crypto it's a pity that there aren't a lot of crypto listed stocks here because there was a small patch when they all went nuts, but

ASX has seemed to tighten down on all that and has made it really hard. But it's just about finding the sectors that are hot. And last year we just had sector after sector just getting hot and We had biotechs that everyone got excited about and nickel stocks and vanadium and battery and just whatever the market could find a theme in, it seemed to work.

It was also a very forgiving market last year. Anything you were down on seemed to come back and you could still make money. Last year was rare. It's it's um I think we're back to a normal market now where volumes have quietened down and there aren't I mean at the moment there aren't really any hot sectors. but there's I mean we're definitely in a very stable sort of environment now.

Yeah, it was really upsetting that we didn't have more uh crypto blockchain related companies on the Australian market. I was um quite envious of the US traders. Yeah, I w I mean for someone like me who's only traded stocks, it's when you see the returns that some people made trading cryptos. they they were I mean you add an extra zero or two zeros onto the returns that we make here. So the ASX unfortunately delisted a lot of them, I'd say, eighteen months ago.

and they just haven't been able to we haven't been able to get the exposure here. There's it it's it is really unfortunate that there aren't crypto stocks around to to get it to get into here.

Yeah. Now a lot of your trading is concentrated to the small cap space. Has that always been the case? Yeah, pretty much. I'd say I started trading well, I started in the tech boom and that pretty much since then all I've traded is of small caps and occasionally I'll trade a a mid cap, but in terms of getting Bigger positions are all in small and micro caps. So just feel like that's a sector I know pretty well. And if you switch over to mid caps, you're trading again.

a lot of algorithms and the computers really take over. So there is still a lot of that in small small caps, but It's it's it's a whole different ballgame, trading mid and large caps. So I've only yeah, focused on small caps. Occasionally I'll take mid cap placement. But most of it that that'd just be for a short term trade and they wouldn't be

it wouldn't be a big position. So it would probably just be a more like a stag. The only time I'd I guess buy and hold a When you get a hot tip from someone you trust, but even then it's It's more going to be about the fundamentals. And as we know, fundamentals are more they more take into effect m mid to long term. A lot of the

The trading that I'm doing is looking for short term movements. And a lot of the times, unfortunately, or maybe even fortunately, fundamentals don't really matter in short term trade. Okay, well let's get into more of the nuts and bolts of it. So, you know, talk a little bit about your strategy or some of the strategies or some of the ways in which you trade. I mean just very straightforward. How do you decide what stocks to buy? Like what are the key things you're looking for?

So a lot of people are often ask me that and at the end of the an answer because It's my gut. It's you just get a gut feeling about watching stocks and At the end of the day, I don't use complex charts. I'm using very easy price and volume and watching a lot of the same stocks and I understand the way they trade. So a lot of it is my gut. But one of the biggest things that I'm I've got to make sure and I'm confident in is that the volume is there.

because I'm trading pretty big volumes and you gotta make sure that it's not just easy to get in, but it's probably even easier to get out. So You gotta make sure that volumes don't dry up and there's been volume around in the stock for a while. So a lot of it is is not just one simple strategy, but it's a lot of it's about about psychology rather than an actual strategy. So you gotta make sure that you're not too greedy, you keep doing what you're doing and

not not hold on to positions too long. So I don't really look for the five and ten baggers. I I'm rather gonna look for the for the opportunities to maybe make twenty to fifty percent and then maybe occasionally double my money. So it's it's gonna be pretty rare that I mean, I don't even know if I've ever had a ten bagger. It's not something that I'm trying to do.

I mean a lot of people were able to do it last year continuously, but I'm more interested in turning my capital over and I guess why when I'm doing placements with companies now, the first thing we say to them is we're in it for a good time, not a long time. And I guess that's my whole strategy in the market is making sure I'm not gonna be too greedy and if a stock goes up then I'm gonna get out and

Even with placements now when we do take a lot of volume, we wait for liquidity equ liquidity events and that's when I'd get out. So Yeah, it's I mean one if there was use of the word strategy, then a lot of the times, like especially with placements now, we're gonna try and pick a sector of the market that that we think is gonna heat up and then the stock may be like a very liquid one that we think is gonna get volume and traders will will push up the share price.

So there's many different examples of over the past few years of sectors that we've picked and a lot of the times, even if we're not right straight away, eventually the sectors will become in favor and you can just yeah, as long as the company's got sufficient funding, then you can feel safe to hold on to it.

You know, if I spin that question a little bit, maybe if we look at some of the you know, just a couple of the stocks that you currently hold in your portfolio, like could you just go through, you know, the reasons why you Hold those. Yeah, so pretty much what I said before, it's it's about trying to find stocks that a lot of the times I'll go into big positions, let's say through a placement, and And it's not while the stock a hot. It's more getting in maybe at a lower at a lower point.

just having a view that the the stocks in the sector that's gonna heat up, those are more the ones I hold rather than trade. I guess that I'm really like I'm always looking at sectors and sectors that have been hot recently and what caused them to be hot in the past and what's gonna maybe what what's gonna be a catalyst to get it going again.

So like when gold gold and silver stop go through real up and down patches and obviously when the gold price goes up that causes a lot of liquidity and um volume to come into the small small and micro gold stocks and you can make really good returns. That way. But there there's often things like making sure the company's well funded before and it's not gonna raise money along the way because often the capital raise will be at a discounted price. So it's

it can be pretty risky to hold just for the sector if you think that the company's not well funded. So yeah, a lot of the positions that I'm holding are mainly more fundamentally connected to sectors rather than company fundamentals. Right, that does make sense. What gives you an inkling that a sector may be about to heat up soon? It's hard because a lot of the times we'll we won't get in when the sector's like completely dormant and not no when there's no enthusiasm around it, but it's more

when I guess it just starts moving. So often there'll be quite a few sec stocks in the sector that start moving first, maybe the bigger ones and then the smaller ones will follow on. So there's no set formula for saying okay this I think that this sector's going to like a lot of the times the um the let's say let's say you pick a commodity, let's say lithium for example, it We've had quite a few lithium booms on our market where all stocks in the sector goes nuts.

Sometimes you there may not even be a good reason for it apart from a few stocks leading the way and then everyone just follows on. Obviously the main catalyst would be if you get the lithium price going up and demands a lot higher than supply and it starts off that way. But Sometimes you may just not have a there may not even be a reason that a sector's going well. For a sector like medical cannabis, i I'd say that's probably the most popular sector for traders to all pick

And and really move a whole sector because there's not a lot of stocks here that are listed. So there's probably Maybe twenty to thirty and maybe ten smaller microcaps, but once the bigger ones start moving, normally due to something that's happened overseas or some sort of legislation that's made the whole sector fundamentally more more better for for for everyone. I guess it depends on how many stocks are listed as well.

I mean last year that we had like I think we had two different cannabis booms on ASX and both were great from a trader's point of view. Not just um people that were holding, but for day trading, the volumes that go into these stocks and that. So that's I mean th it's really hard to give reasons why we pick sectors. So I mean it may be just as simple as okay this

So other sectors have have run, but this sector hasn't. Let's hope this is a next. So there will be certain times that we just place it on hope, which It's a pretty dangerous thing to do, but yeah. It does. Have you ever watched a stock explode and thought, if only I had the capital, or sat on the sidelines because your account balance felt too small to matter? Good news.

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Can you speak to how you build into a position? Uh I know you said a little earlier that sometimes you'll get in through placements and then start buying on market, but Yeah. Just in a in a typical scenario, how do you get into a position? Because, you know, I've seen some of the volumes that you trade and I know that I'm sort of familiar with some of those stocks as well and I know that you can't just get in in a couple clicks. So how do you go about that?

Yeah, exactly. So if you're buying on market and the same applies to when you're selling on market. you want to buy you wanna act in a way that doesn't influence the market. Because if I wanna go and buy, let's say, ten million shares of a two cent company that's not very liquid, you can't just go and place that full ten million on the buy at once because you're not going to get your stock because other traders are going to see that and they're going to buy the stock in front run you.

And unless there's a seller around, you're not gonna get any stocks. So you gotta the sa and obviously when you're selling a big amount, you gotta do it in smaller smaller volumes. So you may buy two hundred thousand shares at once and then maybe wait a few days and buy more and wait for sellers to hit the market and

When buying on market you've got it's really a game of psychology. So if you if you don't have access to a placement or a block trade and you wanna buy a big volume, you've really got to do it discreetly. So you've got to I mean years in the market has taught me how to do that. And look, it's there's nothing worse than

making money that when you're up on a stock and you start selling and then everyone else follows your selling and the share price falls. So it it can be really a game of psychology, just being careful. So Yeah, on market buying is a one of the ways I enter and obviously the much easier way is through a placement because you can get volume in a placement and especially with what what I'm doing now when I choose a stock that I are like in 180 markets does a capital raise at like cornerstone, then

That's a very easy way of getting volume and you don't need to sit there trying to buy every little share on the market. It's it's a lot easier just getting in through a placement. But yeah, it's not always possible. And a lot of the times I'll do both. I'll get in on the placements and then buy on market as well.

Okay. So if you are trying to accumulate a position, you know, you gave the example there of, you know, you might buy two hundred thousand shares one day and then some more the next, but I mean, is it as simple as that or are you actually kind of there throughout the day, you know, working little orders Um, you know, from open to close kind of thing. Yeah, I may be. I may be I mean I use a pretty good platform that I only play pay brokerage once a day.

that at the end of the day it accumulates all the buyers and I'll pay one lot of volume and all the sells the same thing. So I'm I'm paying a flat rate. And it doesn't matter how many times I go and buy. So we'll go back to that example of a two cent chair and let's say I wanted to get two hundred grand worth and own ten million shares, then

I may buy an even lots of thirty thousand during the day. It'll just be a matter of doing it in a way that the market doesn't feel like you're the same buyer. I'm not gonna go and place a one million bid.

Unless there's a seller there. So if someone comes and puts in a big cell I might either wait for people to sell down or I'll and then I'll go on the bid for a bit or I'll just buy out the big seller and that's obviously a lot easier, but it it I guess when you're trying to accumulate a big position, you're buying or trying to sell, and probably more especially sell.

you want to make sure that the market doesn't catch on to it. A lot of the times people look at market depth and get excited by big bids. I actually look at the opposite because Often big bids aren't real bids. If someone wanted to buy a parcel stock, usually they're not gonna put their full amount that they want in the screen.

Especially in a way that's going to affect the the depth. Because the depth is very important, but I keep using the word psychology. Psychology is extremely important in the market depth. There's a lot of games that are going on and there's a lot of algorithms and trying to pick

pick what's happening in the depth is also very important to trading. A lot of times you may buy a stock because there's a lot of buyers in there, but they can all disappear just as quickly as they arrived and There's a lot of illegal activity as well that goes on with people putting in fake bids and fake offers and that's you gotta watch out for that as well. So it's it's really important that you understand the market depth and you understand the games that are being played.

What's your logic for how big to be in a stock? Yeah. Well, how much I like it, I guess. Um I guess it's as simple as that. The more I like it, the bigger I'll go. I don't look at at a portfolio balancing and I've got too much in one sector or too much in in another. Um yeah, it's more It's more how I like the stock and I guess that'll determine it and be that there's liquidity in there that if I change my mind I can get out too.

So I'll never go big into a stock with no liquidity unless if I'm gonna hold on for a while and I'm buying for a fundamental reason, which is pretty rare. It's fundamental the company I mean, rather than a sector. But to go big and hold long term it's not what I'm doing. It's rather rather take the risk out of it and go shorter shorter term. there's yeah, the market can just change too much in over over time.

So how do you how do you determine a point for where you're wrong on the trade? Because as we just spoke about like your you know, more often than not, accumulating a position perhaps over several days. So you're kind of I guess working an area, so you're buying at, you know, a range of different prices. Yeah, how do you find how do you determine which point You're wrong on the tride.

Yeah, look, it's a pretty bad feeling when you have been buying and you think, Okay I'm I've got too many now and I'm not actually that comfortable with the position. And a lot of the times it'll happen once you've got your f once you've got the amount of stock you wanted and you just realise that there's too many sellers in the stock.

that's it's a pretty bad feeling when you change your mind on a on a stock and especially if the the liquidity dries up it's Yeah, it's I guess I I often ask myself a question is If I'm not buying then I guess maybe I should be selling.

uh it it's when you're when you stop buying and if you don't wanna buy anymore, that's often the time that you that you're gonna be selling. So Yeah, it's it's I mean there's there's often not just an individual one reason when you figure out, okay, I'm probably I don't love the stock as much as I did.

It's usually a few and it's more. Maybe a a change in momentum of either the sector or the stock and you just realise that you've been wrong. So When it comes down to doing what I'm doing, you just hope that the you'll I'll have a lot of losses, but you just hope that the losses are a are on the smaller positions and not the big ones.

But yeah, often when you get a big position that's that's wrong It can be hard to get out and that's why you've always got to make sure that there's liquidity around.

Can you recall a time or more so a trade? That did go horribly wrong when there wasn't the liquidity to get out that you were hoping for and relying on. Yeah.

Well, I'll give you an example, not an actual trade because I probably don't even remember it, but where where I've gone wrong and I spoke about it to the guys not long ago that I find when I go on good runs on the market, as in I have quite a few good trades in the in a row, I often change the my mentality to gambling mentality and you think you've you're doing so well, you just go bigger and bigger and you're gonna keep making.

And it does happen a lot of times to me that when I go on a run, it often ends with a bad loss because I'm not I'm not using my same rules that I usually do and I'll change my mentality to a gambler's mentality and just think, okay, I'm gonna keep going harder and harder. And at the end of the day it's if you don't if you don't have rules in place and you don't follow your gut

then that's what could happen. And vice versa. I've had losses when I've been on a bad run and I try to make it back. And you try to make it back By gambling. So a lot of the times, like especially in the bad market, what the best thing to do is just to stop for a while and say, Okay, I've gone through a bad pack.

But I'll come back slowly and make the money back. But a lot of people would rather just try and make it back quicker. And that's when you change your mentality to gambling mentality. And it happens I find. on the two extremes. One is after a really good patch and after a really bad patch. And I've I mean a lot of people say to me at the end of the day what you're doing is just gambling, but I think too.

to to make this like an occupation and to make it into something that's more than just short term, you can't have that gambler's mentality and you can't you've got to have reasons behind what you're doing. And I mean they say at the end of the day that ninety nine percent of traders lose money. So I mean I reckon it may not be as high as that, especially in a good market, but more traders lose money than make money. So I mean I must be doing something right.

But it's it's often about the mentality that you use and also making sure that you don't go too hard in the bad market and you really you don't You're not relying on making money every week. You don't have to make money week in, week out, month month every every month. It's more about the longer term that you're doing the right thing. So I mean the message that I often say to new traders is don't start if you need to rely on income.

A lot of people have asked me in the past, should I start trading? And my my my answer's usually no, that most people lose money and I mean I started when I when I think I was twenty, I was still living at home. I obviously didn't have kids, but I I wasn't reliant on making an income. I had it I mean, I started off with a little bit of cash and

I guess I was just punting it on the market rather than trying to make money to support support like a family. Yeah, it's I'd never encourage anyone just to trade for income. It's it's gotta be I think more of an occupation uh more of a um uh the just you can't put pressure on yourself to to make that income. When you find yourself slipping into what you described as a gambling mentality, Is there anything you do to correct that?

Yeah, I guess I'll realise what's happening and I'll know it's happening and I'll try and correct that. So I'll take my losses and you you kind of use your go back to your old rules and you'll yeah, but I I know when it's happening. That that's the thing. Like a lot of the times, even when you're making a mistake, you'll sit there going, okay, I am going too big in the stock.

But fuck it, I've done so well. Yeah, but I'll be like, Okay, I've had such a good patch, who cares? I'm just gonna go even bigger and um and I'll know in the back of my mind I'm doing the wrong thing. And Of course on the other side when I've had a bad patch and you're trying to make it back, I actually know that my mentality's changed. after you've had that extra loss and you know that okay, what I'm doing is wrong.

you'll just go back to going a lot smaller and it's it it is like a lot of it's like a casino. So a lot of it is going according you go if you go bigger than where you normally go, then a lot of the times it's It's because you taking that gambler's mentality. Look, you gotta have the capital to learn from your mistakes, especially when you when you do make them. Like I continuously make mistakes and

I'm lucky that I can keep learning from them. But a lot of the times when you do make mistakes you just gotta Take an extra zero off your trading size and just go a lot smaller and realize what you've done wrong and then come back and do the right things. Yeah, it's uh yeah, I'd say that the most important thing is changing your size. to back to a level that you can contr control it.

Okay. Well, just let's say we're in a a neutral period, you know, things are going reasonably well. How have you come to trade the size you trade? You know, has it just been a natural progression over the last twenty five years or is it something that you've been very deliberate in how you've uh sized up?

Well, it's something that gradually happens over time, I guess, because the more cash you got to play with, the bigger size you can go. So If someone's trading with a million dollars, for example They're not gonna put a thousand dollars in each stock because it's gonna mean nothing to them. So it's more about the amount of

Cash, I guess, that you're using. Um, so obviously when I started, I I was a lot smaller and over the years I've I guess I've been able to go bigger because I have made a little bit of money along the way and it's more just making sure that you, I guess, are comfortable with the size of you going and that it's I mean a lot of people when they ask should I start up, I'll tell them start up very, very small. Don't don't paper trade because that'll mean nothing. So

the example I said before, if you use if you got a mil let's say you got a hundred thousand dollars and you got a hundred dollars a trade, there there's no point because you're not gonna learn. You've got to trade with a bit that's gonna affect your Like paper trading is is a completely different mindset. So yeah, it's I guess the size just depends on how much you're using and how much you want to put into each stock. Like I don't like to own

fifty s I don't want to own fifty stocks or once I'd rather own ten or fifteen. There's I know a lot of people that would rather trade and put five maybe two or three percent in each stock and have more exposure. I would rather have maybe ten percent in the stock. or or larger percentage and own it uh own a big amount to make it meaningful when you make and lose money.

How long do you expect to hold a position? Now I know Obviously obviously this varies greatly, but um, you know, are you looking to build into a position over a couple of days, hold it for a couple of weeks, and then sort of start to unload that, or is it shorter than that, longer? What's your t kind of time frame? So every time um

getting into a stock, there may be a different reason and I don't have a certain time period. So I may do some day trades where obviously I'm not going to hold overnight because There's a lot of volume in the stock and risk is uh and there's risk holding overnight. So let's say I do ten percent of my trades are day trades and I'm gonna get out the same day. Then a lot of the times I'll punch stocks that are moving during the day and hold overnight, but I'll get out the next day.

Then there's stocks that are like and that I'm gonna accumulate maybe for a week. But then there's a my bigger positions are ones that I'm I'm looking to get in and I like to say for a good time, not a long time. So if we're doing a placement here that I'm looking to take a big amount of, I'm obviously not looking to flip it straight away because

A I've got a lot of volume so that's going to affect the price. And B, my investors won't keep um bidding with mi m with one hundred eighty if we keep doing that. So a lot of the times we'll will buy a stock a big position but wait for a catalyst that's gonna

that we think's gonna come and that's gonna cause liquidity and that's when we get out. So obviously if that happens sooner rather than later, it's better because then you can move on. But sometimes I'll hold on to positions for six to twelve months. Which is not ideal, but if I have to, then I will. And um there's usually pretty good reason why I'm doing it. And there's A lot of the times I would have done my

I guess, research into the company and a lot of the times I'll enter through a placement and I'll know that the company's fully funded and they're not gonna do another placement. So every trade that I'm doing has got a different I mean I I normally it's pretty unlikely I buy a stock for day trade and they end up holding for a long time. Usually that Pretty bad. So that's usually when you're holding on to your losses and hoping that they recover.

Sometimes I'll take placements if it's not our placement and maybe I'll buy it for a quick trade because there was a discount. But a lot of the times I'll just have a reasoning behind it and Yeah, it's normally when you hope that there's gonna be a liquidity event and that's when you're gonna get out. And obviously the sooner that that happens, the better.

So this uh you've said this word a couple of times throughout the podcast, so I might just ask for some clarification around it. What do you mean by liquidity event and and why is this so important? So it's usually a event.

I mean it can be an announcement by the company. So let's say that the company is a biotech and it's doing a trial and they announce that they're starting phase two trials and it's gonna be an event that either they announce a commencement or they announce results or It's a mining company that that's waiting on a certain approval or something, it's normally going to bring volume into the stock and it's it's normally an announcement by the company that's

that's gonna be, I mean, hopefully favourable and bring volume in and that's an easy way to sell. But a lot of the times it may just be a general market factor. That causes volume in the stock. So let's say last year with the cannabis companies, there was

Everyone was waiting on a certain legislation to come through. I can't remember what it was, but when it came through all the companies were nuts and there was heaps of volumes. So A lot of the times I'm buying knowing that there's going to be some sort of event or events, multiple events, that the company's gonna announce results and That usually brings volume into the stocks. So there may not even be an event that causes volume. It may just be other stocks in the sector going hot and

liquidity comes in and it's easy to sell out. So it's usually usually when there's a lot of volume that's that's a time when it's you got to go against the market and sell out. Mm-hmm. Just one more question before we move off strategy related topic. Um,'cause there's some questions I of course want to ask you around placements and raising capital.

How do you adjust your trading during periods where there seems to be less opportunity in the market? And I think, you know, our the current environment is is very much like that. Yep, so I mean speaking about the current environment, it is a very normal sort of market at the moment. I think. There's not it's not too hot, it's not There's there's normal volumes, there's still runners, there's

There's a lot of green, there's a lot of red, there's it's a stock picking environment that you can do really well in. But how do you adjust? I guess it's It's just about picking through, I guess, where the volume is and making sure you're not overexposed in sectors that go out of favour. I guess adjusting to different environments can be really hard because I remember maybe about five year well, four or five years ago, we went through a massive cobalt boom and

I was trading a lot of shells back then. Uh uh Shell's basically a a company that's that's got nothing and has got a very cheap enterprise value and you hope that people are gonna put in new new, exciting

Assets into the company. So we had a cobalt boom recently, and I was buying a lot of stocks that they were putting cobalt in, but all of a sudden the boom ended and you left holding big positions of stocks that are not in favor and you just gotta I mean you either gotta wait it out or you gotta sell and

A lot of the times you just gotta take your losses and move on because the sector has gone out of favor or the market has turned. So you really gotta make sure that you not overexpose to sectors that are out of favour and a lot of the times you just gotta take your losses and move on. So yeah, it's I mean and that's what

That that's the hardest part of trading. It's taking your losses and a lot of people end up not being able to do that and not being able to trade because no one likes taking losses but The amount of the amount of times that you just gotta do it. I think Michael Jordan made a fa famous saying that

He's he's failed and he's failed and he's failed and that's the only reason why he's succeeded. It's Because you you gotta learn from your mistakes and you have to make the mistakes, but you gotta learn and you gotta take your losses and admit admit that you were wrong and you admit that you've made the mistake, but it's time to move on. Does taking losses have any effect on you nowadays? You know, you've been doing this twenty five years or so.

Big losses obviously. I mean, I I guess are you talking about mentally how it affects me? Yeah. Um Look, obviously after a hard day I like hitting the bottle like a lot of people do and but but a lot of the time that's not from losses, it's more from frustration. So I'd say frustration on missing out on positions or just the general market can cause that sort of frustration. There's

It wouldn't I mean I get just as frustrated when I'm losing money as when I'm even making money but just not making enough in a good market. That's obviously really like something that I've got better at because you gotta you can't take everything to heart and you can't have those frustrations and it's not good to hit the bottle after work like I often do.

Especially when you got a wife and kids. But yeah, look, there are some days that are really frustrating and I guess one of the reasons why I started one eighty markets was to do something a bit outside of trading and To to run a business that it doesn't rely on daily movements of the market. It's it's I mean trading a lot of people look at it as a really

enjoyable um no not hard work sort of job but I can tell you it's not that. It's it's really there's a lot of frustrations that come with it and a lot of people just can't handle it.

Okay, so let's get into placements here. Very simply, why do companies raise capital? Why do they need to do this? And what does that mean even? Okay, well, a lot of companies are listed for one reason and that's access to capital. So capital is is money, I guess, at the end of the day. And for a company to survive, especially a mining company or a biotech or some or company with no income.

They the only way that they can continue operating is to rely on the market providing capital. So The majority of the stocks that I'm doing, as we said before, small caps are micro caps and the majority of them don't have revenue and the majority of them won't have revenue ever. And a lot of them won't ever make a profit. And

They're only listed for access to that to the capital for the capital. So What a capital raising is, is it's usually an IPO to get you listed and then once you listed it's through a placement or through a rights issue, but for for for this conversation, let's just say it's a placement. What usually happens is a company will do a placement at a discounted price to market and investors will will provide the company with with new capital, with new money, and that's how all these companies survive.

So Look, unfortunately a lot of them are dodgy and not run well and that's why they have to keep raising capital because they keep spending it on the wrong things and But that creates opportunity and there's a lot of opportunity in capital raises. A lot of people use them as a simple trading tool where they'll get in at the cheaper price and they'll exit on the market at hopefully a higher price.

And and a lot of that will depend on the market conditions. So in a in a market like last year, a lot of capital raisings were doing really well and continuously hitting the market above the capital raising price. And a lot of people last year were just taking every placement and just flipping it.

But obviously in the nor more normalized market like now, you've got to be a lot more selective and it definitely makes it more challenging. So a lot of people just trade placements, they won't trade um on market, but For for f for starters you need to be a sophisticated investor to to take placements in Australia.

And that's usually means you need to have a little bit more cash than the average person. And to get access to these placements you normally need a broker and you gotta do it through the broker. But what one eighty markets We we created an online sharing platform for capital raisers. So our goal is to get access to every capital raise in ASX and provide investors with opportunities to basically use it as a do it yourself platform.

I guess the reason why we started it off was because I was doing a lot of these placement cornerstoning them through brokers. And then the brokers would end up controlling the raise and I'd have little say, even though I was probably one of the bigger investors in the round. So we thought we'd create one eighty markets as a way for me to still do that and get investors to follow me into into raises. And we've probably done about thirty lead manager roles in the last year.

Which is, I mean, something we really we're really proud of because we started the business in February last year with not a lot of investors, but it's it's grown exponentially and we now we get access to to so many placements and do a lot of them ourselves where I mean every race that we are the lead manager, myself and co founder of one eighty markets, Greg Lobel Well we'll lead the raise ourselves by investing through the cornerstone position.

And yeah, that's uh I mean, that's the most enjoyable part of the business is that we're now able to cornerstone our own razors without having other brokers trying to I guess, build the book around us. We'd rather we can build the book ourselves. And a lot of the times we'll allow other people to cornerstone with us and come in on size and and a lot of people can then get their fill on the stock rather than buying slowly a market and

Obviously in a good market like we had last year, we did a lot of the raises went up multiple times, which is great. But obviously you have your losses as well and Like like trading, it's important that you cut your losses for placements in the same way that you do for on market buying.

So how do you personally decide what races you you will participate in? Like how do you spot a good deal? You know, what appeals to you? All right, well there's two different parts of that. One is when we lead a raise and And every time we lead a raise, those are hand picked by myself and the team at one eighty, where we'll pick the company and we'll speak to them and we'll negotiate the deal ourselves. And

A lot of the times that's around a sector thematic rather than a short term trade. So I mean last year I'll give you an example yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n yw'n.

was RNU RENASCOR. I mean we were just really confident that the whole battery thematic would would come alive during the year and um we got in at one cent and that the whole sector was it wasn't well known and the company definitely wasn't well known, but I mean, we got really lucky and the whole sector picked the whole sector really went on fire and R and U went from one to about

I don't know, hit a high of about sixteen cents and there were a lot of free options as well for investors. So investors made I think I mean obviously most people didn't sell at the top and we definitely didn't, but the amount of volume that went through that stock last year was nuts. So that's one example of a of something that we that we picked pretty well and um a lot of the times we we we just went into sectors that were already

performing well and we we were looking for a stock that was part of that sector but it hadn't moved yet. And that's I guess what we were looking for for our own investments. But in terms of the placements that we see going through the market, We we definitely don't take them all because you gotta be choosy. when I say we, it's myself and Greg, probably ten to fifteen percent of capital raises that go through one eighty market and

Yeah, you just gotta be really comfortable. You know the brokers, you know the What the book I guess what the price is What did the scan if there are options involved and how well you know the company as well. So Well, how is it decided how much to raise and well I guess how many shares to issue and at what price, like how much of a discount?

So I'd say that the most enjoyable part of one eighty markets that I've found is organizing placements and arranging that. So obviously there's a negotiation that goes through between the broker and the company. Usually the amount raised will be determined by how much the company can raise, because every company can only raise between fifteen and twenty-five percent of the issued capital every year. Uh, can you just make sure we understand that part? Can you please repeat that in simple terms?

Okay, sure. So Um, at the beginning of each year, companies are allowed I I don't know if it's financial year or year, companies are allowed to issue fifteen percent of new stock to investors through a placement. Um, but they may get a special exemption where they can make a twenty five percent and that's approved by investors at a meeting. So let's say A company has twenty five percent

Let's say that they got a ten million dollar market cap. They're then allowed to go and raise two and a half million dollars. So the price is determined usually between negotiations. And the price will be you you're not allowed to go lower than a twenty five percent discount to fifteen day VWAP and I'll explain exactly what that is. So The VWAP is the volume weighted average price.

And that's basically all the trades that go through in a prior, let's say fifteen days to the placement, and you're not allowed to do it at greater than twenty five percent discount to that. So Let's say that the VWAP was ten cents, you're not allowed to do the placement lower than seven and a half. So I mean maybe the company feels that They can do it at nine. It just depends on the

amount of money that the broker can raise for the company at the price that the company is happy with. So it I guess it comes down to like the market, demand and supply. the the company's going to say how much they can supply the broker with and and the broker's gotta work out if it's gonna have demand. But I mean what what you want from a placeman is always for it to be oversubscribed.

And that means more more bidders than the amount of stock available. Because that means a lot of the times people will then go and buy on market and that's what creates a successful placement.

What happens in the opposite situation? Let's say a company is trying to raise two and a half million dollars, but can only raise one and a half, let's say. Look, so what you've got to do as the lead manager or the broker handling the placement. You've got to go out and promote it with a amount that a minimum and a maximum amount that will be raised. So let's just use an example of um a placement. I mean we we just recently raised money for

Briar, BYH is the code. So we went out telling the market that we're gonna raise between can't remember, I think it was between one and a half and two and a half million. We only did that once we were a hundred percent confident. We didn't want to go out to the market and

You you never want to start a raise when you are not confident at all that you can raise the money because it's a terrible look for not only the company, but for the broker as well. It probably happens in Let's say an average market like this, maybe two percent of the times we've seen it happen, and what eventually happens is the company raises a lot less at a lot lower price. I've got an example but I wanna give it because it's probably not a good look for the brokers that handle arrays, but

I'll give just the pricing for example. Like a company recently tried to raise money at 27 cents. They wanted to raise 30 million. They went out to market and they promoted it that way and obviously they would have been a bit confident before they were gonna do it, but they fell way short and the raising had to be lowered to

I think five million at twenty cents. So that was terrible for the share price. It wasn't a good look for the brokers and it's it it happens, but it When when we go out and approach a company about raising capital we'll always be confident, I guess, because we're cornerstoning that others will follow us in and we'll have enough demand. But it definitely can happen where you fall short and You just gotta lower the price, but it's a terrible look for All those involved.

Okay. Now on the Australian market, when a company is raising capital, generally what happens is the stock is halted for a few days um and then it resumes trading um, you know, once the deal's done. Sometimes when it comes back online, the stock will get bought up and sometimes it'll get sold down. You know.

Sometimes it's received as being a very positive thing, sometimes it's very negative. Like when is a capital raise perceived to be negative? When is it perceived to be a positive thing for the stock? So I guess the main the main um the main reason will be if it's oversubscribed and how many times. So Let's say a company goes to raise money and it gets exactly what it wanted in bids, but there's no leftover buying, then it's usually a bad thing because there's not going to be that extra support.

that comes into the market afterwards. But if it's say three or four times or even ten times oversubscribed and you couldn't get stock in the placement. then that's usually a reason why people will buy it. But probably just as important is who's the broker that's raising the money and what's their track record. So a lot of brokers go through patches on the market that they've seen as Bang!

I mean at least they tell people that they're the best out there and it gets to their head. And a lot of people like certain brokers and have seen the raises that they've done in the past have all been successful and then people will go and buy those mark those stocks on the market after. Usually when you can't get in on a placement, that

normally when people go and buy on market. A lot of the times it'll depend on the price as well and how big the discount is. So In an average market, a lot of the times the placement price will come straight back down to the placement price and you can't make quick money trying to trade the stock. Yeah, a lot of the times yeah, it just depends on who's running the book and how well the broker does. A lot of the times brokers will go and buy on market afterwards as well.

So, I mean that's something that we try and do on our lead manage deals. We'll we like to try and support the stock. I mean, you can't always because you gotta make sure that you've got enough cash for the next one. But yeah, a lot of the times there's follow-on buying, which can be perceived as very positive.

What are some of the dodgy things that companies do with regard to capital raising? Like what are some of the things you should be a little bit wary of? I mean, it seems to happen all the time that a a company will raise capital shortly after their share prices increase.

Yep. So I mean I guess there's a reason for that and it's often not dodgy, but it's rather companies are waiting for a certain price to do a capital raise. So usually when there's Let's say a company's trading at ten cents, but the company will A and the company did its last raise at ten cents. It'd be a pretty bad look if the company went and raised money at eight. But let's say that the share price went up to fifteen, it may be able to now go raise money at twelve and a half or thirteen and

If you don't need the cash, you're not gonna raise money when the price is down. You're gonna raise money when the price is up. Now I know it may look dodgy that because it does happen a lot, but a lot of the times companies are just holding out and when the share price does go up, that's when they do prefer to raise capital. And a lot of the times people like myself who'll I'd rather get into a stock above the lows rather than trying to pay the cheapest price.

So I'll try and wait for volume to come into the stock and it to get the attention of the market and I don't mind if it's going up already. I'll still we'll s we'll still call the company and try and do a placement, even if it at a higher price than what it was because at least it's there's a reason why it's going up.

You'd rather not get in on a placement on a falling stock that has a reason why it's falling. But in terms of dodgy things, look, there's a lot of dodgy stuff that happens behind the scenes with different brokers and a lot of brokers will only do placements if they only paid a certain amount and they're given retainers and they given free options and there there's a lot of

going back and forth that that happens. I mean, it's not all dodgy, but there's a lot of greedy people out there that will only do placements if they're getting high fees and high options and Unfortunately a lot of companies fall for that.

Yeah, there's I mean I think I think for me there's one thing that I I think is dodgy and Look, some people may get it hopefully people won't take this the wrong way, but I don't like it when a director has a corporate advisory firm that raises money for the company and gets paid a fee as well.

because they they're a director, they're meant to be helping the company raise money. They shouldn't be paying themselves a fee to raise the money. So in capital raisings, that's a one dodgy thing that I see. And the ASX allow it. I don't know why, but it shouldn't be allowed. Is that something that happens frequently? Um it does. More often than you'd think? Yeah, yeah, yeah. A lot of people wouldn't realise that the directors are associated with the company raising capital.

they it's and then they end up paying themselves intercompany transactions and Yeah, I'll s I'd stay away from from those.

All right, Sean. Well let's call this a wrap. Uh if someone wants to find out more about you, where's the best place to go? Um, well, I'd say just check out our website. w one eightymarkets.com dot au. You can send us an email at infot180markets.com dot au. And if you wanna just ask me a question, just send me an email at Sean at one eighty markets dot com dot AU. Happy to answer questions and happy to chat again. Okay. And you personally, are you on any socials, Twitter, et cetera?

the one eighty markets is. Myself, I'm on hot copper but I don't really use it. I yeah, I mean, I don't I don't like all the Twitter's Twitter and Hokopa have got a bit too popular in my opinion. They people are just using it for ramping of stocks and there's a lot of Bitching going h back and forth between people, which is pretty bad, and people getting B heads and yeah, I I think people who make money should keep

should keep it to themselves, not go and promote themselves all over Twitter and hockey and all that. So Yeah, I'll just go on there just to read what's happening. I can appreciate that. Right, Sean, well thank you very much for your time. It's been uh really great to speak with you, learned a lot and um maybe we can do it again sometime. Awesome. Thanks a lot. I appreciate it. You've reached the end of this episode of Chat with Traders, but rest assured there are more episodes.