Reading the room when the room is empty

I got asked by an investor I admire what I mean by measuring the temperature around a stock. I found myself with unclear thoughts around what temperature actually means, so I forced myself to put my ideas into writing.

When you are thinking about buying something obscure, a small cap nobody knows, it can be difficult to know what the market actually thinks about it, or even if someone is thinking about the company at all. Big swings in price are sometimes just someone buying or selling and moving the volume significantly. It happened just last Friday with TVA.B a +13% move with no news at all.

You check the filings, nothing. Check the news, nothing. The obvious question is whether someone out there knows something that you don’t.

Large caps don’t have this problem. When Apple moves, a thousand analysts explain why within the hour, and they’re usually wrong in well documented ways. With small caps, price movements are not so much a matter of consensus as of presence. Whether the crowd is arriving or leaving is the key thing you want to know about your illiquid positions.

Here is how I think about temperature.

I look at temperature in three different ways

The first is flow. Actual money changing hands. The second is attention. People reading, writing, and talking about the name. The third is positioning. Who owns it, who’s accumulating, who’s stuck.

A stock can be lacking all three, which is where you might find a bargain, but it won’t matter if no one ever finds out. If it’s hot on attention and cold on flow, the story hasn’t been believed yet. If it’s hot on flow and cold on attention, it might be that a small group of people knows something that you don’t.

Confusing these three is how you misread markets. A stock going up on no volume isn’t demand. A stock going sideways on huge volume isn’t apathy. You have to know what’s going on.

Flow comes from dollars, not percentages

In a small cap, the percentage move means nothing without the dollar volume behind it. A 25% jump on 40k dollars traded is just one impatient buyer. The same jump on two million dollars traded is an institution, or several people who read the same thing. Be sure to find out what they know that you don’t.

So the first question is always: how much money actually moved, compared to a normal day? Volume at 3x the 90 day avg is something to pay attention to. Ten times is an alarm ringing. Then look at where the trades printed. Buyers who keep paying the ask are reaching. Sellers who keep hitting the bid are leaving. A tape that grinds higher on the ask, day after quiet day, with no news, is a key pattern in markets because patient, price insensitive accumulation in an illiquid stock is almost never random. Someone knows something.

Canada, for example (where the latest idea I talked about is), has a special characteristic that most markets don’t: broker attribution is public. You can see which firms executed the trades. When one broker does 80% of the buying for three weeks, that’s not a crowd. It’s a person with an idea, which is obviously different from a crowd with a mood.

Attention as the leading indicator nobody charts

Here’s the sequence that plays out over and over in small caps. Someone publishes a writeup. VIC, a Substack, a long fintwit thread. Nothing happens for a week because the audience for obscure ideas is small and thorough (normally). Then a few readers finish their own work, agree with the thesis and start buying.

Volume triples about two weeks after the writeup, and everyone watching the stock wonders what happened. What happened was published fourteen days earlier, in public and for free (most times).

Attention is the closest thing small cap investors have to a leading indicator of flow.

Ask your preferred AI tool to search for new writeups on the name, check whether the forum threads have woken up, watch whether influential people (measured by followers) are suddenly showing interest, look for engagement on a tweet or Substack post. None of this is precise, but it can help you be early.

The inverse matters too. A stock nobody has written about in three years, with a dead message board and a single uninterested analyst, is cold. Cold isn’t bad because you might get a good price, but you should know you’re buying in winter and acknowledge that it might last a long time (sometimes years).

Positioning as the paper trail

The third way to measure temperature is the slowest and the most accurate, because it comes from filings. Insiders have to report their purchases within days. Anyone crossing ownership thresholds has to announce it and short interest gets published on a schedule. Funds disclose quarterly.

In a big liquid stock this data is noise, but in a small cap it’s a small cast of key shareholders, and the most important is the one that already controls the company. When a controlling shareholder starts buying the minority shares in the open market, that is a signal.

Paying attention to silence

In small caps, the absence of news can itself be news. A sharp move on real volume with no disclosure is a key event.

Uninformed buyers need a reason, and reasons are public. So a reasonless move narrows the field to buyers who don’t need a public reason, which is a short list, and it’s a list of people who tend to be required to explain themselves shortly afterward.

Leaks before takeovers and going-private deals are one of the best documented patterns in market history. That doesn’t mean every unexplained move is something, but you should be trying really hard to know for sure.

One more thing

Temperature taking sounds like trading, and as a value investor you might be trained to move away from that. That’s a mistake I made for a number of years.

Your analysis tells you what a thing is worth, and temperature tells you when the market starts agreeing with you. Undervaluation in small caps can stay unresolved for years, so you’d better pay attention to these signals. The cheapest stock in the world, owned alone, will continue to stay cheap. When an idea gains traction, things can move quickly (quicker than your ability to increase a position).

So watch the value, but keep a hand on the thermometer. And always remember that you are buying from other people, and that you need other people to agree with you to make money.