Small-cap investors Outperform Large-cap 10 to 1
There are many investors who invest only in large cap stocks miss
out on the 10-20 baggers of small capitalization stocks.
Here are a few things to look for..
Small-cap stocks have performed very well since the dawn of time, these companies
grow and grow until they become a big-cap stock, this process in itself is a 10-20x gain. During the 2020 pandemic many investors moved from small cap to large cap stocks
because of percieved safety while missing out on huge gains, here are 3 reasons why investing solely
in SmallCaps during the bear market will result in
excessive returns.
Reason #1: Fear
Once a bear market hits the small cap stocks
drop a bit more then large cap stocks, once the selling starts it results in more fear which compounds
into more selling which happens to exaggerate the pessimistic overlook on small caps. We want to invest in this compounded
exponential fear to make exponential gains.
Reason #2: Small stocks are not priced well
The balance sheet is public, their debt and cash and cash equivalents are all available for inspection,
why do small stocks trade below their valuation or sometimes even below their cash and cash equivalent?
It is because small stocks are not priced well at all! Small cap stocks are usually priced for bankruptcy
which we know is not true, they are priced for liquidation, they are priced for auction able assets.
These are all not true which makes investors much more bias against small-cap stocks.
Reason #3: Small-cap stocks can't grow in a bear market
It is a myth that large-cap stocks are the only group that are able to stay-float during the bear market and grow their revenue.
It is actually quite hard to grow 5 billion revenue to 6 billion revenue, but very easy to grow from 100 million revenue to 200 million.
This is the advantage small-cap stocks has over large-cap stocks.
The growth isn't even priced in the stock, they are priced for bankruptcy!