This blog covers the general topic of financial markets.

Why buy small cap growth?

first posted: 2023-07-04 01:35:49.949525

A market insight by simply wall street is that small cap companies are more risky but have much upside. The criteria for investing are

  • there should be a large moat
  • large remaining TAM

Performance looks as follow:

  • since 2012, SP500 has best perf +406%, followed by growth mid and small caps +371%, value small and mid caps are lagging at +226%. see yahoo finance data here.
  • We see that growth midcap have outperformed value midcap as attested by VOT +173%, VOE +306% comparison as per yahoo finance data since 2006. The blend perf is VO +233%.
  • same can be observed with the decomposition of the small cap blend VTWO +186% into VTWG 231% and VTWV +136% since 2011. See yahoo graph
  • it should be noted that large cap SPY +228% massively outperformed midcap VO +167% since 2011, and russel VTWO +128% underperformed.

The name of the game is to find the proverbial needles in the haystack.

What about Micro Caps?

Ian Cassel of Intelligence Fanatic gives some his receipes to microcap screening in podcast e754 - TIP563:

  • big investors invests in equity
  • google for manager's name and fraud
  • check of small auditor with no other client
  • different classes of stocks, warrants
  • related parties txn, self dealing
  • intelligent fanatic CEO
  • CEO knows to hire and assemble a team
  • customer reviews
  • culture, employees, clients
  • UCC records