There’s an old maxim in microcap investing that encourages investors to jump in when there’s “little to no” institutional ownership. While there’s still merit to this saying, in today’s high-interest environment, “little” might just be more advantageous than “no.”
Given the benefits of the sector-based approach, why not try to find sectors and subsectors that no one else seems to be paying attention to? That is, newly emerging sectors and subsectors that are starting to build a new market with companies that might not be on anyone’s stock picking radars yet? The idea being that as the new market starts gaining traction with the public, the sector/subsector starts getting noticed by investors, and those companies supporting it start reaping noticeable share price gains. Investors who get in early under this scenario are often in for a wild, profitable ride.
Often the clues pointing to a shift in profitability of a company or companies in a sector are signaled slightly ahead of time and go under the radar of many investors. This is especially true among microcap investments as there are few analysts researching the mechanical levers influencing their top and bottom lines.m
We are heartened by the successes these companies have achieved in such a short time and remain confident that this marks the beginning of expanding business execution success (and increasing revenues) for all three.
We suggest that you consider share structure as both a backward-looking litmus test and as a forward-looking assessment of volatility. Share structure analysis provides the most benefits from the former and represents a relatively quick and easy means of gauging company strengths and weaknesses that can otherwise be assessed by more comprehensive analysis. If a microcap company’s share structure is tight and not displaying any red flags, it provides reasonable support (a Bayesian indication) that company management is aligned with shareholder interest.
Few, if any, large cap companies will organically double their revenues within a few years, but plenty of microcaps are always in the running to double, triple, and even grow their revenues 10-fold. After all, those Fortune 500 companies were small themselves at one time, and many managed to make their microcap and small cap investors rich.
The Momentum Letter’s goal is bringing attention to great small cap companies and ideas related to the small cap markets.
This article is about why you should care.
