Small-Cap Investing

Hey Small and Micro-Cap Investors Community!

Discussion Question: Do you see any emerging sectors or industries that could present significant opportunities for small and micro-cap investors in the upcoming year?

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Jenna Brashear
AAII Community Manager
Chicago, IL
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Jenna, it's pretty obvious to me that tech is THE area that is always full of ripe fruit. Of course, it still takes work to avoid picking the rotten pieces. Semiconductors as a subsidiary of general technology is a particularly good area to squeeze and sniff. 

I'm always on the hunt for profitable companies with top-line growth, regardless of their industry or sector, but I was sifting through the holdings in FTEC and VGT when I came upon a small semiconductor stock I decided to bag. I'm excited to report that last Tuesday, I bought a small stake in PLAB. The next day, its earnings came out a few pennies above estimates, and by the close on Friday, I was up over 36% in it! It makes me feel like a genius when that happens, but in reality it was blind luck. The true test will come much later, since I intend this to be a buy-and-hold investment.

I'm probably more often wrong than right about investments like this, but when I'm right, the magnitude of the results more than makes up for my goof-ups.

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Rob Adams
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Jeanna and Dr Bob (aka Darla and Spanky)

Happy New Year.

I stumbled on your new clubhouse for the microcap crowd because great minds evidently do run in the same channel.

I may not have much to contribute to this theme because I generally do not follow microcaps because …

so many economic dominoes need to tumble at the right angle, at the right time, to create enough inertia for microcaps fundamental to demonstrate "potential" price growth that attracts enough buyers to bid up their valuations and thus make it profitable to buy them. It is this domino effect that attracts investors and drives any potential for microcap growth.

I can provide some research that may prove helpful and can save time chasing rabbits down holes. 

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First, I went to my usual #1 source, the AAII website. Here is what I found. 

Search Results for "microcaps" All Securities Articles & Videos Screens Screens No results found. Articles & Videos No results found.

That surprised me, especially since I am familiar with at least one article on the AAII website (because I have read it) written by none other than the original AAII microcap champion - James Cloonan entitled "Winning With a Small-cap/Value Investment Approach." Why it is not "findable" is above my pay grade.  

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A follow-up digging hit paydirt. This list may look more familiar.

4 SCREENS

O'Shaughnessy: Small Cap Growth & Value Screen O'Shaughnessy tries to predict the future using historical long-term trends.

O'Shaughnessy: All Cap Screen Growth-at-a-reasonable-price screen created by James O'Shaughnessy.

Foolish Small Cap 8 Screen The Motley Fool's Foolish 8 method for investing in small caps looks for profitable and rapidly growing companies with strong price momentum.

Foolish Small Cap 8 Revised Screen The Motley Fool's small-cap screen with recent revisions they've made to update the screen.

6 ARTICLES

AAII Stock Screens 2015 Review: Small-Cap Wins During a Large-Cap Year JOURNAL ● Small Cap Value Investing, Feature, AAII Stock Ideas ● Wayne A. Thorp ● January 2016 Though the relatively flat year favored large-cap growth stocks, the Foolish Small Cap 8 came out on top. There was also a shake-up in the long-term performance rankings.

The Foolish Approach to Small-Cap Stock Investing JOURNAL ● Small Cap Value Investing, AAII Stock Ideas ● Wayne A. Thorp ● November 2007 The Foolish Small Cap 8 screen attempts to isolate profitable, rapidly growing small-cap firms using an approach originally developed by the The Motley Fool Web site.

The Foolish Approach to Investing in Small-Cap Stocks JOURNAL ● Small Cap Value Investing, AAII Stock Ideas ● Wayne A. Thorp ● November 2002 The Motley Fool's Foolish 8 method for investing in small caps looks for profitable and rapidly growing companies with strong price momentum.

Kirkpatrick Value Screen Investing model outlined in Charles Kirkpatrick's book, Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell.

Small Caps & Value Lead at the Mid-Point of 2006 JOURNAL ● Small Cap Value Investing, AAII Stock Ideas ● Wayne A. Thorp ● July 2006 A mid-year review of the screens tracked on AAII.com shows a reversal of last year's trend, with value strategies topping growth approaches, and small-cap screens outperforming mid- and large-cap strategies.

An Interview With Scott L. Scher, Portfolio Manager, CRM Small Cap Value Fund JOURNAL ● Small Cap Value Investing, Feature ● Maria Crawford Scott ● January 2002 Feature: A value approach to investing that seeks small-cap firms undergoing positive changes.

NOTE:  I still did not find a copy of the Cloonan article that I have on file. Help?

The Cloonan article looks like a great resource to help launch this blog. 

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BARRY JOHNSON
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Jenna, it's great that you are expanding the community topics with categories such as "small-cap investing," but it won't do much good if AAII members can't find it! It does not pull up under any of the menu options under the "Find a Community That Fits Your Needs" heading. I can only find it by going to the top menu on the "Welcome to the AAII Community" page, clicking on "All Communities," and scrolling down and clicking on "Special Interest Groups (SIG)." 

Can't SOMEBODY at AAII take an interest in making these message boards more usable, or at least not full of glitches!? 

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Rob Adams
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