Description
Book SynopsisThe Micro Cap Investor
Learn how today''s smartest investors are discovering opportunities--and reaping profits--ahead of the Wall Street pros
Micro cap stocks are all but ignored by professional investors who can''t risk losing their companies'' clients--and their own careers--to the sudden volatility and price swings that are common to the micro cap market. But it is just that volatility, plus their proven record for outperforming large cap stocks over the long term, that makes micro caps perfect for independent investors looking for market-beating returns.
The Micro Cap Investor takes a behind-the-scenes look at this exciting sector to:
* Detail a market-tested process for uncovering and investing in micro caps with the greatest potential to outperform the market
* Reveal the ten key catalysts that take under-the-radar micro caps and propel them into the public spotlight
* Explain how smaller investors can use the information
Table of ContentsPreface ix
Acknowledgments xi
Chapter 1 Characteristics of Micro Cap 1
The Nebulous Micro Cap (What Is a Micro Cap Stock?) 1
The Micro Cap Dilemma (Why Do They Exist?) 5
Chapter 2 The Information Advantage 13
Understanding the Information Advantage:
Efficient Market Theory 13
Weak-Form Efficient Market Theory 15
Semi-Strong-Form Efficient Market Theory 16
Strong-Form Efficient Market Theory 16
The Random Walk Theory 17
The Practical Answer 19
Venture Capital Theory 21
The Public-Private Bridge 22
Conclusion 24
Chapter 3 Micro Cap Stocks as an Asset Class 25
Investment Performance: Small versus Large Stocks 25
A Survey of Modern Portfolio Theory 26
Asset Allocation and Modern Portfolio Theory 33
Asset Allocation and Micro Caps 34
Economic Linkage 39
Venture Capital and Private Equity 39
Micro Cap versus Venture Capital 41
Chapter 4 The Micro Cap Asset Class and Portfolio Construction 45
Micro Caps in the Portfolio Asset Allocation 46
The Portfolio Contribution of Micro Caps 47
Conclusion 50
CHAPTER 5 Using the Information Advantage 51
Methods to Evaluate Principal Agent Actions 51
Management, Management, Management 52
Who’s Doing What: Insider Information 53
Management Style 59
Strategy and Planning Systems 59
Management Changes 61
Management Reputation 62
How the Company Develops and Promotes Employees 62
Conclusion 63
Chapter 6 Corporate Governance 65
The Company’s Social Relationships 67
Information Resources 68
The Company 69
Competitors 70
Customers 70
Suppliers 70
Trade Associations 71
Industry Professionals 71
Legal Documents 71
Public Company Federal Filings 72
SEC Reports 73
Annual Report Form 10-K 74
Quarterly Report Form 10-Q 77
Material Current Events Form 8-K 77
Not All Reporting Is Equal 78
CHAPTER 7 Micro Cap Stocks and the U.S. Domestic Economy 81
Why Micro Cap Stocks Appear Cheap Relative to Large Stocks 82
Fundamental Valuation Techniques for Micro Cap Stocks 89
Basic Financial Analysis of Micro Cap Companies 90
Price-to-Book Ratio 91
Price–to–Free Cash Flow Ratio 92
Low Price-to-Earnings Ratio 93
Conclusion 93
Chapter 8 Micro Cap Case Study: A Company with All the Indicators 95
Smart-Money Owners 96
Cheap Valuation 96
Skin in the Game 98
The Transaction 101
Chapter 9 Consolidating Industry Case Study 107
Case Study of Suiza Foods 108
Other Opportunities 116
Chapter 10 Gehl Company Case Study 133
Chapter 11 Pozen Company Case Study 147
Chapter 12 Private Investments in Public Equities (PIPEs) 155
Tracking PIPE Transactions 159
A Brief Case Study of a PIPE Transaction: Ptek Holdings 161
Chapter 13 A Framework for Investor Action 167
Chapter 14 Micro Cap Fund Investing 173
Index 181
