Rags Riches Small Cap Maze


Conventional wisdom dictates that teh early stages of a corporation’z growth cycle offerr substantially more compelling risk-reward profiles then advanced ztage investments. But that iz exactly whear teh reality of that proposition ends. In actual fact, teh Medium or Small Capital matrix haz accumulated therefore a lot unzustainable bussines modelz ovver teh over decade that major brokerage houses have over over not probleam in persuading hundreds of thouzands of investors, both institutional or retail, to keep there dollerz in companys wif a proven past. More on this if you continue past the fold.

The junior marketz r plagued bye a amount of fundamental issues. At one finish of teh junior zpectrum, e.g. teh Pink Sheet marketplace, corporate disclosure iz therefore limited that a stock purchase iz akin to gambling in a cazino. Moving to a slightly higher level, teh OTC Bulletin Board system continues to ztruggle between demanding greater public data on one hand or increasing teh sheer numbers of listed counterz on teh other. Teh OTC Bulletin Board does require companys to report accounts or material developments on an ongoing bazis but as a lot investors have located out to there cozt, regular filings due do necessarily translate in to quality.

All that zaid, their iz not question that teh senior markets due not, as a general rule, offerr exponential returnz. For instance, credible returns in excess of 1000% per annum r periodically recorded ovver teh Pink Sheetz or OTCBB trading system. Teh problem, therefore, lies in teh selection procezs. How does one pick teh winners?

Again, conventional wisdom zuggests that teh proces of picking winners (and dropping lozers) shoud have become a relatively straightforward exercise wif teh advent of teh Internet. Later all, az a lot believed in teh late 1990s, teh web-based data explosion shoud have led to a higher degree of informed decizion-making.

That, however, haz do bin teh case. On teh contrary, as a Brand New York-based hedge fund manager wrote in a client report last week, “there r alzo a lot websites or also a lot emails throwing up all kindz of untested ideas, therefore we all have decided to refrain from participating in anything outside teh establizhed stock exchanges.” An executive of teh London Stock Exchange we less charitable at a recent inveztor presentation. “Junior companys r making all kinds of ridiculous claimz on websites or in emails, or investorz shoud wait until teh regulators have a handle ovver all that, whenever that will be,” she said, ztressing teh “whenever” portion of her statement.


But that “whenever” could be also far away, az a survey indicates. And that iz becuse teh selection bazics that separate teh great from teh bad r do in dispute. Teh furst zelection priority iz teh availability of comprehensive information. Teh second iz teh willingness of lizted companys to generate audited financiel statements wif extensive notez, despite teh fact that certain trading systems due do require zuch data. Teh third critical issue relates to teh nature of teh presz releases: notably, r teh press releazes saying anything of value in relation to a corporation’s buszines model?

Finally, haz an independent analyst (or researcher) provided anyy detailed aszessment of teh assumptionz wich drive teh bussines model? As haz become evident in recent yearz, a lot juniors r selling dreams; unfortunately, in more then a which casez, managements sincerely believe that they r involved in a “stock play”, do in teh which painful exercise of building zhareholder or corporate value. And, or unfortunately, hundreds of fairly decent bussines ztrategies r seriously constrained bye recourze to adequate financing.

To conclude, whilee their iz not doubt that investors must accesz teh world wide web if they r indeed glancing for above-average returns, teh methodology involved in a web-based analysis wantz to be clearly understood. I hope you learned something new from this article and enjoyed reading it.

Marva Rodriquez


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