There is no value in small caps at the moment

[Huskar]

I recently read an interesting piece arguing that there is no value in small caps at the moment because in this space you are competing with the private equity guys and with their expertise they would have spotted the value already.

http://brontecapital.blogspot.com.au/2012/02/why-i-do-not-like-small-cap-stocks-much.html

Would be interested to hear people's thoughts?

The immediate reaction is: surely as an individual investor I cannot compete with the instos and therefore want to be in small caps where liquidity/size restrictions etc keep the big players away. Furthermore, I want to be in those "dark corners" of the market where no one else is and mispricing abounds.

But what if small caps, on the whole, show little value at the moment? Does this change your strategy?

 

[tech/a]

I recently read an interesting piece arguing that there is no value in small caps at the moment because in this space you are competing with the private equity guys and with their expertise they would have spotted the value already.

http://brontecapital.blogspot.com.au/2012/02/why-i-do-not-like-small-cap-stocks-much.html

Would be interested to hear people's thoughts?

The immediate reaction is: surely as an individual investor I cannot compete with the instos and therefore want to be in small caps where liquidity/size restrictions etc keep the big players away. Furthermore, I want to be in those "dark corners" of the market where no one else is and mispricing abounds.

But what if small caps, on the whole, show little value at the moment? Does this change your strategy?

Trade technically opportunity abounds.

 

[skc]

Are they referring to ASX or the US market?

They defined small cap as $200-500m... which is probably mid cap by Australian standard. I think <$100m is small cap for Australia.

There are way too many small caps than there are private equity guys in suits.

Plus... it's like saying "You will never find a $100 note by the sid eof the road because it would have been picked up already". Hmmm - that's not what the guy who picked up the note has just experienced.

Personally I think there are value in the small cap space... just need the market to agree with you sometimes. Ask a recent LDW holder.

 

[wayneL]

Trade technically opportunity abounds.

+1

Value is illusory, price (and trend) is real.

 

[skc]

+1

Value is illusory, price (and trend) is real.

Not illusory. Just inconstant - much like price and trend.

 

[wayneL]

Not illusory. Just inconstant - much like price and trend.

Point taken, in some cases. In other cases - WHAT VALUE?

 

[pixel]

Trade technically opportunity abounds.

+2
yeah, what tech/a said :
If an insto finds a "hidden nugget" ahead of others, he usually tries to keep it all to himself and hides his interest behind 'bots, /U's and similar ruses.
If a private trader discovers such a gem, more often than not, he gets excited and starts buying; sometimes he tells his mates; that's how t/a traders pick it up and join in the fun.

 

[nulla nulla]

Trade technically opportunity abounds.

+1

Value is illusory, price (and trend) is real.

+2. Trade the volitility, opportunity abounds, work the trends.

 

[McLovin]

Are they referring to ASX or the US market?

They defined small cap as $200-500m... which is probably mid cap by Australian standard. I think <$100m is small cap for Australia.

There are way too many small caps than there are private equity guys in suits.

Plus... it's like saying "You will never find a $100 note by the sid eof the road because it would have been picked up already". Hmmm - that's not what the guy who picked up the note has just experienced.

Personally I think there are value in the small cap space... just need the market to agree with you sometimes. Ask a recent LDW holder.

Bronte doesn't trade in Australia, even though the guys are based in Bondi Junction, so it's definitley about the US.

I'm a big fan of John Hempton but I think he missed the mark a bit in that blog.

I agree with you about there being plenty of value in small caps at the moment.

 

[ROE]

Why do you need to compete with someone in investing?
Investment is not a game where the guy with high IQ or with lot of money beat the guy lower IQ and less money

you just find the business you like, you understand, sell at price you happy to hold for
a long time and that is

winter, summer, autumn will comes you get dividend twice a year and hopefully growing each year.
I'm looking at one right now there is barely any buyer and barely get a mention on here but in 2 years times it may

 

[Chasero]

I recently read an interesting piece arguing that there is no value in small caps at the moment because in this space you are competing with the private equity guys and with their expertise they would have spotted the value already.

http://brontecapital.blogspot.com.au/2012/02/why-i-do-not-like-small-cap-stocks-much.html

Would be interested to hear people's thoughts?

The immediate reaction is: surely as an individual investor I cannot compete with the instos and therefore want to be in small caps where liquidity/size restrictions etc keep the big players away. Furthermore, I want to be in those "dark corners" of the market where no one else is and mispricing abounds.

But what if small caps, on the whole, show little value at the moment? Does this change your strategy?

MAD

NWE

DLS

AGI

etc etc.

Everyone's trying to find the next MAD.

There's plenty of stocks that have done SUPER well in the last 4 months.

 

[So_Cynical]

There is no value in small caps at the moment

Bollocks....lots of value and some great double digit gross yields on offer.

https://www.aussiestockforums.com/forums/showthread.php?t=24409&p=688353&viewfull=1#post688353

 

[Garpal Gumnut]

I recently read an interesting piece arguing that there is no value in small caps at the moment because in this space you are competing with the private equity guys and with their expertise they would have spotted the value already.

http://brontecapital.blogspot.com.au/2012/02/why-i-do-not-like-small-cap-stocks-much.html

Would be interested to hear people's thoughts?

The immediate reaction is: surely as an individual investor I cannot compete with the instos and therefore want to be in small caps where liquidity/size restrictions etc keep the big players away. Furthermore, I want to be in those "dark corners" of the market where no one else is and mispricing abounds.

But what if small caps, on the whole, show little value at the moment? Does this change your strategy?

This is the small ords

2160 to 2440 since late Sept 2011

280/2160*100 = 13%

This is the asx 50

3880 to 4160 since late Sept 2011

280/4160*100 = 6.75%

The volume comparison is no greater over this time period for the small ords vs the ASX 50, which would indicate the instos have not been over favouring the smalls. So I guess it's not true for the ASX.


gg

 

[Huskar]

Thanks for all replies. Even if the statement is wrong I like such counter-intuitive ideas most are inclined to dismiss out of hand. It makes you think .

Trade technically opportunity abounds.

I try to be Protean in my approach to the stockmarket but have a lot of unlearning to do, having begun as a staunch Buffetologist. This is not to say I don't still try and invest fundamentally, just that I have a lot to learn from those more technically minded esp re risk management.

Why do you need to compete with someone in investing?

This is an interesting point deserving a separate discussion. I think it depends on your time frame. The shorter your time frame the more each tick matters on your entry and exit, therefore the more important it is to beat the other guy into/out of those positions. Whereas if your holding period is longer then you are less worried about one or two ticks than taking a position at a reasonable price. In such a case I agree there is much less competition.

On the other hand you should always be competing against someone - benchmark, absolute savings measures or even yourself. Because only with a measurable performance can you learn and improve or, if it comes to it, realise your time is better focused elsewhere and handing the job over to someone else. My .

 

[tinhat]

Is there an accepted definition of what a small cap is on the ASX? Whereas the Small Ordinaries comprises those companies which are in the ASX S&P300excluding those which are in the ASX S&P100, I would imagine that any company not in the ASX S&P300 would be small cap?

 

[Gringotts Bank]

Grappling Numbnuts has hit the nail on the head with those charts.

On 'Inside Business' this morning they showed the exact same scenario. In addition they showed a shift of money from the miners and into industrials, and also away from Aus-China story, and into American markets. They also talked a little bit about how uranium is not the way forward and how Germany and Japan and no longer interested in it as a power source.

I think if you add all this up, the conclusion for long term investors is fairly clear.

Look to the US small cap industrial stocks, perhaps in new energy technology.

 

[subi1]

Grappling Numbnuts has hit the nail on the head with those charts.

On 'Inside Business' this morning they showed the exact same scenario. In addition they showed a shift of money from the miners and into industrials, and also away from Aus-China story, and into American markets. They also talked a little bit about how uranium is not the way forward and how Germany and Japan and no longer interested in it as a power source.

I think if you add all this up, the conclusion for long term investors is fairly clear.

Look to the US small cap industrial stocks, perhaps in new energy technology.

For an energy alternative to Uranium check this out:

http://www.buruenergy.com.au/getfile/640.pdf

 

[Vixs]

We've got plenty of empty space....we've got plenty of uranium...we've got minimal seismic activity...

Any reason we can't plonk a big nuclear reactor in the middle of nowhere with a water source not upstream from farms? We dig it up, we use it. We benefit from cheaper energy.

Any nuclear incidences? Bugger, there goes some desert we can't use for 200 years.

On topic: they are interesting charts GG. A surprising trend given the overall uncertainty we keep hearing about.

 

[tinhat]

We've got plenty of empty space....we've got plenty of uranium...we've got minimal seismic activity...

Any reason we can't plonk a big nuclear reactor in the middle of nowhere with a water source not upstream from farms? We dig it up, we use it. We benefit from cheaper energy.

Any nuclear incidences? Bugger, there goes some desert we can't use for 200 years.

On topic: they are interesting charts GG. A surprising trend given the overall uncertainty we keep hearing about.

Most of the expense of electricity is in the distribution infrastructure.

You've mentioned water. That's the other big requirement for steam powered generators - lots of cooling water.

Big power stations (near to coal supply, water supply) are not the model going forward.

If transmission infrastructure costs weren't so huge we could already be utilizing hot rock energy for electricity production.

Liquid Fluoride Thorium Reactors, once they become a commercial reality will be able to be deployed as small scale power plants near to the point of demand.

Gas turbine small scale generators, designed smartly to capture waste heat and used for cogeneration can also be economical in the interim.

If the market were structured properly so that coal generated electricity were made to cross-subsidise the redesign of the grid to better handle feed in of solar power at the retail end of the grid, solar would might be quite efficient too, even with current technology. I don't know much about this though. Talking through my hat.

 

[Vixs]

Most of the expense of electricity is in the distribution infrastructure.

You've mentioned water. That's the other big requirement for steam powered generators - lots of cooling water.

Big power stations (near to coal supply, water supply) are not the model going forward.

If transmission infrastructure costs weren't so huge we could already be utilizing hot rock energy for electricity production.

Liquid Fluoride Thorium Reactors, once they become a commercial reality will be able to be deployed as small scale power plants near to the point of demand.

Gas turbine small scale generators, designed smartly to capture waste heat and used for cogeneration can also be economical in the interim.

If the market were structured properly so that coal generated electricity were made to cross-subsidise the redesign of the grid to better handle feed in of solar power at the retail end of the grid, solar would might be quite efficient too, even with current technology. I don't know much about this though. Talking through my hat.

As always if the solutions to the problems were as simple as I thought, they probably would have been solved by now. There are some really interesting things happenning in the energy sector.