Men’s
Journal always has an interesting interview at the end of every issue.
Readers can often times find sound advice for investing in it.
The
interview with James Lee Burke, the Southern noir master, was no different. He
was asked what kept him going after repeated rejections for a novel. Mr. Burke
responded, “Years ago a Franciscan theologian told me, “Don’t keep
score. Just bear down on the batter, one pitch at a time, and toward the top of
the ninth, you’ll be pleasantly surprised at the arithmetic on the
scoreboard.”
Here
are three reasons it is easier to “bear down” when owning small-cap stocks.
The
business model is easier to understand.
Warren
Buffett, the legendary investor who is worth over $50 billion, stated
in an interview in Fortune that
he learned more from owning See’s Candies, a $25 million buy, than from
his investment in large companies like Coca-Cola or ExxonMobil.
The reason: “It’s one thing to own stock in a Coca-Cola or something, but
when you’re actually in the business of making determinations about opening
stores and pricing decisions, you learn from it. We have made a lot more money
out of See’s than shows from the earnings of See’s, just by the fact that it’s
educated me.”
It
is easier to tell if it is a great business.
In
the spring of 2008, Goldman Sachs (NYSE: GS), Citigroup,
and a lot of other Wall Street firms sure looked great. Now around $170,
Goldman Sachs was over $200 a share in May 2008. About a year later, the
American taxpayer had to save Wall Street and some $10 trillion later, that
help is ongoing. But great small companies like See’s Candies and Metropolitan
Movers have never needed bailouts. While Wall Street firms rattled the tin
cup, Metropolitan Movers won awards.
Small
businesses can carve out lucrative niches in areas where giants such as
Coca-Cola operate.
In
an article on Benzinga, “5
Smaller Beverage Companies Gunning for the Big Boys,” the author
detailed how small-cap beverage firms like High Performance
Beverages have, “caught the giants sleeping by developing newer
offerings, such as the now ubiquitous energy drink. The smaller companies
experiment with new tastes and formulations that the giants are too afraid to
try.”
Success
in a profitable area is much easier to notice in a See’s Candies, Metropolitan
Movers or High Performance Beverage than it is in a Coca-Cola, ExxonMobil or
Citigroup. From there, it is easier to “bear down” on when, where,
and how to invest. As Warren Buffett has demonstrated, investors will be more
than “pleasantly surprised” with the results!
Read more
Benzinga.com small-cap articles: http://www.benzinga.com/news/small-cap
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and the opinions contained therein do not necessarily reflect
those of Smallcappower. Smallcappower does not endorse any investment
advice provided by these third-party contributors. Please consult
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