Value investing through smaller capitalized companies.
Merrits to smaller company investing often leaves out the most compelling reasons. The case re-stated.
There are various news letters and magazines out there pointing out the merits around smaller cap and mid cap investing. Meaning, these pointing out the various investor advantages and risks associated, when considering investing in shares in smaller and medium sized listed companies. Especially so when investing into Emerging Asian markets.
What these articles never point out, is the huge market in-efficiency around these smaller cap stocks. Why are they so undervalued, as compared to larger companies? Why do these deliver above average dividend yields along with higher then market averages growth rates? Yet at the same time, many smaller cap companies here are true leaders in their respective important industries, this especially so in Thailand. So why such a p/e discount valuations attributed to smaller yet higher growth firms? Finally and not least, why have they been overall and for years, such good performance stars?
The real reason is because most all institutional investors must ignore these. They must do so (at their own peril), strictly and only because of company size! Market cap. is the magic word and all institutions have clear cut-offs, strictly based on market capitalization. Hence most of these smaller "jewels" are totally off the radar screens by the global and local institutions. This, along with the many day traders here in Thailand, has so over many years nurtured into an inefficiently priced stock market.
Where smaller growth stocks, with high dividends, can be owned at a fraction of the p/e ratio and this, as compared to larger cap stocks with their lower growth rates and dividend yields.
Only by also addressing these reasons, can one point-out why it makes sense for individuals to invest for the medium term in smaller cap's. Its the key/core concept which give rise to such superior returns. I am afraid the gnomes of larger cap's in news organization will not want to expose something which is not in their broader interest? And in fact points out to their own inherent weaknesses in getting to own the real growth companies in Asia. (This along with low financial leverage (debts), as compared to so many Western companies).
Hence an article, addressing these real reasons, would invariably be chopped up or smoothed over by large business news editors. I leave it up to readers to find me here and learn all about this very market-inefficiency to be explored here. Entrenched in market in-efficiencies which we the individual investors can explore.
As many are starting to know, its been a long road to investor success here and we can help you as well in getting going.
Best Regards,
Paul Renaud.
