I did a google search for micro cap this morning and one of the top news pieces is Wall Street Eugenics: SEC Charges Microcap Fraud. The author has a clear disdain for micro cap and those that invest in the space, as he says “please take them [micro cap stocks] – take them out the middle of the ocean and dump them. All of them.” I’ll be the first to admit, investing in micro cap isn’t easy. In fact I would say it’s the hardest of the investment classes to make real money in. The reason it’s hard is because in most cases, you are betting on the jockey (CEO), and his or her ability to raise capital to execute the business plan. This makes your bet on most micro caps as much of a qualitative decision then a quantitative one. Most experienced investors can’t handle this. They are used to making their investment decisions on pure quantitative analysts whether that’s TA, TTM financial data, etc.
I agree that some new regulations on micro cap are needed, but why not do the most obvious ones such as taking all the NON-Reporting (non filing) micro caps and dumping them into the middle of the ocean.
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