From Mistake to Marketing Masterpiece
There has been much discussion on how Coca-Cola became so dominant. Could it be that it was all from a mistake?
3 min read
DGHM recently published a white paper on microcaps that studies microcap performance vs private equity and also analyzes microcap performance coming out of a recession. It’s important to note that for this paper DGHM defines microcap stocks as deciles 2-3 (mkt cap $275m-$894m), as decile 1 (sub $275m)
DGHM recently published a white paper on microcaps that studies microcap performance vs private equity and also analyzes microcap performance coming out of a recession. It’s important to note that for this paper DGHM defines microcap stocks as deciles 2-3 (mkt cap $275m-$894m), as decile 1 (sub $275m) contains companies that are “too illiquid” and below their breakpoint of their investable universe. Ahhh, that is a shame. Nonetheless I found the paper very well written and found value in reading it.
Microcap stocks are a unique group. They are under‐followed, illiquid and more volatile than their larger‐capitalized peers. That’s the bad news. The good news is that microcap stocks are under‐followed, illiquid and more volatile than larger companies. Generally these microcap companies are run by managers with higher inside ownership than their larger peers, and the companies’ operational success is leveraged more to the domestic economy. When compared to private equity, microcap stocks offer better liquidity and employ lower leverage. They also report returns that more appropriately represent the investments’ economic return than the Internal Rate of Return (IRR) calculations used by private equity funds, according to a recent academic paper
DGHM is a fundamental, value-driven equity investment manager utilizing a disciplined approach to purchase high-quality companies at compelling valuations. We believe this tradeoff results in superior performance over the long run. DGHM was founded in 1982 and currently manages $1.5 Billion* for institutional and high net worth clients across the capitalization spectrum.
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There has been much discussion on how Coca-Cola became so dominant. Could it be that it was all from a mistake?
In 2000, Intuitive surgical raised $46 million in its IPO. In 2001, ISRG hit a low of $131 million market cap, and today is a $70 billion market cap. ISRG stock has risen 9,800% since its IPO.
An alternative lesson to draw from his study is that microcaps are fine but nanocaps are the ticket to wealth; you just have to be poor enough to buy them.