The Quicker the Rise, The Harder the fall

One of the attractions of microcap investing is finding multibaggers, stocks that have increased in value of 2X or more.

Your odds of finding them in microcaps, compared to large caps, are generally higher. In 2024, 15 microcaps returned 4X or more. No stocks in the S&P 500 achieved that level of return.

While there is a higher chance of finding multibaggers as microcaps, there is also a cost, higher volatility.  

One of the more painful forms of volatility is max drawdown — the peak-to-trough decline during a stock’s ascent. On their path to multibagger status, microcaps have historically experienced larger drawdowns than their large-cap counterparts (noting the smaller sample size for large caps).

Trailing drawdown is one thing. But if the saying “the quicker the rise, the harder they fall” holds true, then high performers may also face elevated future drawdown risk.

In our sample, that is exactly what has occurred.

Essentially, the higher or quicker the bagger, the larger the subsequent 1-year drawdown — exceeding 50% in this case. These declines can be gut-wrenching. Some stocks recover and continue their ascent, others do not.

So what is driving these drawdowns?

Which category of bagger (1 year 2x, 3x, 4x, 5x baggers) produces the best long-term (10-year) returns?

I answer these questions in the full report which is on our community. Not part of MicroCapClub?

_{MicroCapClub is an exclusive forum for experienced microcap investors to share and discuss microcap companies (sub $1 billion market cap) trading on global markets. Since 2011, our members have profiled 1400+ microcap companies, 300+ have turned into multi-baggers. Investors can join our community by applying to become a member or subscribing to gain instant access. For more information, visit https://microcapclub.com/}