The investment markets are undergoing major turmoil, yet some of the changes that are taking place have been happening for a while.The problem is that most people have either ignored or not paid attention to some of these changes until it bit them in the wallet.We hear the media talk about the unprecedented and unexpected occurrences of the past year or so (the housing market collapse, and the financial fiasco that resulted from the questionable debt and derivatives), however there were plenty of us who were paying attention and saw it coming.There is plenty of blame to go around; however the simple facts are that the markets are always evolving (hopefully for the better).
While I am not a professional analyst or broker (will get into my background more in the future, including my education and experiences), I do have enough of a background to know that our current investment system is a bit messed up, as I will explain in upcoming blog posts.However I also see some tremendous potential in this current market environment, as the system will improve as it usually does and will hopefully become more viable in the process.While the markets are pretty beaten down right now, there are some great opportunities out there right now.Not all companies are in as bad a shape as their current price or market value may indicate.It’s just a matter of learning to recognize those that are strong from those that are not and then buying those that due to falling into the beaten down category are strong enough to recover relatively quickly when things do turn around.
The intended focus of this first blog-post is the changing investment environment.While the media tends to focus on the fortune 500 or the Dow Jones Industrial Average and other large cap companies, most growth tends to come from small caps.It is also a well documented fact that when the stock markets improve during the early stages of an economic recovery that the small caps tend to provide the best gains, or for that matter over the long haul small caps tend to provide better gains.Then there is the issue of a larger and larger portion of the economy and workforce (both here in the U.S. as well as worldwide) is made up of small cap companies, while the portion of the economy and the work force that is comprised of the big caps has been shrinking for quite a while.
Another factor that seems to be speeding up this process is the fact that most big companies are now starting to subcontract a fair portion of their needs out to smaller companies.Thus these small companies that provide products and services to the big companies are increasing their importance in the world economy.There is also the speed with which smaller companies can change direction or modify their business plans and the speed at which they can adapt to changes in the business environment, whereas the big companies tend to be very slow moving and are often times slow to implement new technologies, despite the efficiency that the big companies have had in the past with lower overhead costs.Of course when it comes to overhead costs, the salaries made by the heads of the biggest companies are getting very high and as such that smaller portion of overhead has been shrinking due to these very fast rising salaries.
This is where the term Fragenomics™ comes into play.The economics of the world are becoming more and more fragmented, with smaller companies becoming a larger portion of the overall equity pie.The term was actually coined by Philip Verges (and used here with his permission) in a White Paper that he wrote and that was released through, NewMarket Technologies, where he serves as the CEO.This white paper was very interesting reading as it covers a lot of the ideas that I presented here and has served as part of the inspiration behind this blog.I had been toying with the idea of creating this type of a blog focusing on analysis and investment opportunities related to small-caps for some time, but reading the ideas that he presented and seeing how much they overlapped my own ideas got me thinking more about the idea.
This paradigm shift in the business and equity environment is still in its early stages, although it has been evolving for quite some time now.One of the key drivers behind how it is viewed and invested in is the advent of the internet, which now allows the average investor the ability to keep up to date and to track down information that had previously been very difficult to get a hold of.This has resulted in faster access to meaningful investment information.It has also resulted in the development of online-accessible “discount brokers”, many of which provide the needed services at a lower price than the supposedly “full service brokers” who often-times end up limiting what you can invest in.These allow for the average amateur investor to have massive amounts of valuable information at their fingertips and be able to make trades at a moments notice.Admittedly this also tends to result in more volatile markets as well as an increase in panic sales.While the markets have become more responsive and more efficient, there is still plenty of room for good buys to not be noticed for extended periods of time due to the massive numbers of publicly traded companies that populate the markets now.
The ever increasing speed of technology advancement and needed nimbleness of small caps when combined with the immediate info available via the internet allows for a much faster paced market.Where the old long-term buy and hold mentality is becoming outdated and the slow capital appreciation focus does not work as well as it used to.But with this faster paced environment the focus has been changing to more of a milestone theme.Where an investor can see a quick and liquid return based on the next short-term success of a company and where the next misplaced step occurs it can provide a great buy-in point for a solid company that sees a short-term dip in its stock price.
Now don’t get me wrong, there are still reasons to follow the old tried and true value investing principles, as over the long haul it has proven to deliver the best returns for those who are patient and disciplined enough to follow that route.Personally a portion of my investments utilize a value investing strategy, so I am a firm believer in it.However one must recognize that in this new faster paced market, being able to monitor information and move quickly can provide for some great returns also.I’m not recommending that most people become day-traders, as while a lot of day traders do well, the majority end up not getting very far ahead over the long haul, as by trading frequently you are drastically increasing the commissions you are paying due to the large number of trades that are made.
Thus what I recommend is a combination method, where intrinsic value is the backbone but yet milestone investing is also a major factor.Also there is the old adage of value investors that you need to see a 10 year track record of a company before it is worth even considering, however in this day and age, a company can go through 2-3 up and down business cycles within a decade and some companies have gone from being small-caps to being large-caps in under a decade.I will strive to provide information and education on how to evaluate small caps from a variety of viewpoints (value, milestone, groundbreaking technology, and paradigm shifting business models) in this blog, as well as also occasionally covering and analyzing companies that I feel have a lot of potential based off of the above.I also encourage anyone who reads this to post comments and suggestions (be brutally honest with me) regarding my ideas and concepts as well as in recommending companies for me to take a look at and evaluate using the methods that I utilize.
