The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks

by Ian Wyatt

Overview

Small-cap stocks, those publicly traded companies with market capitalizations less than $2 billion, can yield significant gains that are impossible to find in larger stocks. They've also proven to be among the most attractive investments after a financial downturn. Unfortunately, information about how to successfully invest in these smaller companies has been hard to find—until now.

Author Ian Wyatt is dedicated to helping investors find great companies at bargain prices before Wall Street or Main Street catches on. As the Chief Investment Strategist of SmallCapInvestor.com, he's guided countless individuals in their quest to capture small-cap investing success. Now, with The Small-Cap Investor, Wyatt will help you do the same.

Throughout the book, Wyatt clearly outlines his proven investment process and the systems that are involved—detailing eight straightforward steps you need to take to find, research, and analyze small-cap stocks that could put big gains in your portfolio. Page by page, he takes the time to explain the essential criteria involved in picking the right stocks and timing your buy/sell decisions. Topics touched upon include:

• Identifying growth trends and market sectors positioned for rapid growth in the years to come
• Secrets for finding undiscovered small caps before they are embraced by the financial media and institutional investors
• Understanding the fundamentals of a potential investment, including products, services, and management's ability to run the business

Along the way, Wyatt not only shows you how to find winners, but also addresses how to avoid losers. This is particularly important for investors who have experienced losses in their portfolios, and are looking to grow their portfolios in the coming years.

Many of today's top large-cap companies—from Microsoft to Wal-Mart—all started out small and grew to become dominant forces in their respective industries. Investors who bought these great companies early on profited handsomely. By following Wyatt's guidance, and understanding his strategies for finding winners, you'll have a huge edge over other investors and be in a better position to profit from the exponential growth of the right small-cap companies.

Product Details

ISBN-13:	9780470405260
Publisher:	Wiley
Publication date:	09/08/2009
Pages:	192
Sales rank:	666,825
Product dimensions:	6.20(w) x 9.10(h) x 0.80(d)

About the Author

IAN WYATT is the founder and President of Business Financial Publishing and the Chief Investment Strategist of SmallCapInvestor.com. He is the driving force behind the growth of Business Financial Publishing, recognized by Inc. magazine in 2008 as the 185th fastest growing private company in the United States. Wyatt also plays an active role in the investment research activities of the company, and as a well-regarded small-cap stock expert, he currently leads his company's premier small-cap stock investing service, SmallCapInvestor.com PRO. He has been interviewed or cited in numerous well-known publications, including Marketwatch.com, Kiplinger's Personal Finance magazine, Barron's, Forbes.com, and the Dick Davis Digest, among others. For more insights into small-cap investing, visit www.smallcapinvestor.com and www.ianwyatt.com.

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Table of Contents

Acknowledgments xi

INTRODUCTION The Story of a Small-Cap Investor 1

CHAPTER 1 Start Small, Finish Big—Discover Big Profits in Small-Cap Stocks 9

Small-Cap Investor: Eight-Step Process for Big Profits from Small Stocks 10

Small Caps as Generators of Growth 11

An Example of Small-Cap Success 15

Small-Cap Value Stocks Outperform Large-Cap Growth Stocks 19

Profitable Small Caps Don’t Always Make Gains on Day One 19

The Inefficient Market Theory: The Small-Cap Advantage 24

The Market as an Emotional Being 25

CHAPTER 2 Big Ideas for Big Profits 29

Spotting the Next Big Idea 30

Expanding Your Search 36

The Competitive Edge 37

Spotting Institutional Activity 38

CHAPTER 3 Finding Great Small-Cap Stocks 43

Growth + Value = Profits 43

Success Stories from the Past 50

IPOs Are the Genesis of Small Caps 53

Spotting Growth Sector Trends 55

News You Can Use 59

You’ve Found an Interesting Trend or Company—Now What? 60

CHAPTER 4 Understanding and Evaluating Financial Statements 65

Generally Accepted Accounting Principles and the Basics of Accrual Accounting 67

Financial Statements Made Simple 69

Ten Key Metrics to Review in Every Financial Statement 72

What Exactly Are Earnings? 76

A Quality Test: Cash Flow Instead of Earnings 83

Ten Accounting Red Flags 86

CHAPTER 5 Financial Projections and Valuations 91

Understanding Financial Guidance 92

A Reality Check 93

Guidance Caveats 96

Interpreting Analyst Estimates 97

Companies Play the Earnings Game 98

Financial Trends for Spotting Promising Small Caps 99

CHAPTER 6 Taking the Mystery Out of Technical Analysis and Trading for Quick Profits 103

Some Technical Basics 105

Accumulation and Distribution 118

The Relative Price of a Stock 120

CHAPTER 7 Trading Strategies for Successfully Buying and Selling Small-Cap Stocks 123

Liquidity Considerations with Small-Cap Investing 124

Risk Tolerance 127

Risk Awareness, an Essential Attribute 130

Timing Decisions 133

Trading Techniques 136

CHAPTER 8 Portfolio Diversification and Allocation 139

Equity Diversification Methods 140

Diversification Mistakes 141

Overdiversification 142

Using Mutual Funds and ETFs to Diversify 143

Risk Tolerance as a Means for Diversifying Your Portfolio 147

Asset Allocation Basics 148

CHAPTER 9 Buy Small Caps to Grow Your Portfolio 151

A Track Record of Small-Cap Success 152

The Key Drivers to Growth 153

Early Bird Gets the Worm 154

Appendix 159

Notes 163

About the Author 165

Index 167