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Smallcaps - the Myths, the Facts, the Art of Investing, and More... - Views on News from Equitymaster

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The Equitymaster Research Digest

Smallcaps - the Myths, the Facts, the Art of Investing, and More...
Jan 25, 2016

The clock has been turned back.

The Sensex is back to the pre-Modi era... The Smallcap index has touched 52-week lows...

This has indeed been a year of reality checks...and of contradictions in the smallcap space.

My team and I regularly run screeners for smallcaps...to see if we can identify potential multibaggers early and recommend them in our Hidden Treasure service. Our screeners are based on clear fundamental filters such as leverage, management track record, returns on capital and so on.

A few days ago, I came across an article in a financial daily highlighting the gains of some smallcap stocks. Some of the best returns last year were offered by stocks in this class. This got me really interested...

You see, I had never come across some of the names in my search for the next best smallcap stock. And others I distinctly remember rejecting.

Had my team and I missed something?

So I checked the performance of these companies.

The Other Side of the Story...

A lot of these stocks have no moat and belong to commoditised industries. The ones with the highest valuation gains were stocks we wouldn't touch with a 10-foot pole - not just because of valuations, but because they fail some of the most basic filters.

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