🥭 The Mango Strategy
The secret of small caps
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This is part of an exclusive behind-the-scenes newsletter.
Which one? Tiny Titans. These are companies that have the potential to go from Tiny to Titans over time.
It’s like finding the next Apple or Monster Beverage.
You want to join Tiny Titans on the 9th of June? Discover here whether Tiny Titans is something for you.
The biggest return you can make as an investor?
Investing in a company that can go from Tiny to Titan over time.
It’s like investing in Amazon. But then 25 years ago.
Let’s dive into everything you need to know.
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Why Microcaps?
Microcaps have created some of the biggest stock market winners in history.
If you invested $1.000 in 1928, here’s what you’d have today:
Large caps: $8.7 million
Small caps: $430 million
Micro caps: $870 million
High-quality small & micro caps: $1.26 billion
The difference is just ridiculous.
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How can this wild outperformance exist?
Market inefficiency.
Mr. Market sometimes acts strange.
When he tries to value a small-cap stock, he goes completely crazy.
As a rule of thumb: the smaller the stock, the more inefficient the market.
The reason for this?
Big players like mutual funds and hedge funds are too big to buy small cap stocks.
If they started buying, their purchases alone would drive the price up 20% before they owned enough to matter.
That’s why Warren Buffett says that if he would only invest $1 million, he could earn 50% a year:
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Some people think microcap investing is just chasing lottery tickets or gambling on penny stocks.
And that is what some investors are doing.
But the smart ones are looking for a good small business that grows steadily and doesn’t dilute you.
An example?
Lemaitre Vascular ($LMAT):
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How to find the next big winners
Finding a great micro cap comes down to 4 things:
Low liquidity
High profitability
Attractive growth
Low dilution
1.Low Liquidity
Big institutions can’t buy stocks that are too small, so stocks with low liquidity get completely ignored.
That’s our unfair advantage.
As Warren Buffett said:
“The secret of life is weak competition. If you want to outperform the market, go where competition is weak.” - Warren Buffett
2. High profitability
Here are two statistics you need to know.
82% of all stocks that rose 1,000% between 2012 and 2022 were already profitable
87% of global stocks that rose 1,000% or more over the past decade were micro caps
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The message is crystal clear: Profitability is everything.
3. Attractive Growth
You’re looking for high-quality businesses with consistent cash flows and economic moats.
As the profits grow, so does the intrinsic value of the business.
Over time, the stock price will always follow the earnings.
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4. Low Dilution
When a company keeps issuing new shares, your piece of the pie gets smaller every year.
Another advantage to buying profitable companies is that they can fund their own growth.
You should avoid companies that constantly dilute you.
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The Importance of Management
A great business isn’t enough in the world of small companies.