Micro and small cap stocks that are
under-analyzed and under-followed present value and opportunity.
Over the years we have been asked countless times by
readers of our blog posts what financial screening software and model is used
to help identify Investorfile’s Top Ideas?
The answer is none! Surprised?
We are the proponent of the saying that our best investing
ideas don’t find us, we find them. That said, financial software tools only
help to identify and sort what has already happened. This is largely historical
information which is widely available. There is no advantage gained by knowing
what has happened in the past.
There is no doubt that Investorfile has embraced the view
that individual investors can gain an advantage over professional money
managers if they focus on micro and small cap stocks and use a value approach
to investing in growth. We feel that buying micro and small caps on a value
basis rather than on momentum is a more prudent investment with much less risk.
In other words, we look for long-term value with less emphasis placed on
That brings us back to our investment philosophy. Momentum
investing is high risk and is largely based on information that is already been
analyzed, thus the momentum and high valuations. Value investing is based on a
discovery process based on information that still needs to be deciphered.
Because most small public companies are under-analyzed and
under-followed, this market segment is less efficient. Thus, real value can be
spotted by individual investors prior to the general investment community to
help formulate investment decisions.
At Investorfile, we actively seek out undervalued micro and
small cap ideas. We strive to be ahead of the curve therefore no software screening tools using historical data or third-party recommendations
are of use to us. Those stock ideas are most likely no longer
under-analyzed or under-followed and, hence, undervalued.
Instead, we do our homework by reading and analyzing
countless Management Discussion and Analysis (MD&A) reports which are the
required quarterly disclosures for Canadian reporting public companies (in USA
it is a Form 10-Q) to help discover new investment ideas. Reviewing at least
several of a specific company’s quarterly MD&As provides strong insight
into operations and trends for the business. As such, the wealth of information
gained from such disclosures provides a strong foundation to build our investment
thesis and subsequently make stock picks.
One important piece of investing advice: When analyzing a micro or small cap
company, always start with the balance sheet. A strong balance sheet provides a
margin of safety if the timing of your investment thesis is wrong.
This article is for informational purposes only. This article is based on the
author's independent analysis and judgment and does not guarantee the
information's accuracy or completeness. The information contained in this
article is subject to change without notice, and the author assumes no
responsibility to update the information contained in this article. The
information contained within this article should not be construed as offering
of investment advice. Those seeking direct investment advice, should consult a
qualified, registered, investment professional. This is not a direct or implied
solicitation to buy or sell securities. Readers are advised to conduct their
own due diligence prior to considering buying or selling any stock.