[...]... difficult to capitalize on the information advantage Discovering and capturing this information advantage is the key to achieving investment performance in the micro cap arena 22 THE MICRO CAP INVESTOR No single market theory alone explains the unique investment characteristics of the micro cap sector The empirical data suggest that the micro cap sector is less efficient in the short term than larger capitalization... further, the growth and value styles can be divided into 1 2 THE MICRO CAP INVESTOR subgroups that categorize the investments by market capitalization For example, there is large cap growth and mid cap value These capitalization ranges are typically broken down into large cap, mid cap, and small cap when referring to the size of the underlying companies These style and market cap definitions are the. .. by the professional investment community until they graduate into the ranks of the small cap and beyond In the year ended June 30, 2004, 554 companies graduated from the micro cap to the small cap arena simply due to price appreciation In fact, the average 12-month return of the graduating class was 113 percent During that same year, 651 companies descended from the ranks above micro cap into the micro. .. other resource materials on the subject of micro caps Those books that are available are either very simple overviews of the subject or highly complex academic treatments of the topic And most books do not address the fundamental research issues that underlie the basics of micro cap investing nor do they address the concept of how to integrate micro caps into an investment portfolio The Micro Cap Investor: ... MARKET THEORY The information advantage is the reason that opportunity exists within the micro cap arena However, an understanding of the concept of the efficient market theory (EMT) is required to understand the information advantage Efficient capital markets and the efficient capital market group of theories have important implications for micro cap investors as well as for security valuation The definition... in any case the absolute number of these micro cap companies is large For purposes of this analysis, a market cap of below $500 million will be considered a micro cap Wherever the line is drawn, these small company stocks are generally known among professional investors as micro caps In absolute number, the micro cap universe of 4,000 stocks has roughly twice the number of stocks than the universe... like this: There are two efficient market theorists walking down the street, when they see a $100 bill on the ground Looking at each other, they precede to walk right by it, neither making any effort to pick up the cash Why? Because as efficient market theorists, they conclude that if the $100 bill were real, it would have been picked up already The Random Walk Theory There is another flavor of the EMT,... boundaries of where micro cap stocks ended and small cap stocks started were often debated within the financial community It was not until the early 1990s that micro cap stocks began to develop their own identity and their characteristics evolved sufficiently to separate them from the small cap segment This was in part the result of the large and growing number of micro cap stocks in the public arena... small cap stocks finally had an index of their own The Russell 2000 was introduced in 1985, and by the early 1990s there was a proliferation of small cap mutual funds benchmarked against the index The Russell 2000 is now the most widely quoted index of U.S small cap stocks Prior to the creation of the Russell 2000, micro caps were often grouped with small cap stocks In addition, as mentioned earlier, the. .. three chapters of the book describe the fundamental economic issues that affect micro caps in general and attempt to analyze these issues in the context of the micro cap investment vehicle The book continues with a series of case studies and a review of specific methods for analyzing and screening for micro cap investment opportunities The final three chapters of the book use the theoretical constructs . Characteristics of Micro Cap 1 The Nebulous Micro Cap (What Is a Micro Cap Stock?) 1 The Micro Cap Dilemma (Why Do They Exist?) 5 CHAPTER 2 The Information. Cataloging-in-Publication Data: Imperiale, Richard, 1957– The micro cap investor : strategies for making big returns in small companies / Richard Imperiale. p.