Who’s the Ideal Micro-Cap Investor?

Self-directed investors who place a portion of their assets in smaller companies and smaller markets are a different lot from the rest of the herd that follows routines and conventions long out-dated in the digital age. Today, investors have at their fingertips information, trading platforms, portfolio modeling and a variety of other tools useful in picking a winner or avoiding a falling knife.

My experience working with this investor segment shows that successful micro-cap investors are:

• visionary and creative in their analysis;

• logical and pragmatic;

• knowledgeable about markets and individual companies;

• intuitive;

• self-aware; and

• patient.

Micro-Cap Investors Are Visionary
They are able to spot trends early. They see opportunity where others don’t. They can analyze today and apply that analysis to tomorrow. They believe strongly in their picks because they get the “big picture” right from the start.

We’re Logical and Pragmatic
If you’re investing based on something your brother-in-law overheard on the subway, you aren’t investing – you’re gambling. Micro-cap investors aren’t afraid of research. They recognize that they put their money at risk so they look for results now and over the longer term.

We Understand The Markets and Follow Individual Companies
The likelihood of a catastrophic downturn in the small- and micro-cap segments is real. It’s always there. But the same can be said for large-caps. Think Enron, Bear-Sterns, Ford and other companies that have gone belly up – or soon will.

This is part of the emotional make-up of the ideal small- and micro-cap investor – a strong tolerance, not only for risk, but for loss of principal. As I said, in this sector you sometimes lose, just like any other sector,– sometimes you lose quickly because breakouts fail or a disappointing quarterly report knocks 20% off the stocks price. The micro-cap investor understands this, is accepting of losses without too much emotion because she understands how to keep most losses small and prepares to re-enter the market knowing that a single home run undoes a lot of strikeouts.

Micro-Cap Investors Are Inherently Intuitive
This one is a little tougher to explain but my experience has shown that my most successful buys were companies about which I had a good feeling. I liked the company’s management team, their business philosophy or their products and plans.

Now, some might call intuition pure luck but I believe, as investors charting our own courses, that we make our own luck. Intuition can be developed. The more you know about market dynamics the more “intuitive” you become.

We’re A Self-Aware Group
We understand our drives – the need for independence, the need to succeed, the need to take risks and so on. Some of these characteristics are helpful in achieving investment success with smaller companies. Others are potentially harmful. For example, if you experience a significant loss, can your stomach stomach the loss and allow you to find the next buy – the right buy?

We know ourselves and play to our strengths and mitigate our limitations in all investment decisions.

Finally, We’re a Patient Lot
Despite the stereotypical image of the day trader with six active computer screens making hundreds of trades around the world, most investors in smaller companies are patient. They know that success takes time.

We’re buying the future and we know it. So the smart, small-cap buyer chooses companies with long-term growth potential to buy and hold as share price increases. Some of the picks in the Confident Trader Portfolio have been making money for our subscribers for four or five years. And the payouts have been worth the wait.

That’s how prudent, conservative investors use their personal traits and characteristics to make triple digit returns, even in down markets. It’s not a get rich quick scheme, but you will get rich in time if you read, research, analyze the numbers and use your imagination – your vision – to see what the future holds.

Best regards,

Tim