Richard Thaler on small cap stock investing

We are mainly invested in small caps.  This is not because we believe small companies to perform better than large corporations.  Rather, it is because we believe that active management has a better chance of success with small caps. 

This has to do with the simple rules of economics: There is less competition in the small caps segment.  Every asset manager around the world has an opinion on Apple or Google.  But if we take a closer look at a small, boring company that makes ball bearings in Iowa, there might be two analysts tracking the stock.  Hence, the market is much more likely to be mispricing this company.

~ Richard Thaler, "'Everyone thinks they are a particularly clever investor'," The Market, July 26, 2021

Aaron Edelheit on current investment opportunities in small cap stocks

I think the opportunity today is in small cap value and fundamental research while everyone is paying attention to the macro and the craziness of what's going on in trying to day trade.

~ Aaron Edelheit, "The Biggest Value in Social Media," Stansberry Investor Hour, July 2, 2020

Bloomberg Businessweek: "Bashing Big Tech now looks as dated as a handshake" (2020)

In a crisis, large companies can have an edge.  As the pandemic has forced the shuttering of local stores and restaurants, grounded consumers streamed Tiger King on Netflix, stocked up on groceries and supplies from Amazon, and gathered together on Zoom.  Hardly and company is immune from the economic shutdown, but the big ones have more resources to weather the pandemic and, in some cases, may be able to gain market share.

On Wall Street, that's exacerbating a divergence between small and large companies which has been frustrating stockpickers for some time.  The Russell 2000, a benchmark for small companies, has lagged the big-name S&P 500 index badly over the past two years.  This year the small stocks, with a median market valuation of about $525 million, have lost 22% as of April 28; the S&P, about half of that.  The Nasdaq 100, which tracks the largest tech stocks, is down less than 1%.  The S&P 500's companies now make up 82% of the entire U.S. stock market's value, a share that's been steadily rising this century.

None of that is good news for active fund managers...

[I]t's easy to see the pandemic continuing to entrench some advantages of size.  Bashing Big Tech now looks as dated as a handshake, and Silicon Valley's giants may be able to expand their clout. Large companies can also find it easier to tap credit and solve supply chain problems.

~ Bloomberg Businessweek, "How Quants Got Bullied," May 4, 2020