F E AT U R E D A R T I C L E
How are MicroCaps Affected by What Happens with the Small, Mid and Large Cap Stocks? • When equity and junk bond markets begin to falter, I believe they are reflecting the attitudes of market participants in mass who then react behaviorally in a framework of fear or greed or both, fear being the strongest • Historically, they tend to view large cap consumer staple stocks with dividends more favorably than smaller cap stocks during times in which their attitude (mood) is becoming negative • In this case, which I believe is slowly forming now, small cap stocks tend to underperform the large caps, as investors sell out of fear that they will decline more than large caps and out of greed to capture profits
n BY STEVEN M. SHELTON
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MicroCap Review Magazine
• During that time, IPO’s may become very difficult, as risk is off and sometimes, as in 2007-2009 and beyond, risk was way off • In my opinion, micro-cap stocks are the most speculative and therefore more volatile with the potential for more downside pressure and very wide bid/ask, if such even exists • I would expect volume to dry up even more with micro-caps as compared to other larger cap stocks, with downside volume greater as compared to upside volume, very lopsided • However, I do believe that during times of duress, such as in the 2007 and beyond, micro-caps eventually come back strong as inventors and entrepreneurs become even more creative and focused • That potentially offers great potential for investors who enter after a confirmed low so as to decrease risk, with more upside than perhaps large caps on a percentage basis but with more risk, as it should be • However, the probable limited downside to near zero on these inexpensive stocks is worth noting • Note that during the 2009 slide, some expensive large caps were in danger of being delisted, as they dropped and kept dropping! • In summary, I believe global markets and economies are so connected that as large caps are hit, the smaller the capitalization of the stocks, the more probable the weakness and with less stability • That is simply my opinion and one could say that if a stock gets so cheap, some may just sit on it and see if it comes back
• At the same time, the product or service that the micro-cap makes is paramount to the downside potential but remember that in behavioral markets, up or down, market particpants move them too far and then they eventually over time revert to the mean • Now, mean reversion should resonate in this global market but who is talking about it, as this is the “New Normal”……heard that before only it was stated “It is different this time”! • Perhaps, in all this opinion, there is a response which you may or may not agree with The purpose of this article from Cornerstone Global Group LLC is to provide a general sense of global market direction and intermarket relationships. Analysis is subjective and is not mathematically or model derived. This article is not to be used for buysell signals and is not providing investment advice to any specific person or portfolio and should not be considered by anyone or any entity as providing such. Its accuracy cannot be guaranteed. Investing carries the risk for substantial losses. Past performance is not indicative of future returns. Investing in bonds (or any security product) that carries fees for investing will affect return. Securities and investment advice offered through Investment Planners, Inc. (Member FINRA/SIPC) and IPI Wealth Management, Inc., respectively, 226 W. Eldorado St. Decatur IL 62522, 217-425-6340. Cornerstone Global Group LLC is not affiliated with Investment Planners, Inc. or IPI Wealth Management, Inc. Cornerstone Global Group LLC does not offer securities advice and is not a member of FINRA/SIPC. Material is only intended for use with institutional investors and not intended for use with retail investors. All contents copyright ©2014 Cornerstone Global Group LLC. Reproduction, retransmission or redistribution in any form is illegal and strictly forbidden. n
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