About the Microcap 100 Index
As a longtime investor who's spent years navigating the vibrant and dynamic world of microcap stocks — those hidden gems with market caps between $50M and $300M - I'm here to share with you an often overlooked but incredibly exciting investment frontier. The microcap world is a vast expanse of over 1500 companies, each brimming with potential, yet flying under the radar of the mainstream investing world.
While you might be familiar with indices like the Russell Microcap ETF (IWC), and the Russell 2000 (IWM), but the average market cap of an IWM holding far exceeds what I view as the sweet spot for finding the next 3, 5, 10, or even 100 bagger. And more intriguingly, there isn't a benchmark index that truly captures the unique performance of these microcap investors. Intrigued? You should be!
My journey in investing has been deeply rooted in the pursuit of finding growth at a reasonable price (GARP). I'm always looking for stocks poised for remarkable returns over time. I invested in AMZN in 2003, Celsius in 2018, and even saw a 370-bagger unfold within 6 years at ENPH.
That can be life-changing money, and you only need 1 or 2 EVER to make a huge impact on your investing returns in a career.
But, microcaps, as with any size equity, can be risky. You can lose substantial amounts of money if you choose to invest in a small basket of stocks.
On the flipside, when you invest in much larger companies, your potential to see outsized gains (5-10x+) of your money becomes much more challenging. Large and megacap companies get too big to multiply in size like a microcap.
So, why this index?
I wanted to create a demo version of what I think a microcap 100 index should look like, and want to track its performance over time.
I also want you too continue to track the performance and see where it heads in 2024 and beyond.
The index focuses primarily on US-based companies, however may include a multitude of non-USA holdings. I have consciously avoided countries who do not have dependable accounting practices.
The IWC is the most comparable index, but it contains 1,501 stocks, and includes holdings that are just too large in my opinion.
The selection criteria?
I have created a tight-lipped, meticulous analysis of microcap stocks - encompassing financial data, ownership, insider transactions, company history, stock liquidity, and even a sprinkle of technical analysis. It's a comprehensive approach designed to spotlight stocks with the most compelling growth narratives.
Despite microcap stocks lagging behind the broader market indices for over a decade, I have personally witnessed an uptick in microcap investing activity. I'm not just optimistic—I'm confident that this microcap 100 index can and will outperform the broader market indices over the next 3-5 years.
Please be sure to read my disclaimers. Thanks for reading. And I look forward to taking this journey with you over the next few years.
Final words
I'll leave you with the words of the G.O.A.T. Warren Buffet, on why investing in small companies is where fortunes are made:
