3 Reasons it is More LIkely to be "Pleasantly Surprised" with Small Cap Stocks

Men's Journal, my favorite reading after Benzinga, always has an interesting interview at the end of every issue.

From that, often times there is sound advice for investing. The interview with James Lee Burke, the Southern noir master," was no different. In it, he was asked what kept him going after repeated rejections for a novel. Mr. Burke responded that, "Years ago a Franciscan theologian told me, "Don't keep score. Just bear down on the batter, one pitch at a time, and toward the top of the ninth, you'll be pleasantly surprised at the arithmetic on the scoreboard."

Here are three reasons it is easier to "bear down" when owning small cap stocks in investing.

The business model is easier to understand.

Warren Buffett, the legendary investor who is worth over $50 billion, stated in an interview in Fortune that he learned more from his owning See's Candies, a $25 million buy. Not Coca-Cola KO or ExxonMobil XOM. The reason why: It's one thing to own stock in a Coca-Cola or something, but when you're actually in the business of making determinations about opening stores and pricing decisions, you learn from it. We have made a lot more money out of See's than shows from the earnings of See's, just by the fact that it's educated me."

It is easier to tell if it is a great business.

In the spring of 2008, Goldman Sachs GS, Citigroup C, and a lot of other Wall Street firms sure looked like great businesses. Now around $170, Goldman Sachs was over $200 a share in May 2008. The American taxpayer had to save Wall Street. But great small companies like See's Candies and Metropolitan Movers have never needed bailouts. Metropolitan Movers has been winning awards as Wall Street firms have been rattling the tin cup for bailouts.

Small businesses can carve out lucrative niches in areas where giants such as Coca-Cola operate.

In a great article on Benzinga by Tabitha Jean Naylor, "5 Smaller Beverage Companies Gunning for the Big Boys," it was detailed how small cap beverage firms like High Performance Beverages TBEV have, "caught the giants sleeping by developing newer offerings, such as the now ubiquitous energy drink. The smaller companies experiment with new tastes and formulations that the giants are too afraid to try."

Success in a profitable areas is much easier to notice in a See's Candies, Metropolitan Movers, or High Performance Beverage than it is in a Coca-Cola, ExxonMobil, or Citigroup. From there, it is easier to "bear down" on when, where, and how to invest. As Warren Buffett has demonstrated, investors will be more than "pleasantly surprised" with the results!