Entering text into the input field will update the search result below

Why Stay At Home Stock Pickers Should Focus On Small-Cap Stocks

Jun. 11, 2020 7:00 AM ETAAPL, AMZN, CNR, COTY, GOOG, GOOGL, MSFT, PRTYQ, SNBR9 Comments
Evin Rohrbaugh profile picture
Evin Rohrbaugh


  • You as an individual investor have more opportunities, and with greater potential return than Warren Buffett has right now.
  • Putting most of your focus on small-cap stocks is the best way to increase alpha without making full-time travel part of your due diligence.
  • I'll outline four steps that provide a logical and practical way of picking the best small-cap stocks.


You as an individual investor have more opportunities, and with greater potential return than Warren Buffett has right now at the helm of Berkshire Hathaway. There is also at least one sector industry of business that you have a better understanding of than Buffett. This means you can make a more accurate projection of future cash flows in this type of business, which is at the core of fundamental analysis. The more accurate you are with your forecasting, the better you can predict the level of success of a business.

Everyone knows Ben Graham's maxim about the market being a voting machine in the short run and a weighing machine in the long run. If this is really the case, then we can make two key points regarding successful investing in common stock.

  1. In the short run, a great investment can be made in a terrible company.

  2. In the long run, a great investment can be made in a great company at almost any price, if it is held long enough for the power of compounding to take effect.

If the business fundamentally grows at a below average rate, your own returns can be higher than average if you bought at a cheap enough price. On the flip side, if the business fundamentally grows at an above average rate, your own returns can be lower than average if you bought at a high enough price.

The general view in business is that the bigger the company, the more its future growth is limited due to the law of large numbers. The general view in common stock investing is that since bigger companies have more coverage, the harder it is to find mispricings in the market.

This might lead one to assume the opposite is true, which would mean only

This article was written by

Evin Rohrbaugh profile picture
I am an independent analyst and investor interested in investing at the intersection of value and growth. My method is a highly qualitative focus on mostly small caps, looking for both long term compounders as well as some special situations. On Twitter @GrowthyValue

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (9)

5ofDiamonds profile picture
Top 5 stocks in SPY represent 20% of its value. 23M small businesses in US. 5 out of 23 Million? What is listed on stock exchange is not same as "Cody's Pizza" in Alabama. Its not listed. Buy small caps listed on stock exchange? I will think about it @Evin Rohrbaugh

I am an investor, not a philanthropist.
The government has openly and forcibly declared most small businesses to be "non-essential". Don't fight the fed.
Evin Rohrbaugh profile picture
Small cap companies as I refer to them are often over a billion in revenue, not quite the same as a local dry cleaners or cafe that won't survive after the lock down.
Not mom and pop cleaners, but not mega cap multinational companies with teams of lobbyists and political clout, so therefore still largely considered "non-essential" all the same.
good article especially for younger investors with time on their side!
Evin Rohrbaugh profile picture
Thanks for the kind words!
Great article. Value + growth = big winners. What are your top 2-3 picks for this year? :)
Evin Rohrbaugh profile picture
Thanks for reading, I'm afraid you'll have to stay tuned for any picks. :)
zachsiler profile picture
skimmed this but appreciate your thesis, covid taught us that mid- to large cap will weather debt better ...but i still own $TCNNF and trimmed my $CRLF bud
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.