Richard Imperiale - The Micro Cap Investor (Wiley-2005) (pdf)

This book is an explanation and analysis of micro cap stocks.These very small companies have endured a checkered history. Ingeneral terms, micro caps are large in absolute numbers but historically have been a small and misunderstood sector of theinvestment landscape. In this world of efficient markets and indexfunds, this perception has started to change. Many micro cap com-panies are well-managed, high-quality businesses that present anexcellent investment opportunity. In addition, micro caps are aviable and competitive investment option for those who are look-ing to broaden and diversify their investment portfolios....
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Richard Imperiale - The Micro Cap Investor (Wiley-2005) (pdf)TeAM Digitally signed by TeAM YYePG DN: cn=TeAM YYePG, c=US, o=TeAM YYePG,YYeP ou=TeAM YYePG, email=yyepg@msn.com Reason: I attest to the accuracy and integrity ofG this document Date: 2005.05.13 17:13:33 +0800 TheMicro Cap Investor TheMicro Cap Investor Strategies for Making Big Returns in Small Companies RICHARD IMPERIALE John Wiley & Sons, Inc.Copyright © 2005 by Richard Imperiale. All rights reservedPublished by John Wiley & Sons, Inc., Hoboken, New JerseyPublished simultaneously in CanadaNo part of this publication may be reproduced, stored in a retrieval system, or transmittedin any form or by any means, electronic, mechanical, photocopying, recording, scanning,or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copy-right Act, without either the prior written permission of the Publisher, or authorizationthrough payment of the appropriate per-copy fee to the Copyright Clearance Center, 222Rosewood Drive, Danvers, MA 01923, 978-750-8400, fax 978-646-8600, or on the web atwww.copyright.com. Requests to the Publisher for permission should be addressed to thePermissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030,201-748-6011, fax 201-748-6008.Limit of Liability/Disclaimer of Warranty: While the publisher and the author have usedtheir best efforts in preparing this book, they make no representations or warranties withrespect to the accuracy or completeness of the contents of this book and specifically dis-claim any implied warranties of merchantability or fitness for a particular purpose. Nowarranty may be created or extended by sales representatives or written sales materials.The advice and strategies contained herein may not be suitable for your situation. Youshould consult with a professional where appropriate. Neither the publisher nor theauthor shall be liable for any loss of profit or any other commercial damages, including butnot limited to special, incidental, consequential, or other damages.For general information about our other products and services, please contact our Cus-tomer Care Department within the United States at 800-762-2974, outside the United Statesat 317-572-3993 or fax 317-572-4002.Wiley also publishes its books in a variety of electronic formats. Some content thatappears in print may not be available in electronic books. For more information aboutWiley products, visit our web site at www.wiley.com.Library of Congress Cataloging-in-Publication Data:Imperiale, Richard, 1957– The micro cap investor : strategies for making big returns in small companies / RichardImperiale. p. cm. Includes index. ISBN 0-471-47870-9 (cloth) 1. Small capitalization stocks—United States. 2. Securities—United States.3. Portfolio management—United States. I. Title. HG4971.I47 2005 332.6322—dc222004018701Printed in the United States of America10 9 8 7 6 5 4 3 2 1 ContentsPreface ixAcknowledgments xiCHAPTER 1 Characteristics of Micro Cap 1The Nebulous Micro Cap (What Is a Micro Cap Stock?) 1The Micro Cap Dilemma (Why Do They Exist?) 5CHAPTER 2 The Information Advantage 13Understanding the Information Advantage: Efficient Market Theory 13 Weak-Form Efficient Market Theory 15 Semi-Strong-Form Efficient Market Theory 16 Strong-Form Efficient Market Theory 16 The Random Walk Theory 17 The Practical Answer 19Venture Capital Theory 21 The Public-Private Bridge 22Conclusion 24CHAPTER 3 Micro Cap Stocks as an Asset Class 25Investment Performance: Small versus Large Stocks 25A Survey of Modern Portfolio Theory 26Asset Allocation and Modern Portfolio Theory 33 vvi ContentsAsset Allocation and Micro Caps 34 Economic Linkage 39Venture Capital and Private Equity 39Micro Cap versus Venture Capital 41CHAPTER 4 The Micro Cap Asset Class and Portfolio Construction 45Micro Caps in the Portfolio Asset Allocation 46 The Portfolio Contribution of Micro Caps 47Conclusion 50CHAPTER 5 Using the Information Advantage 51Methods to Evaluate Principal Agent Actions 51 Management, Management, Management 52Who’s Doing What: Insider Information 53Management Style 59Strategy and Planning Systems 59Management Changes 61Management Reputation 62How the Company Develops and Promotes Employees 62Conclusion 63CHAPTER 6 Corporate Governance 65The Company’s Social Relationships 67Information Resources 68 The Company 69 Competitors 70 Customers 70 S ...