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Time to Look at Small Caps?

At various times in history small cap stocks have decimated large cap stocks — usually just after a bear market. Currently small caps are outperforming large caps: should you have them in your portfolio?

Eamonn Ryan




Research has demonstrated that innovation occurs on average 22 years after the birth of an innovation (allowing time for a generation to grow up familiar with it) and that during that innovation period small entrepreneurial companies typically outperform large companies. It is about 22 years since the launch of cellular phones.

US research also shows that small caps have outperformed large caps during such periods, by factors of four and even six to one.

A local study by Dr Adrian Saville at Cannon Asset Managers, suggests that here too, small cap value-oriented investments can sustainably outperform the market. “The primary explanation is that investors push the prices of poorly rated investments down too far, and expect fancied stocks to shoot the moon. This creates a situation in which depressed value stocks rebound to outperform the market while overrated growth stocks are knocked off their pedestals at the first sign of weakness.”

Dogs and diamonds

To test the hypothesis, Cannon Asset Managers has run dog and diamond portfolios since 1996 as a ‘live simulation’. Allowing for a set of investment rules, the dog portfolio is a diversified set of shunned financial and industrial shares, made up of small to mid-sized caps, and some deeply undervalued large caps. The diamond portfolio is made up of a diversified set of popular stocks trading on the highest multiples.

The results of the study are compelling. Over the period 1996 to end-2010 a passive investor would have earned an annualised return of 13,7%. On the same basis the diamond portfolio delivered an average return of 12,3%, and the dog portfolio delivered 24,6% per year — almost double the market’s return.

Saville believes the sustainability of small cap value investing lies in the fact that investors are driven by psychological biases such as herd mentalities that prevent them from outperforming the overall market.

Does this mean we should all be exiting large cap stocks in favour of small caps? Only if you have the discipline to ride out the entire investment cycle.

“Three years ago we started the SuperDogs portfolio to take advantage of small cap opportunities. SuperDogs has doubled the initial capital and its return is 10% ahead of the market,” says Saville.

Don’t rush in where angels fear to tread

Warren Jervis, fund manager of the Old Mutual Small Cap Fund, says that even seasoned professionals struggle to identify small cap targets for investment, so the amateur has almost no chance. He recommends private investors be in the small cap sector for the out performance it delivers, but through a unit trust, leaving investment decisions to the fund manager.

“The biggest mistake one can make in this sector is to accept golf locker-room investment tips,” he says, listing two reasons for investors to be investing in small caps: alpha generation and diversification. Small caps are an excellent means of alpha generation. Over a long period of time they have delivered alpha of 1,8% to 2% a year (that ’s over and above what the market or benchmark achieves). The risk in small cap investing is that you can lose capital — it is more volatile and carries the risk of a particular stock imploding. However, the upside is that it is a misunderstood sector often ignored by general equity fund managers who largely stay within the confines of the top-70 stocks on the JSE.

“For reasons of poor liquidity, lack of information or general neglect some fascinating mispricings occur. The major liability is liquidity and it is the starting point of my investment process. Companies such as Consolidated Infrastructure Ltd in the power sector are typical of the type of good value available. Companies typically have strong management and balance sheets, are on a growth path and delivering good earnings — if you can get them,” says Jervis.

He warns that small cap does not automatically mean AltX. There are many small and medium-sized companies on the JSE main board, and he would not specifically look at the AltX companies. “Small cap investing is a different discipline to traditional investing. It is all about stock picking in a pool of companies for which there is not a great deal of information flow.”

As to where to look to invest, apart from his own fund, Jervis would be comfortable with the RMB Small Cap Fund and the Nedbank Entrepreneurial Fund. Saville is tipping Conduit Capital Ltd as a small cap stock with legs. Currently trading at around 85 cents, the company is on a trailing dividend yield of a mouth-watering 12%. With a sound balance sheet and good growth prospects, the share is highly attractive.

Finally, some common sense

Of course, others argue one should not rate size as a factor in stock picking, but fundamentals of the company, such as:

  • Positive earnings. Look at free cash flow as earnings can be manipulated.
  • Accelerating sales and improved operating margins.
  • Minor blemishes for fixable problems can make bargains out of well-run companies.
  • High insider ownership.
  • High rates of return on assets, equity, and capital: then catch them on the upswing.
  • A great product.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

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(Infographic) The 10 Things You Should Cover In Every Investment Pitch

If you want to wow potential investors, you need to cover your bases.

Matthew McCreary




If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.

Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.

You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.

This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:

  1. The vision, where you concisely explain your idea.
  2. The problem. Why is your vision necessary or helpful?
  3. The opportunity. What is the market size, and how can you position yourself to earn a share of it?

Related: How To Pitch Your Business, Product Or Idea To Industry Experts

This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.


This article was originally posted here on

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‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous

Is your business worthy of fame? If so, pay attention to what the Sharks have to say …

Eric 'ERock' Christopher



Shark Tank

Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.

The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.

I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:

  • Charles Barkley, Hall of Fame NBA star and TV analyst
  • Alex Rodriguez, legendary baseball player and businessman
  • Rohan Oza, an iconic brand builder and marketing expert
  • Sara Blakely, founder and owner of SPANX brand
  • Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
  • Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
  • Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.

My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.

I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.

1. Create an ingenious product

When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”

Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.

Related: 6 Great Tips For A Successful Shark Tank Pitch

2. Leverage social media marketing


During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”

Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”

Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”

No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.

3. Build a community

Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”

John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.

If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.

4. Devise a publicity hook to win earned media coverage

Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”

Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.

Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.

Related: Shark Tank Funded Start-up Native Decor’s Founder on Investment, Mentorship And Dreaming Big

5. Know your strengths and stay focused

When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”

These are wise words from one of the world’s few billionaires.

This article was originally posted here on

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The Best Way To Get Your Teenager To Start Investing Right Now

Jeff Rose advises a young fan on where to start his investment journey.




In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.

Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.

In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.

As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.

Related: Making International Investing Simple And Transparent – CybiWealth Digital Platform

Click on the video to hear more tips for a younger investor.

This article was originally posted here on

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