InvestNow News 3rd Oct – Pie Funds – Small company investing often means a bumpy ride
Big things come in small packages. Unfortunately, that includes big risks.
A small listed company is a seed of growth or danger and it is often difficult to tell which. Small companies don’t always get the attention.
But the investors who love them, and many do, hope these small – if not always perfectly formed – packages produce a butterfly. Not a jack-in-the-box.
The transformation story is part of the appeal of small companies. Large companies have outgrown, and perhaps deviated from, their origins. Small companies are still living theirs and investors can experience it with them.
It’s not just narrative appeal. Small companies also deliver financial results. All investing is fundamentally about buying cheap and selling dear. And small companies which grow, ideally rapidly and for a long time, can be very good at that.
This has been a feature of markets for a long time. The Russell 2000 index (the most widely-known index of small US companies) has outperformed the S&P 500 (the most widely-known index of large US companies) on an annualised basis since 2002. This hasn’t happened every year.
The S&P has outperformed over 10, five and three years. But in the last two years the Russell has come back.