Book Review: Microcap Magic

The Book ‘Microcap Magic‘ is written by Stephen Kann who used to run a newsletter called the Bull Market Microcap Review

As the title suggests, the Book makes a case for investing in microcap stocks i.e. stocks less than a market cap of $300 Million.

As per the author, one can allocate upto 20% of one’s portfolio to microcap stocks which should be spread across 5-10 microcap stocks.

The reason to invest in microcap stocks are two fold:

1.As the market cap is v small, institutions don’t follow it and as such these stocks are generally under-researched

2.Owing to the small market size, one can own a larger % of the company for a particular amount

The Book goes on to explain how to screen for these stocks…the screener the author uses is very basic and straight forward:

$25-250 Million Market Cap,Price,>20% revenue growth, > 0 EBITDA, < 1.0 Price/Sales, < 1.0 PE/G, < 30% institutional ownership

The Book then warns about some micro-cap investing pitfalls such as equity dilution, insider selling etc

Most of the book consisted of case studies of US based microcaps which are of little interest to the Indian reader.

One startling fact in the book is that the author’s largest personal holding is Calpian,Inc which “owns the largest,fastest growing mobile payments platform in India.” Huh ? Never heard of this company

This Book is a miss…Save your money and buy me a beer instead.

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