Some of the best investment advice I've ever heard came
from "The Great One."
But I
don'tmean Peter Lynch, Benjamin Graham, or even
Warren Buffett. (Though as you're about to see, Buffett is a
big fan of The Great One, too.) And I
definitelydon't mean Jim Cramer.
You've probably heard The Great One's name dozens of
times, but you may not know just how wise he is. Nonetheless,
he's said some very smart things. For instance ...
"You miss 100% of the shots you never take"
That's but one of the many pearls of wisdom The Great
One has dropped over the years. And while it might seem
obvious, or even trite, it's a truth we often take for
granted.
Just think of the person you never asked to the dance, or
the job you never applied for, or the novel you never
finished ... or the stock you never purchased.
It happens to all of us. We get nervous, or doubtful, or
busy, or ... you name it. And that might end up costing us
the person of our dreams, or the job we've always wanted, or
our only shot at fame. But in the case of investing, it will
definitelycost us a fortune.
Back in 2007, two stocks sat on my watch list for a full
365 days:
Stock
Gain in 2007
Market Cap Today (in Billions)
Apple
134%
$185
Chipotle
158%
$2.8
A $24,600 mistake
Should I have bought them? Perhaps. But by
notinvesting in them, I wound up making a grand
total of ... nothing. Nada. Zip. Zilch.
That's a bitter pill to swallow, especially considering
had I invested five grand in each company at the beginning of
2007, I would have been sitting on $24,600 one year later. I
guess it just goes to show you that if you want to score,
you've got to take a shot.
And if we want to score really, really big
...
We have to follow The Great One's most famous piece of
advice: "Skate to where the puck is going, not to where it's
been."
You may already know that The Great One is hockey legend
Wayne Gretzky. If not, all you need to know is that Gretzky
was arguably the greatest player ever to take the ice.
What made him The Great One? Quite simply, he was always
one step ahead of everyone else -- not because of his speed,
but because of his
anticipation. While everyone else skated to where
the puck had just
been, Gretzky always skated to where it was going
next.
That's the key to great investing, too
And apparently, I'm not the only one who thinks so. In
an op-ed piece he penned for
The New York Times, Warren Buffett used this same
quote to make the point that investors who keep their cash on
the sidelines when market sentiment is negative are
missing out on a potentially huge opportunity.
While I couldn't agree more with Mr. Buffett, I think this
quote has an even more meaningful connection to small-cap
investing. If you look at the tables below, you'll start to
notice an interesting correlation between market cap and
percentage gain: The smaller the business, the greater the
returns. While this won't
alwaysbe the case, this data is a quick and dirty
way of showing that
the best performers do indeed start small.
That's also how you can skate to
where the puck is going next.
Bigger isn't better, but size does matter
Here are a few companies that began 2007
with market values greater than $5 billion:
Stock
Gain in 2007
Rank Among Large Caps
CNH Global NV (NYSE: CNH)
141%
No. 7
Vimpel-Communications (NYSE: VIP)
164%
No. 5
Research In Motion
166%
No. 4
Siderurgica Nacional (NYSE: SID)
199%
No. 3
Data provided by Capital IQ.
And here are a few companies that began 2007 with market
values less than $5 billion (but more than $50 million):
Stock
Gain in 2007
Rank Among Small Caps
Intuitive Surgical (Nasdaq: ISRG)
237%
No. 20
CF Industries Holdings
329%
No. 9
Onyx Pharmaceuticals (Nasdaq:
ONXX)
426%
No. 3
Data provided by Capital IQ.
While the gains of the top-performing large caps were
certainly impressive, it's worth noting that the 20th
best-performing small cap returned nearly 40 percentage
points more than the third best-performing large cap. In
fact, of the top 10 overall performers, none was a large
cap.
For further proof, just have a look at the top five
best-performing stocks of the past 52 weeks with market caps
greaterthan $5 billion:
Stock
Market Cap
52-Week Gain
IAMGOLD
$5.3 billion
370%
Sterlite Industries (NYSE: SLT)
$12.7 billion Continued... |