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Fast Stocks, Fast Money

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Fast Stocks, Fast Money

How to Make Money Investing in New Issues and Small Company Stocks

McGraw-Hill,

15 min read
10 take-aways
Text available

What's inside?

This guy manages over $1 billion. He must know something, right?

Editorial Rating

5

Qualities

  • Applicable
  • For Beginners

Recommendation

If you want to know how to get into the latest hot IPO, you probably can’t. But don’t let that dissuade you from reading Robert Natale’s book, in which the Bear Stearns money manager argues that the quickest way to get rich is by investing in small cap stocks. Despite his enthusiasm, Natale is no wide-eyed cheerleader for the small cap market. He acknowledges that these are risky investments that are susceptible to devastating downturns and wealth-sapping manipulation. It’s not the sort of argument one would expect from a small-cap guru, but Natale makes a convincing case. He also provides a solid primer for beginner investors, as well as guidelines and mathematic formulas that will help any individual investor evaluate small stock and IPO investments. getAbstract recommends this book to anyone interested in boosting the returns on a personal portfolio.

Summary

The Joy of Small Caps

The time is right to buy small-cap stocks because they have fallen out of favor with investors. From 1995 through 1998, small caps lagged the market. In 1998, small-cap stocks suffered a terrible year in relation to the broader market, falling 2.1% while the S&P 500 gained 26.7%. That’s the largest difference between large and small stocks since World War II. The good news: Small stocks typically outperform the broader market after underperforming it. What’s more, the price-to-earnings ratio of small stocks makes them the cheapest they’ve been in three decades. Institutional investors are beginning to buy small stocks, another sign that a rebound is near. Also, stocks have entered the final and most volatile stage of a bull market, which is when small-cap stocks outperform.

In general, the returns of small stocks far outpace those of bonds and T-bills. Bonds have generated returns of more than 30% in only two of the past 73 years, while T-bills never have returned more than 15% - although those two instruments rarely lose money. Small stocks, on the other hand, have returned more than 30% in 23 of the years since 1926. There also were five...

About the Author

Robert Natale is an expert on small-cap stocks and initial public offerings. He is a managing director at Bear Stearns Asset Management and portfolio manager for the Bear Stearns S&P STARS Portfolio Fund. He edited the Standard & Poor’s Emerging and Special Situations newsletter for more than a decade.

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