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Small-Cap Dynamics

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Small-Cap Dynamics

Insights, Analysis, and Models

Bloomberg Press,

15 min read
10 take-aways
Audio & text

What's inside?

Small cap stocks — from firms with less than $1.5 billion capitalization — offer surprisingly big returns. Here’s why.

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Editorial Rating



  • Innovative
  • Applicable


One of the top experts in the field, Satya Dev Pradhuman has written an exhaustive study of small-cap investing. While this textbook-style exploration is hardly the place to look for exciting prose, the author does a grand job of harvesting every minute detail of his subject matter, and includes not only the fundamentals, but plenty of practical advice, helpful charts and graphs. recommends this book to all investors.


Fundamentals of the Secondary Market

Smaller companies outnumber large firms by at least ten to one. Small capitalization stocks (small-caps) are those of companies with a market capitalization that is less than $1.5 billion. And there are stocks smaller than small caps: micro caps are companies with less than $200 million in market capitalization.

Since 1926, such small stocks have done better for investors than the market’s pet blue chip stocks. Smaller is often better than bigger, given that the returns of these small-caps have increased faster than those of big companies. Small caps have bested large caps (companies with $4.5 billion-plus capitalization) not only in the U.S., but in other markets, too, including the United Kingdom and Japan.

Capitalization isn’t stable; it changes over time. A firm’s capitalization is ever-shifting because as share prices increase, market value - also called capitalization - increases concomitantly. The reverse occurs when share prices fall. Therefore, the size of any particular small-cap firm rises and drops as the market appreciates or depreciates.

Great returns have prompted growing investor interest in small companies...

About the Author

Satya Dev Pradhuman is the director of small-cap research at Merrill Lynch and has been named as a top-ranking analyst in Institutional Investor magazine for the past four years. Previously, he was a quantitative strategist focusing on U.S. equity and equity-derivative related strategies at Merrill Lynch. His views are widely quoted in the financial press. He lives outside Manhattan.

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