Acknowledgments xi INTRODUCTION The Story of a Small-Cap Investor 1 CHAPTER 1 Start Small, Finish Big-Discover Big Profits in Small-Cap Stocks 9 Small-Cap Investor: Eight-Step Process for Big Profits from Small Stocks 10 Small Caps as Generators of Growth 11 An Example of Small-Cap Success 15 Small-Cap Value Stocks Outperform Large-Cap Growth Stocks 19 Profitable Small Caps Don't Always Make Gains on Day One 19 The Inefficient Market Theory: The Small-Cap Advantage 24 The Market as an Emotional Being 25 CHAPTER 2 Big Ideas for Big Profits 29 Spotting the Next Big Idea 30 Expanding Your Search 36 The Competitive Edge 37 Spotting Institutional Activity 38 CHAPTER 3 Finding Great Small-Cap Stocks 43 Growth + Value = Profits 43 Success Stories from the Past 50 IPOs Are the Genesis of Small Caps 53 Spotting Growth Sector Trends 55 News You Can Use 59 You've Found an Interesting Trend or Company-Now What? 60 CHAPTER 4 Understanding and Evaluating Financial Statements 65 Generally Accepted Accounting Principles and the Basics of Accrual Accounting 67 Financial Statements Made Simple 69 Ten Key Metrics to Review in Every Financial Statement 72 What Exactly Are Earnings? 76 A Quality Test: Cash Flow Instead of Earnings 83 Ten Accounting Red Flags 86 CHAPTER 5 Financial Projections and Valuations 91 Understanding Financial Guidance 92 A Reality Check 93 Guidance Caveats 96 Interpreting Analyst Estimates 97 Companies Play the Earnings Game 98 Financial Trends for Spotting Promising Small Caps 99 CHAPTER 6 Taking the Mystery Out of Technical Analysis and Trading for Quick Profits 103 Some Technical Basics 105 Accumulation and Distribution 118 The Relative Price of a Stock 120 CHAPTER 7 Trading Strategies for Successfully Buying and Selling Small-Cap Stocks 123 Liquidity Considerations with Small-Cap Investing 124 Risk Tolerance 127 Risk Awareness, an Essential Attribute 130 Timing Decisions 133 Trading Techniques 136 CHAPTER 8 Portfolio Diversification and Allocation 139 Equity Diversification Methods 140 Diversification Mistakes 141 Overdiversification 142 Using Mutual Funds and ETFs to Diversify 143 Risk Tolerance as a Means for Diversifying Your Portfolio 147 Asset Allocation Basics 148 CHAPTER 9 Buy Small Caps to Grow Your Portfolio 151 A Track Record of Small-Cap Success 152 The Key Drivers to Growth 153 Early Bird Gets the Worm 154 Appendix 159 Notes 163 About the Author 165 Index 167
IAN WYATT is the founder and President of Business Financial Publishing and the Chief Investment Strategist of SmallCapInvestor.com. He is the driving force behind the growth of Business Financial Publishing, recognized by Inc. magazine in 2008 as the 185th fastest growing private company in the United States. Wyatt also plays an active role in the investment research activities of the company, and as a well-regarded small-cap stock expert, he currently leads his company's premier small-cap stock investing service, SmallCapInvestor.com PRO. He has been interviewed or cited in numerous well-known publications, including Marketwatch.com, Kiplinger's Personal Finance magazine, Barron's, Forbes.com, and the Dick Davis Digest, among others. For more insights into small-cap investing, visit www.smallcapinvestor.com and www.ianwyatt.com.