Create Long-Term Wealth With Small-Caps

Small-caps have created huge amount of wealth since the pandemic hit us in early 2020. The BSE Small-Cap index has gained by a whopping 200 per cent since March 2020 and this is after the recent 17 odd per cent correction from the highs. The market direction hereon may test retail investors’ patience. Yogesh Supekar discusses the performance of small-cap stocks in the recent past while highlighting the prospects of small-cap stocks in the coming quarters

- Yogesh Supekar

It is that time in the equity market when the men are separated from the boys. We say so because the increased volatility has tested the nerves of many an investor and it is normal to expect some of them to give up on equity investing. Today, when the market is volatile and in a corrective mode, we realise that one of the most important qualities for an investor is temperament, not intellect. When it comes to small-cap investing, temperament matters even more as small-caps are much more volatile and tend to test the investors’ patience and conviction during market corrections.

There are various ways investors can build their conviction for a particular small-cap stock. However, one of the best ways to build conviction on a small-cap idea is to talk or listen to promoters and do a thorough fundamental analysis so as to identify the triggers driving the business growth of a company. If an investor can follow this process independently there is a good chance to build conviction in the underlying story of the chosen small-cap idea. Once this conviction is built based on the strength of a business model, quality management and earnings’ visibility, there is a very good chance that an investor will not be volatile himself even if the stock prices become volatile.