The Three Stages Of A Winning Small Cap Investment

This is an excerpt of an older post, but worthy of a separate / more current post…

After a careful screening process, I only choose stocks that I believe will reward investors for navigating its three major investment cycles, which I define as 1) Great Find, 2) Wait Time, and 3) Gold Mine.

A “Great Find” is a stock that most people haven’t heard of, but is starting to do great things. Being long before everyone hears the story can be very profitable.

However, you have to be careful. When it comes to stocks, stories usually take a long, Long, LONG time to play out. Because of this, the “Great Find” hype almost always dies out long before the company starts to gain real traction / profitability. The time between the hype dying and the story gaining traction is called the “Wait Time”.

You don’t want to be invested in stocks during their Wait Time. They usually retrace a big portion of their “Great Find” move… and it usually takes a lot longer than you expect for momentum to kick in.

However, if / when it does, the company (and stock) enters the “Gold Mine” phase. At this stage, everything the company was working to accomplish starts paying off. Accordingly, the stock starts paying off too. At that point, it’s generally fruitful to hold the stock for a prolonged period of time.

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