The above image shows what the amount you will get if you invest in these companies in 2008 with RM1,000 and hold it for ten years. The big winner is Hartalega — your RM1,000 will turn into RM38,375!
When you examine the top 8 companies, except for Nestle, you will realise that all those companies making superior returns are NOT Large-Cap Companies.
Victor Ch’ng from FifthPerson explained further.
Why do small & mid-cap companies outperform large-cap companies?
- Simple Business Model
- Easier to grow and scale up
-For Small & Mid-cap companies, it is easier to increase revenue from RM1 mil to RM2mil, compared to a large corporation to increase revenue from RM10bil to RM20bil.
- Out of favour stock
-Fund managers and analysts don’t look at them unless they reach a specific size. Small & mid-cap stocks face liquidity issue as well. However, liquidity issue is an advantage for investors provided that it is a marvellous business. Otherwise, the liquidity issue posts a problem. Besides that, large-cap companies have a lot of floating shares, which need a lot of buying volume to push up the share price.
- Potential target takeover
-There is an opportunity for good small & mid-cap companies get privatised. That’s the case when significant shareholders need to offer a higher price to buy out the minorities’ stocks holdings.
During the webinar, Victor shared many examples of past investments including stocks that produced 76% – 175.92% within a few years.