Joel Greenblatt: Enterprising Investors Should Focus On Small-Cap Stocks

In his book – The Big Secret, Joel Greenblatt recommends enterprising investors should focus on small-cap stocks. Here’s an excerpt from the book:

Nevertheless, investing in small stocks still has some major advantages over investing in larger-cap companies. These stocks, because of their smaller size, are subject to less research from both institutional and individual investors.

Consequently, they are often more likely to be mispriced by the market than larger capitalization stocks. This means they can often be priced either too high or too low.

As a result, smaller-capitalization stocks may provide more opportunity for enterprising investors even if, on average as a group, they do not outperform stocks with larger market capitalizations.