3 ingredients for small cap success

The multi-bagger is the “holy grail” for most small cap investors. Whether you like tech, resources, industrials, or all the above, there’s nothing quite like the satisfaction of watching your stock go up three, five, or even 10 times.

Dean Fergie from Cyan Investment Management has had a few of these stocks in his nearly-25-year career in Aussie small caps. He has noted a few similarities among them – though he freely admits its “obvious stuff”.

1. The company’s product or service must be scalable.
2. People love what the company is selling. These types of companies tend to generate ‘buzz’ – think Afterpay in the early days, or for those that remember, Sanity stores when they were being rolled out in the 90s.
3. People are forced to use it, regardless of whether they like it. He points to Transurban (it was a small cap once!) as a good example.

In this episode of The Rules of Investing podcast, Dean explains how to handle it when markets aren’t going your way, we discuss a handful of Aussie small caps – some well-known, some not so – and he tells us why he thinks it’s time to start putting cash to work after the recent sell off.