It is clear that managed funds may have some advantages over us smaller guys, such as the ability to meet management. However, one huge disadvantage they face over us are liquidity/portfolio size constraints. Managed funds managing $1 billion will have big difficulties moving a substantial portion of their money into smaller companies. This provides us with a huge structural advantage. In a sense, buying into large cap stocks is throwing away this advantage we have. The reason why smaller caps may be beneficial is because they tend to be under-researched companies and not invested in by bigger funds. For these reasons, there is a greater chance of securities being mis-priced.
Yes, smaller companies tend to be riskier, but not all. A company that comes to mind is Nick Scali. I'm not saying to go out and buy it, but it's an example of a wonderful business that huge funds will have trouble getting their hands on. I hope this may make you think a little differently or broaden your scope in terms of the investment landscape of which you have at your disposal.
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