The Small-Cap Advantage How Top Endowments and Foundations Turn Small Stocks into Big Returns

by Bares, Brian

• ISBN13: 9780470615768
• ISBN10: 0470615761
• Edition: 1st
• Format: Hardcover
• Copyright: 2011-02-02
• Publisher: Wiley
• More Book Details

Summary

A world-renowned money manager shares winning strategies for small-stock investingSince forming Bares Capital Management, Inc. in 2000, Brian Bares has shown that above average returns can be generated through the careful selection of small company common stocks. Additionally, he's shown how concentrating capital in a handful of ideas improves the potential for outperformance by increasing the depth of knowledge of each position and allowing each security to have a more meaningful impact on the portfolio. In The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks Into Big Returns, Bares describes how endowment-model investors and aspiring managers can gain meaningful exposure to small stocks while sidestepping many of the obstacles that have historically prevented institutional investment in the asset class. The book also Details the historical outperformance of small-cap stocks Contrasts the various strategies employed by managers in the space Explains how aspiring managers can structure a firm to boost performance and attract institutional capital Describes how endowment-model institutions can evaluate and engage outside managers for their small-cap allocations Summarizes important topics such as liquidity and the research processBigger is not better. The Small-Cap Advantage reveals that small stocks have historically performed better than large ones, and that lack of competition in small-cap stocks provides diligent managers with a singular opportunity to outperform.

Author Biography

Brian T. Bares, CFA, is a research analyst with Bares Capital Management, Inc. He founded the firm in 2000 with the belief that concentrated portfolios of inefficiently priced small companies could lead to high relative compounding. His firm manages the institutional portfolios of small-cap and micro-cap common stocks in long-only, replicated separate accounts. Mr. Bares began his career by working his way up from the bottom. From compliance and operations, to trading and portfolio management, he garnered experience in nearly all aspects of running a boutique small-cap management company before starting his own company. He graduated from the University of Nebraska with a degree in mathematics. His investment philosophy and strategy have been profiled in Value Investor Insight and the Manual of Ideas: Portfolio Manager's Review. Mr. Bares holds the Chartered Financial Analyst designation and is a member of the CFA Society of Austin. He resides in Austin, Texas, with his wife and two sons.

Table of Contents

Introduction

Acknowledgments

The Small-Cap Advantage

Two Sources of Outperformance

Small-Cap Definitions

The Outperformance of Small-Cap Stocks

Outperformance within the Small-Cap Space

Chapter Summary

Small-Cap Disadvantages

Research

Trading

The Small-Cap Graveyard and Reverse Survivorship Bias

Capping Assets

Chapter Summary

Small-Cap Investment Philosophy and Process

Institutional Approach

Passive and Enhanced Indexing in Small-Cap Stocks

Active Management in Small-Cap Stocks

Chapter Summary

Small-Cap Manager Organization

Creating Value for the Manager

Launching a Small-Cap Firm

Investment Team

Chapter Summary

The Fundraising Process

General Marketing Strategy

Institutional Clients

Foundations and Endowments

Consulting Firms

Pension Plans

High Net-Worth Individuals

Wrap Fee and other Sub-Advisory Relationships

Databases

Third-Party Marketers

The Chicken-and-Egg Problem

Chapter Summary

Fees, Agency Issues, and Other Performance Drags

Common Performance Drags

Frictional Costs in Small Caps

Institution-Manager Agency Issues

Agency Issues in Trading

Benchmark Tyranny

Commingled and Separate Accounts

Chapter Summary

Small-Cap Managers and the Endowment Model

The Endowment-Model Approach to Small Caps

Finding an Edge

Funding Smaller Managers

Funding Emerging Managers

Finding Emerging Managers

Chapter Summary

Evaluating Small-Cap Managers

Institutional Due Diligence Teams

Assessing Manager Risk

Assessing Investment Philosophy

Analyzing a Manager's Process

Evaluating Firm Principals

Assessing Manager Operations

Contributions and Withdrawals

Chapter Summary

Final Thoughts

Notes

About the Author

Index

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