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

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  • Format: Hardcover
  • Copyright: 2011-02-02
  • Publisher: Wiley
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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

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
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
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
About the Author
Table of Contents provided by Publisher. All Rights Reserved.

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