I was recently invited to be a guest on the Planet Microcap podcast with Bobby Kraft and as I recorded that episode, I realized that for the most part, I tend to avoid microcap companies for all the reasons most investors are typically wary of them. A tiny company in a raging bull market is more often than not, going to turn into a value trap. Then you have the liquidity issues of trying to get in and out of these types of companies without moving the stock price.
As the conversation unfolded, I realized that the same kind of inefficiencies we look for in special situations also sometimes exist in the microcap space because it doesn’t get enough attention from professional investors with both the time and resources to dig deep and understand these companies.
I usually put the entire space in the “too hard” pile. However just like the exceptions I have recently made with biotechs, sometimes there are exceptions in this area. Things get especially interesting when there are special situations in microcap land.