| Uncertainty. It's an ugly word in any context. | | | | mid and large cap companies, and volatility has been |
| Unfortunately, that's especially true in finance and | | | | rampant this week. Consider this: if the mid and large |
| capital markets. Nothing spooks investors and traders | | | | cap companies like Proctor and Gamble, Microsoft, |
| more than other investors and traders getting | | | | Citigroup who are highly-valued, profitable, and stable |
| spooked out of the same stocks; in other words, | | | | are demonstrating spectacular swings in their stock |
| when uncertainty does hit the market, it breeds | | | | prices, what chance would the share price of a |
| more uncertainty, and before you know it, everyone | | | | small-cap start-up company have to avoid those |
| panics because regardless of the performance of | | | | same major swings? The investors who are in |
| individual companies, everything seems doomed and it | | | | invested in those major companies on those major |
| feeds on itself. | | | | exchanges are typically institutional investors or |
| | | | | hedge funds who have more resources available at |
| Money is pulled from investments as profits are | | | | their disposal to hedge their positions during these |
| taken and positions get cut from portfolios, and the | | | | periods of ugly volatility by taking positions in options |
| market is flooded with irrational sell orders. Hence | | | | and other derivatives that will (at least in the short |
| the "Flash Crash" type movements. Flights to | | | | run) limit their risk. |
| safety are made in gold, government debt or the oil | | | | |
| sector. Massive selloffs take place and global indices | | | | For example, they may be long in Company A, but |
| gyrate in wild swings in less than a week. What I'm | | | | during periods of uncertainty, take out a short |
| talking about is a market correction due to volatility. | | | | position against Company A to limit their downside |
| In our earlier posts, we've touched on the prevailing | | | | losses. We don't see those same strategies being |
| concepts of volatility in the financial markets and | | | | employed by players in the Micro and NanoCap |
| indices like the DOW and the S&P 500, which is | | | | markets. The massive drops we've watched in stock |
| now more than ever an important theme and trend | | | | markets over the past few weeks, including the |
| to understand. But here at World Market Media, we | | | | "Flash Crash" 1,000 point plunge in the DOW in early |
| focus on our niche; our expertise in undervalued and | | | | May, are directly attributable (at least in major part) |
| underreported small cap companies from around the | | | | to those very same institutional investors and hedge |
| world. | | | | funds winding down the hedge. These functionalities |
| Our World Market Media indices performance for | | | | don't exist in many of the stocks we cover. |
| 2010 benchmarked against the major indices reveals | | | | For example, they may be long in Company A, but |
| the following: | | | | during periods of uncertainty, take out a short |
| - WMM MircoCap Index -- down 33% from a high of | | | | position against Company A to limit their downside |
| 1,271 on March 11th, 2010. | | | | losses. We don't see those same strategies being |
| - WMM NanoCap Index -- down 19% from a high of | | | | employed by players in the Micro and NanoCap |
| 1,130 on April 29th, 2010. | | | | markets. The massive drops we've watched in stock |
| - DOW -- down 9.6% from a high of 11,205 on April | | | | markets over the past few weeks, including the |
| 26th. | | | | "Flash Crash" 1,000 point plunge in the DOW in early |
| - S&P 500 -- down 11% from a high of 1,217 on | | | | May, are directly attributable (at least in major part) |
| April 23rd | | | | to those very same institutional investors and hedge |
| - NASDAQ -- down 12% from a high of 2,530 | | | | funds winding down the hedge. These functionalities |
| reached on April 23rd, | | | | don't exist in many of the stocks we cover. |
| This illustrates a striking divergence in comparisons | | | | The good news is that historically, small-cap and |
| between our indices and other major stock markets, | | | | micro companies with brilliant, innovative ideas who |
| and the primary deviations are in the players, the | | | | eventually bring their products to market can be |
| capital structure, and the availability of shares. | | | | capitalized on by any smart, savvy investor who is |
| | | | | able to discover and identify them today in |
| Investors who are buying shares of the small | | | | anticipation of their promotion and introduction into |
| capitalization companies that make up the WMM | | | | the small, mid, and eventually large cap indices |
| Micro and NanoCap indices are not the same | | | | tomorrow. These small names often have little |
| investors who are buying shares of companies that | | | | correllation or beta to the market but the payoff is |
| make up the DOW, the NYSE, S&P, or the | | | | that you can have 100% plus moves in a week as |
| NASDAQ. The difference in liquidity is staggering | | | | the story gets traction. This is one reason why the |
| when compared, where on any given day 6-10 trillion | | | | small trader trades them. |
| shares exchange hands on the large cap indices. | | | | More important are the implications for those |
| Shares of the companies in our Micro and NanoCap | | | | widely-held large cap indices -- which have mostly all |
| companies, for example, may only trade a | | | | by now broken key technical support levels -- and |
| few thousand shares in a day, so therefore small | | | | what that could spell for the Micro and NanoCap |
| cap stocks may not be as easy to get in or out in a | | | | companies. Are we in a downward correction, or is |
| downturn because there simply aren't any buyers or | | | | this the beginning of a long, painful trend in which the |
| competing prices in the marketplace. Further, these | | | | DOW could fall another 25%? |
| companies are small cap for two very obvious | | | | |
| reasons -- they are usually start-up companies with | | | | Only time can give these answers, volatility can give |
| little or no revenues and have fewer shares | | | | us indications, and according to our research, it's still |
| outstanding -- tightening supply, demand, and | | | | looking pretty weak and uncertain. |
| widening the bid to offer to enter and exit. This toll | | | | I do know that Monday morning they will open the |
| many times is enough to keep investors away. | | | | markets and I will be sitting at my desk reviewing |
| Of course, volatility affects Micro and NanoCap | | | | names for you to read...... unless of course the |
| companies in a much more dramatic fashion than the | | | | circuit-breakers kick in! |