In 2006, James O’Shaughnessy wrote ‘Predicting the Markets of Tomorrow’ in which he explains his micro-cap investing strategy called: Tiny Titans. This strategy has both value and momentum components. It is a simple investing strategy, and is a good way to screen for small cap stocks.
The main reasons why this strategy is interesting is because these stocks have little analyst coverage and are generally ignored by institutional investors. This should mean that there are more opportunities for out-performance within this group of stocks as compared to the market as a whole.
The criteria for the strategy is as follows:
– Rank companies from highest to lowest based on which are trading at their 52-week highs
– Exclude foreign companies
– Buy companies with a price-to-sales ratio of less than 1,
– A market cap between $25-50 million
– Are trading with a minimum Dollar Volume of $100,000
– Sell losing stocks after one year and re-balance the portfolio.
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