Micro Cap Stock Memo

1. ONE FOR THE LITTLE GUYS
Why do stocks with market values of less than $400 million often buck the trend of major market
moves and go their own way? Is it based on fundamentals?
We believe Micro Cap stocks have increasingly become less correlated to the performance of
large and mega cap stocks. This conclusion appears to be demonstrated by the relative
outperformance of SLG’s Micro Cap strategy during 2015. The strategy is up +7.8%1
while the
S&P remains slightly negative.
As a firm, we manage nine separate strategies, a mutual fund, and two hedge funds across which
virtually all domestic and international equity styles are represented. As such, our opinion is
based on daily pricing and returns comparisons extending back 20 years.
We believe the above mentioned phenomenon is a product of the type of investors who purchase
these stocks. Micro Cap stock buyers often include the founder(s), management, friends and
families, and small funds with portfolio managers who focus on identifying fundamentally strong
companies with unique products or market niches.
Micro Cap stock buyers rarely include large Hedge Funds, activist investors, or Sovereign
Funds; the afore-referenced group is responsible for trillions of dollars of investable assets
capable of trading large sums on a daily basis and often utilizing leverage.
Increasingly, market corrections such as the one that occurred in August are liquidity (or lack
thereof) driven events. That is, something causes investors to sell which causes prices to go
lower and leads to leveraged investors exceeding the limits set by their banks or brokers for
margin. This forces them to sell more securities which results in a self-fulfilling cycle.
As the situation compounds itself and sellers outnumber buyers, liquidity becomes an issue.
Thus, managers often sell their biggest and most liquid stocks first.
Once sold, some of these stocks come back more slowly as investors learn that these large,
momentum stocks can go down sharply in very short time frames. Also, once a stock has lost its
luster, buyers are probably more scrutinizing before making the decision to reinvest. Thus, the
recovery for the big guys caught in the liquidity sell-off is often slow and sometimes does not
occur at all, as Hedge Funds and Activists turn their attentions elsewhere.
While investors in mega cap stocks contemplate whether China will collapse, the timing of rising
interest rates, the impact of dollar strength on foreign demand, etc., the following Micro Cap
companies have grown their earnings steadily, while garnering little coverage or fanfare.
1
As of 10/9/2015. Calculated net of fees as a weighted average of the performance from a sample set of client
accounts invested in the strategy over the period 1/1/2015 - 10/9/2015.

2. Company Symbol
Market
Cap
YTD
Return
# of
Analysts
Largest
Shareholder
NV5 Holdings NVEE $180M 69% 2 Dickerson Wright (27%)
Simulations Plus SLP $165M 41% 1 Walter Woltosz (35%)
Misonix Inc MSON $84M -12% 0 Norman Pessin (7%)
Nathan's Famous NATH $696M -27% 0 Howard Lorber (23%)
From this small sample we observe the following:
 2015 returns vary significantly from major indices both on the up and downside
 Largest holder appears to be a long-term investor who does not employ short selling
 Analyst coverage is either limited or non-existent
In closing, we believe that Micro Cap stocks offer investors the ability to enjoy returns with less
influence from headline news. Additionally in our opinion, understanding a company’s
fundamentals and business trends is much more controllable and scientific than guessing when
the next Greek crisis or Russian invasion will occur.
The preceding represents the view and opinions of The Stanley-Laman Group, Ltd. and is not intended to be
investment advice. All investing involves risk and the historical returns offered are not an indication of future
performance. Investors should consult with a qualified professional prior to implementing any investment strategy.