Where the Market’s Biggest Opportunities Still Hide
Warren Buffett has spent more than seven decades building one of the greatest investment records in history. But he has also acknowledged an interesting paradox about his success: investing became harder as Berkshire Hathaway became larger.
At Berkshire’s 2024 annual meeting, Buffett was asked how he would invest if he were starting again with only $1 million. His answer was telling. He said he would try to “know everything about everything small,” arguing that with a modest amount of capital, the universe of potential investments becomes dramatically larger.
This is not a new idea for Buffett.
Back in 1999, he explained that investors working with relatively small amounts of money could search through tiny securities, arbitrage situations, and other market inefficiencies that had no applicability to Berkshire. As capital rises, Buffett said, that advantage disappears rapidly.
He made a similar point in 2001, noting that his own best period of investment performance came when he was working with very small sums of capital. At the time, he could dig through obscure businesses and put relatively small amounts of money into securities he believed were dramatically mispriced.
That lesson remains highly relevant for individual investors today.
Wall Street has never had more information, computing power, or research resources at its disposal. Yet the largest investors also suffer from one unavoidable disadvantage: they have too much money.
That leaves a portion of the stock market where individual investors can still compete on much more favorable terms.
Why Wall Street Can't Play Here
Imagine a portfolio manager overseeing $100 billion.
Even if that manager discovers an exceptional company worth $200 million, there is only so much stock the fund can realistically buy. A $20 million position would represent a significant ownership stake in the company, yet account for just 0.02% of the fund.
Even if the stock subsequently doubled, the impact on the overall portfolio would be almost meaningless.
There are additional problems. Building a large position in a thinly traded company can push the share price sharply higher. Selling that position later can be equally difficult. Funds may also have liquidity requirements, market-cap restrictions, or internal rules that prevent them from owning these companies in the first place.
And perhaps most importantly, researching a small company takes time.
A portfolio manager and analyst might spend weeks studying an obscure $300 million company, meeting management and building financial models. Or they could spend that same time researching a $300 billion company where the fund can deploy billions of dollars.
The economics strongly favor the latter.
That means many small companies are not overlooked because professional investors believe they are bad businesses, but because they are simply too small to matter.
For individual investors, that distinction matters.
Less Competition Can Create Bigger Opportunities
Markets work because investors compete constantly to identify mispriced assets.
When hundreds of analysts, hedge funds, and institutional investors follow the same company, new information tends to get incorporated into its stock price very quickly.
That is especially true among the largest companies in the market. Every earnings report is dissected. Every product announcement is modeled. Management commentary is scrutinized almost instantly, and billions of dollars are waiting to respond.
Move down the market-cap spectrum and the environment can look very different.
Smaller companies may have only a handful of analysts covering them. Some receive almost no mainstream financial-media attention. Institutional ownership can be limited, and management presentations may attract a fraction of the audience commanded by the market's largest businesses.
That reduced competition can create inefficiencies.
A company might post accelerating revenue growth for several quarters before investors fully appreciate the change. A restructuring could dramatically improve profitability. A new product might begin gaining traction. A major contract could transform the earnings outlook. Debt might be paid down, margins could expand, or an entire industry could suddenly enter a new cycle.
The opportunity comes from recognizing those changes before they become obvious.
By the time every investor agrees that a company's outlook has dramatically improved, much of the easy money has usually already been made.
In less-followed stocks, there can be a much larger window between the fundamental inflection and widespread recognition of it.
That is the pond in which individual investors should want to fish.
The Power of Starting Small
Smaller companies offer another simple advantage: they have much more room to grow.
A company worth $300 million does not need to become the next Nvidia to produce an extraordinary investment return.
If improving fundamentals eventually justify a $1.5 billion valuation, investors have a five-bagger. If that business ultimately grows into a $3 billion company, the result is a tenfold increase.
Those are still relatively modest valuations in the context of the broader stock market.
Compare that with today's mega-cap companies. A business already worth $3 trillion needs to create another $3 trillion of market value simply for investors to double their money.
That does not mean enormous companies cannot continue producing excellent returns. Many will.
But the mathematics become progressively more demanding as companies grow.
Smaller businesses can increase revenues several times over without exhausting their addressable market. A new product, geographic expansion, or a single successful acquisition can materially alter the company's earnings power. Relatively small changes in institutional ownership can also produce significant moves in the stock.
That is how some truly asymmetric opportunities develop.
Investors do not need every small stock they own to become a ten-bagger. In fact, very few ever will.
But finding even a handful of exceptional winners over the course of an investing career can have a meaningful impact on overall returns.
Finding the Winners Among the Losers
Of course, this part of the market offers greater potential rewards.
It also comes with greater risks.
Continue . . .
------------------------------------------------------------------------------------------------------
Stocks Under $10 to Buy Today
Zacks is now revealing its most compelling picks priced under $10 per share (but perhaps not for long). These high-quality companies have prospects for returns of up to 2X and more. While not all our picks are winners, recent recommendations have led investors to gains of +110.4%, +113.7%, +163.6%, and even +230.3%.¹
These stocks offer the best of both worlds: immediate growth potential AND the strong likelihood of long-term profitability.
This special opportunity ends at midnight Sunday, September 6.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Many struggling companies are among low-priced stocks. Some carry too much debt. Others repeatedly issue new shares and dilute existing investors. Some operate weak businesses with declining revenues, while others have management teams that consistently destroy shareholder value.
A stock that has already fallen 80% can always fall another 80%.
That is why the strategy cannot simply be to buy companies because they are small, overlooked, or trading at a low share price.
The goal is to identify the exceptions.
I want companies where something is changing for the better and where the rest of the market may not yet fully appreciate the significance of that improvement.
That distinction is critical.
What I Look for in a Small Stock
There is no single formula for finding these opportunities, but I generally want several factors working together.
The first is improving earnings expectations.
One of the most useful signals in the Zacks system is earnings estimate revisions. When analysts repeatedly raise their forecasts for a company's future earnings, it tells us that the underlying business is performing better than previously expected.
That matters because stock prices tend to follow earnings over time.
A small company with deteriorating estimates may look statistically cheap for good reason. But when estimates are moving higher while the valuation still reflects pessimistic expectations, the setup becomes much more interesting.
The second thing I want is a clear catalyst.
That might be accelerating sales, expanding margins, a new product cycle, a major customer win, restructuring, balance-sheet improvement, or exposure to a powerful secular growth trend.
The exact catalyst varies from company to company. What matters is having a reason why the business could look materially better six or twelve months from now.
Valuation also matters, particularly when expectations remain depressed.
Some of the most compelling opportunities occur when the market is still pricing a company based on its old problems even though the underlying fundamentals have already begun changing.
That gap between perception and reality is exactly what creates the potential for outsized returns.
Why Price Momentum Matters
Fundamentals are only one side of the equation.
I also want to see evidence that other investors are beginning to recognize the change.
That is where technical analysis becomes particularly useful.
A stock making higher highs and higher lows, breaking through long-term resistance, or showing strong relative strength sends a very different message than one that continues making fresh lows despite supposedly positive fundamentals.
The best setups often emerge when the two begin working together.
Earnings expectations start moving higher. The company delivers an improving fundamental story. Then the stock begins to outperform, and institutional buying starts to appear.
That combination can mark an important transition.
I am not looking for a stock simply because nobody else is interested in it. I am looking for a company where the fundamentals are improving faster than expectations and where the stock price is beginning to confirm that change.
When fundamental and technical momentum align, small stocks can move remarkably quickly.
Managing the Risk
The same characteristics that create explosive upside can also create sharp volatility.
Smaller stocks tend to have less liquidity and more company-specific risk. That makes position sizing, diversification, and sell discipline especially important.
Balance sheets deserve particular attention. A promising business can still become a poor investment if it is forced to raise capital on unfavorable terms or continually dilute shareholders.
Investors also need to distinguish between volatility and a broken thesis.
A 15% or 20% move in a small stock can sometimes occur without any meaningful change in the underlying business. Selling every pullback makes it difficult to hold the rare winners long enough for the fundamental story to play out.
At the same time, patience should never become an excuse for holding a deteriorating company indefinitely.
If earnings expectations collapse, the fundamental catalyst disappears, or management undermines the original thesis, there is nothing wrong with moving on.
The objective is to cut situations where the thesis has changed while giving successful investments enough room to develop.
The Advantage Individual Investors Still Have
Individual investors often assume Wall Street holds every advantage.
Institutions have enormous research teams, direct access to management, sophisticated technology, and seemingly unlimited data.
But scale is not always an advantage.
Buffett himself has repeatedly acknowledged that Berkshire's enormous capital base sharply restricts the investments available to it. Small opportunities that could once transform his personal portfolio can no longer meaningfully affect Berkshire's results.
Individual investors face no such constraint.
We do not need a company to be worth $100 billion before it becomes investable. We can research businesses too small for major institutions, build meaningful positions without deploying billions of dollars, and pursue opportunities that simply do not move the needle for Wall Street.
That does not make investing in smaller stocks easy.
In many ways, it requires greater discipline because there are more weak businesses, more volatility, and fewer analysts doing the work for you.
But that difficulty is also part of what creates the opportunity.
The most attractive part of the market is not necessarily the place with the most analysts, the most headlines, or the most capital competing for every idea.
Sometimes it is the exact opposite.
And for investors willing to do the work, some of the market's biggest opportunities can still be found in its smallest corners.
Get Set for Big Payoffs
One of the easiest ways to avoid costly mistakes and position yourself for healthy profits with single-digit stocks is to review the recommendations we're holding in our Stocks Under $10 portfolio.
We select a diverse group of companies on the verge of significant upward moves and enter when the Zacks Rank and other proven indicators signal success ahead. Then we ride them long and high.
While not all our picks are winners, recent recommendations have led to gains of +110.4%, +113.7%, +163.6%, and even +230.3%.¹
Now is a great time to join the investors following Stocks Under $10. I just added a brand-new stock to the portfolio.
Like all the recommendations we're holding in our portfolio, my pick will offer:
• High growth potential up to 2X and more.
• Excellent prospects for early price movement. Proprietary Zacks signals indicate that significant growth could start within 1-3 months.
• And confidence to stay aboard for months and years while other investors bail out early for lesser gains.
See my new pick and all the stocks we’re holding for only $1.
Free Bonus: You'll also receive 7 Best Stocks for the Next 30 Days. This Special Report reveals 7 companies poised for immediate breakout. Each stock was selected because of its superior short-term profit potential under current market conditions.
But a word of caution: Your chance to download this report for free ends midnight Sunday, September 6.
See our Stocks Under $10 for $1 and download your 7 Best Stocks for the Next 30 Days Special Report now >>
Best regards,
Ethan Feller
Stock Strategist
Ethan Feller is a Stock Strategist at Zacks Investment Research and has a decade of experience trading in markets. Before joining Zacks, Ethan worked at a proprietary trading firm, where he focused on statistically significant short-term trading strategies in stocks and futures. Since then, Ethan has broadened his market research and now focuses on combining sound value investing, macroeconomic analysis, and systematic investment strategies. He invites you to check out Stocks Under $10.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.
View the Zacks #1 Rank List
Image: Bigstock
The Investing Advantage Warren Buffett Left Behind
Where the Market’s Biggest Opportunities Still Hide
Warren Buffett has spent more than seven decades building one of the greatest investment records in history. But he has also acknowledged an interesting paradox about his success: investing became harder as Berkshire Hathaway became larger.
At Berkshire’s 2024 annual meeting, Buffett was asked how he would invest if he were starting again with only $1 million. His answer was telling. He said he would try to “know everything about everything small,” arguing that with a modest amount of capital, the universe of potential investments becomes dramatically larger.
This is not a new idea for Buffett.
Back in 1999, he explained that investors working with relatively small amounts of money could search through tiny securities, arbitrage situations, and other market inefficiencies that had no applicability to Berkshire. As capital rises, Buffett said, that advantage disappears rapidly.
He made a similar point in 2001, noting that his own best period of investment performance came when he was working with very small sums of capital. At the time, he could dig through obscure businesses and put relatively small amounts of money into securities he believed were dramatically mispriced.
That lesson remains highly relevant for individual investors today.
Wall Street has never had more information, computing power, or research resources at its disposal. Yet the largest investors also suffer from one unavoidable disadvantage: they have too much money.
That leaves a portion of the stock market where individual investors can still compete on much more favorable terms.
Why Wall Street Can't Play Here
Imagine a portfolio manager overseeing $100 billion.
Even if that manager discovers an exceptional company worth $200 million, there is only so much stock the fund can realistically buy. A $20 million position would represent a significant ownership stake in the company, yet account for just 0.02% of the fund.
Even if the stock subsequently doubled, the impact on the overall portfolio would be almost meaningless.
There are additional problems. Building a large position in a thinly traded company can push the share price sharply higher. Selling that position later can be equally difficult. Funds may also have liquidity requirements, market-cap restrictions, or internal rules that prevent them from owning these companies in the first place.
And perhaps most importantly, researching a small company takes time.
A portfolio manager and analyst might spend weeks studying an obscure $300 million company, meeting management and building financial models. Or they could spend that same time researching a $300 billion company where the fund can deploy billions of dollars.
The economics strongly favor the latter.
That means many small companies are not overlooked because professional investors believe they are bad businesses, but because they are simply too small to matter.
For individual investors, that distinction matters.
Less Competition Can Create Bigger Opportunities
Markets work because investors compete constantly to identify mispriced assets.
When hundreds of analysts, hedge funds, and institutional investors follow the same company, new information tends to get incorporated into its stock price very quickly.
That is especially true among the largest companies in the market. Every earnings report is dissected. Every product announcement is modeled. Management commentary is scrutinized almost instantly, and billions of dollars are waiting to respond.
Move down the market-cap spectrum and the environment can look very different.
Smaller companies may have only a handful of analysts covering them. Some receive almost no mainstream financial-media attention. Institutional ownership can be limited, and management presentations may attract a fraction of the audience commanded by the market's largest businesses.
That reduced competition can create inefficiencies.
A company might post accelerating revenue growth for several quarters before investors fully appreciate the change. A restructuring could dramatically improve profitability. A new product might begin gaining traction. A major contract could transform the earnings outlook. Debt might be paid down, margins could expand, or an entire industry could suddenly enter a new cycle.
The opportunity comes from recognizing those changes before they become obvious.
By the time every investor agrees that a company's outlook has dramatically improved, much of the easy money has usually already been made.
In less-followed stocks, there can be a much larger window between the fundamental inflection and widespread recognition of it.
That is the pond in which individual investors should want to fish.
The Power of Starting Small
Smaller companies offer another simple advantage: they have much more room to grow.
A company worth $300 million does not need to become the next Nvidia to produce an extraordinary investment return.
If improving fundamentals eventually justify a $1.5 billion valuation, investors have a five-bagger. If that business ultimately grows into a $3 billion company, the result is a tenfold increase.
Those are still relatively modest valuations in the context of the broader stock market.
Compare that with today's mega-cap companies. A business already worth $3 trillion needs to create another $3 trillion of market value simply for investors to double their money.
That does not mean enormous companies cannot continue producing excellent returns. Many will.
But the mathematics become progressively more demanding as companies grow.
Smaller businesses can increase revenues several times over without exhausting their addressable market. A new product, geographic expansion, or a single successful acquisition can materially alter the company's earnings power. Relatively small changes in institutional ownership can also produce significant moves in the stock.
That is how some truly asymmetric opportunities develop.
Investors do not need every small stock they own to become a ten-bagger. In fact, very few ever will.
But finding even a handful of exceptional winners over the course of an investing career can have a meaningful impact on overall returns.
Finding the Winners Among the Losers
Of course, this part of the market offers greater potential rewards.
It also comes with greater risks.
Continue . . .
------------------------------------------------------------------------------------------------------
Stocks Under $10 to Buy Today
Zacks is now revealing its most compelling picks priced under $10 per share (but perhaps not for long). These high-quality companies have prospects for returns of up to 2X and more. While not all our picks are winners, recent recommendations have led investors to gains of +110.4%, +113.7%, +163.6%, and even +230.3%.¹
These stocks offer the best of both worlds: immediate growth potential AND the strong likelihood of long-term profitability.
This special opportunity ends at midnight Sunday, September 6.
See Stocks Now >>
------------------------------------------------------------------------------------------------------
Many struggling companies are among low-priced stocks. Some carry too much debt. Others repeatedly issue new shares and dilute existing investors. Some operate weak businesses with declining revenues, while others have management teams that consistently destroy shareholder value.
A stock that has already fallen 80% can always fall another 80%.
That is why the strategy cannot simply be to buy companies because they are small, overlooked, or trading at a low share price.
The goal is to identify the exceptions.
I want companies where something is changing for the better and where the rest of the market may not yet fully appreciate the significance of that improvement.
That distinction is critical.
What I Look for in a Small Stock
There is no single formula for finding these opportunities, but I generally want several factors working together.
The first is improving earnings expectations.
One of the most useful signals in the Zacks system is earnings estimate revisions. When analysts repeatedly raise their forecasts for a company's future earnings, it tells us that the underlying business is performing better than previously expected.
That matters because stock prices tend to follow earnings over time.
A small company with deteriorating estimates may look statistically cheap for good reason. But when estimates are moving higher while the valuation still reflects pessimistic expectations, the setup becomes much more interesting.
The second thing I want is a clear catalyst.
That might be accelerating sales, expanding margins, a new product cycle, a major customer win, restructuring, balance-sheet improvement, or exposure to a powerful secular growth trend.
The exact catalyst varies from company to company. What matters is having a reason why the business could look materially better six or twelve months from now.
Valuation also matters, particularly when expectations remain depressed.
Some of the most compelling opportunities occur when the market is still pricing a company based on its old problems even though the underlying fundamentals have already begun changing.
That gap between perception and reality is exactly what creates the potential for outsized returns.
Why Price Momentum Matters
Fundamentals are only one side of the equation.
I also want to see evidence that other investors are beginning to recognize the change.
That is where technical analysis becomes particularly useful.
A stock making higher highs and higher lows, breaking through long-term resistance, or showing strong relative strength sends a very different message than one that continues making fresh lows despite supposedly positive fundamentals.
The best setups often emerge when the two begin working together.
Earnings expectations start moving higher. The company delivers an improving fundamental story. Then the stock begins to outperform, and institutional buying starts to appear.
That combination can mark an important transition.
I am not looking for a stock simply because nobody else is interested in it. I am looking for a company where the fundamentals are improving faster than expectations and where the stock price is beginning to confirm that change.
When fundamental and technical momentum align, small stocks can move remarkably quickly.
Managing the Risk
The same characteristics that create explosive upside can also create sharp volatility.
Smaller stocks tend to have less liquidity and more company-specific risk. That makes position sizing, diversification, and sell discipline especially important.
Balance sheets deserve particular attention. A promising business can still become a poor investment if it is forced to raise capital on unfavorable terms or continually dilute shareholders.
Investors also need to distinguish between volatility and a broken thesis.
A 15% or 20% move in a small stock can sometimes occur without any meaningful change in the underlying business. Selling every pullback makes it difficult to hold the rare winners long enough for the fundamental story to play out.
At the same time, patience should never become an excuse for holding a deteriorating company indefinitely.
If earnings expectations collapse, the fundamental catalyst disappears, or management undermines the original thesis, there is nothing wrong with moving on.
The objective is to cut situations where the thesis has changed while giving successful investments enough room to develop.
The Advantage Individual Investors Still Have
Individual investors often assume Wall Street holds every advantage.
Institutions have enormous research teams, direct access to management, sophisticated technology, and seemingly unlimited data.
But scale is not always an advantage.
Buffett himself has repeatedly acknowledged that Berkshire's enormous capital base sharply restricts the investments available to it. Small opportunities that could once transform his personal portfolio can no longer meaningfully affect Berkshire's results.
Individual investors face no such constraint.
We do not need a company to be worth $100 billion before it becomes investable. We can research businesses too small for major institutions, build meaningful positions without deploying billions of dollars, and pursue opportunities that simply do not move the needle for Wall Street.
That does not make investing in smaller stocks easy.
In many ways, it requires greater discipline because there are more weak businesses, more volatility, and fewer analysts doing the work for you.
But that difficulty is also part of what creates the opportunity.
The most attractive part of the market is not necessarily the place with the most analysts, the most headlines, or the most capital competing for every idea.
Sometimes it is the exact opposite.
And for investors willing to do the work, some of the market's biggest opportunities can still be found in its smallest corners.
Get Set for Big Payoffs
One of the easiest ways to avoid costly mistakes and position yourself for healthy profits with single-digit stocks is to review the recommendations we're holding in our Stocks Under $10 portfolio.
We select a diverse group of companies on the verge of significant upward moves and enter when the Zacks Rank and other proven indicators signal success ahead. Then we ride them long and high.
While not all our picks are winners, recent recommendations have led to gains of +110.4%, +113.7%, +163.6%, and even +230.3%.¹
Now is a great time to join the investors following Stocks Under $10. I just added a brand-new stock to the portfolio.
Like all the recommendations we're holding in our portfolio, my pick will offer:
• High growth potential up to 2X and more.
• Excellent prospects for early price movement. Proprietary Zacks signals indicate that significant growth could start within 1-3 months.
• And confidence to stay aboard for months and years while other investors bail out early for lesser gains.
See my new pick and all the stocks we’re holding for only $1.
Free Bonus: You'll also receive 7 Best Stocks for the Next 30 Days. This Special Report reveals 7 companies poised for immediate breakout. Each stock was selected because of its superior short-term profit potential under current market conditions.
But a word of caution: Your chance to download this report for free ends midnight Sunday, September 6.
See our Stocks Under $10 for $1 and download your 7 Best Stocks for the Next 30 Days Special Report now >>
Best regards,
Ethan Feller
Stock Strategist
Ethan Feller is a Stock Strategist at Zacks Investment Research and has a decade of experience trading in markets. Before joining Zacks, Ethan worked at a proprietary trading firm, where he focused on statistically significant short-term trading strategies in stocks and futures. Since then, Ethan has broadened his market research and now focuses on combining sound value investing, macroeconomic analysis, and systematic investment strategies. He invites you to check out Stocks Under $10.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position. Access grants you a comprehensive list of all open and closed trades.