The Motley Fool

Why WAM Microcap Limited (ASX:WMI) should be on your watchlist

One of the main ways to deliver market-beating returns, or avoid bad returns, is to stay within your circle of competence. It can be a very dangerous game to try to invest in things that you don’t understand.

How are you supposed to assess whether that business has a market-beating product? If a problem happens to the industry or business, will you know if that’s a problem?

The small cap space of the market is a very interesting place. It’s full of businesses that few investors and analysts look at. It actually makes sense to look at smaller businesses because it’s much easier for a small business to double its profit than it is for a large business. Larger size affects performance.

I’m not an expert in most small caps, which is why only a few shares I own would be considered small. But that doesn’t mean I have to avoid that area of the market entirely. I (and you) can invest in a fund manager with expertise in that area. Small cap managers are able to offer something very different to a typical fund manager.

That’s why I own shares of WAM Microcap Limited (ASX: WMI) and I’d like to own more over time.

WAM Capital Limited (ASX: WAM) started off life investing in small businesses but now it has grown to such a large size that it can’t invest in the smallest businesses any more without owning a significant amount of those businesses.

That’s why WAM Microcap could be so good. It’s going back to the ‘roots’ of the Wilson Asset Management philosophy of investing in small caps.

WAM Microcap invests in shares that have market capitalisations of less than $300 million at the time of acquisition. WAM Microcap itself is a much smaller company then WAM Capital.

Foolish takeaway

It’s been a fantastic first year for WAM Microcap, with its portfolio up by 28.4% before fees since June last year. This has been achieved with a significant cash holding as well, with cash being 23.9% of the portfolio at the end of May 2018.

I wouldn’t expect every year to be like that, but over the next ten years I think WAM Microcap could be a very good performer. Although the occasional year could be very volatile.

If you want to stick to investing in exciting shares yourself, then these top stocks could be exactly what you’re looking for.

4 Top Shares To Grow Your Wealth

Renowned investor Scott Phillips just released a brand-new report detailing his 4 favourite stocks to buy right now.

And I don’t know about you, but I always pay attention when some of the best investors in the world give me a stock tip.

This is your chance to get in at the very beginning of what could prove to be very special investments.

Click here to get started today!

Motley Fool contributor Tristan Harrison owns shares of WAM MICRO FPO. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now