By now, everyone in the Australian business world has learned about the monster deal between US fintech giant Square Inc [NYSE:SQ] and Australia’s Afterpay Ltd [ASX:APT].
With Afterpay now under Square’s umbrella, Aussie investors’ tongues are wagging about the death of the Big Four, and the dawn of the age of fintechs.
But Afterpay started from humble roots: a young founder with a vision — and a technology stack to implement that vision.
Afterpay IPOed at $1.00 a share — Square picked up the company for roughly $126 per share.
Despite numerous trials and tribulations Afterpay may now be seen as a model of how to run a rapid-growth technology business in Australia.
From a meagre IPO valuation to a US market share behemoth in four years, Afterpay began its life as a small-cap.
A lot of Aussie investors are scared of small-caps.
They buy the hype, get burned and throw in the towel. These risky and volatile companies are prone to big moves and many simply don’t have the stomach for it.
But…
Investing in small-caps can be an incredibly rewarding experience if done properly. There are so many fascinating companies out there doing amazing work.
Companies that are leveraging a highly educated workforce and a regulatory environment that is increasingly helpful to innovative companies.
In Australia, there are immense structural shifts happening across every industry as the conversion to the digital age ramps up. Climate change issues are causing whole industries to implode — and others to grow from nothing to multi-billion-dollar industries in just a few years.
Environmental, social and governance (ESG) issues have reached a tipping point and are creating big opportunities as consumer behaviour changes.
Biotech firms in Australia are respected as some of the most exciting and advanced in the world. They’re working on incredible advances in medicine as we get closer to detecting cancers at a much earlier stage and treating them with far more precision than we ever thought possible in the past.
The barriers to entry in industries that have been wrapped up by the big end of town are slowly crumbling.
For example, fintech firms like Afterpay are just starting to gain traction by offering consumers a better experience than the Big Four banks have offered in the past.
In fact, technology is moving so rapidly that it only takes a few years for success to take hold and immense value to be created by up-and-coming companies.
Well…
Everyone focuses on Afterpay as the prime example of what’s going on, and I’m happy to say some members of the investment service we run walked away with a 1,448% return in Afterpay.
When you consider the fact it usually ends up costing you money, after inflation, to have money parked at a bank, a 1,448% return seems impossible. But that’s the type of return you can get from investing in the right small-caps, at the right time.
Is it easy to do?
Of course not. Stories like Afterpay’s are not all that common.
It’s incredibly difficult and takes immense dedication and hard work.
And again, there’s the simple fact that these are high-risk investments. You could lose part or all of your investment.
But in our view, the path to small-cap investing success involves an understanding of portfolio management, risk management, investor psychology and fundamental and technical analysis. You have to dedicate countless hours to researching hundreds of companies and have a well-honed set of rules to zero in on the stocks that could be ready to blast higher.
Who has the time to devote to that?
That’s where we come in. Our job is totally focused on scouring the market looking for stocks that are nearing their inflection point for growth and cashflows.
But the crux of what we do is far more than just sending out investment ideas.
People who haven’t had much experience investing in the stock market are usually in for a rude shock when they wade into these shark-infested waters. Small-cap share prices are incredibly volatile and that can lead to emotional volatility in people who haven’t experienced such things before.
And that usually leads to mistakes. Most novice traders and investors are shaken out of their positions for a loss long before the stock has had time to get going.
The learning curve can be steep, and most investors throw up their hands and give up before they gain the experience necessary to succeed.
Our advice is: lean on people who have been there and done that before. One of us has been trading the markets for thirty years. The other was part of the team behind our original Afterpay Touch Ltd recommendation four years ago.
Together we’re here to guide you through your ASX-listed small-cap investing journey. And our aim is to deliver the best returns possible.
Interested in taking the plunge? You’ll be pleased to know we’ve got something special in the works.
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Murray Dawes,
For Money Morning
PS: Promising Small-Cap Stocks: Market expert Ryan Clarkson-Ledward reveals why these four undervalued stocks could potentially soar in 2021. Click here to learn more.
