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Matthias Knab, Opalesque:

John Huber, Value oriented fund manager at Saber Capital Management, writes on Harvest Exchange:

A couple months ago I read an investment write-up on a large-cap stock that is one of the most widely followed and largest companies in the S&P 500. There was a comment that basically asked the following question: "What is your edge with this stock?"

The implication of this question is that there isn’t any edge to be had with large, well-followed stocks, but there is an edge to be gained with small, underfollowed stocks.

This is a commonly held view among value investors: you need to seek out stocks that are underfollowed, in hopes of gaining bits of information that the market is not currently pricing into the stock. This is a well-intended strategy, but I think the presumption that there is a lot of informational advantage to be had in small caps is vastly overstated. This doesn’t mean I believe the market is efficient, I just think that attempting to gain an informational advantage is not the most effective way of finding value, given the wide availability of easily obtainable information in today’s market.

I did a talk at the MicroCap Conference in Philadelphia recently where I addressed three main advantages that can be had in markets: