As a small and microcap investor (like many on P123), I’m used to the swings and volatility; consider it the price to pay to earn potentially higher absolute returns, given the right picks (and therein is the trick :)). These are also thinly traded compared to larger caps.
That said, I’ve noticed a few cases of some extreme swings recently, the source of which I’ve been unable to determine. These days big moves could typically be explained by Reddit investors, a big earnings report, merger announcement or analyst upgrade. In other cases, there seems to be no evident reason. For two in particular:
SMID - 32% drop in 2 days (mid July) - no major news, no earnings reports
SGRP - just today (26 Jul), 60-100% spike in price, just this morning - again, no major news/reports or Reddit threads
Perhaps some major insider moves, or a significant shareholder selling/buying.
Just curious what everyone else’s experience has been lately, if this is normal to you or something else.
I believe SMID dropped because the CEO and Chairman of the board is 80+ years old and donated a lot of shares to a charitable trust which is currently liquidating them.
But, yes, I’ve generally found when there is a long run up like this in microcaps you’ll see a lot more unusual volatility. Lots of secondary offerings to take advantage of all time highs, lots of profit taking, lots of fund managers diversifying out of positions they’ve gotten way overweight in, lots of companies getting involved in mergers and acquisitions with a lot of capital allocators out there sitting out there with more money in their pocket than they know what to do with. When you’re dealing with microcap companies with low float, it doesn’t take much to cause melt ups and melt downs. and these companies are hardly ever covered by financial media or even most analysts so the reasons are often unknown to the general public. I also think that we’re finding with meme stocks and Robinhood that the long held belief that retail day traders can’t move the needle is proving to be false, particularly on low liquid stocks.
I’m attaching a chart I created with the following parameters:
UnivCnt (“MktCap > 50 and MktCap < 2000 and $50pctin1day”) / UnivCnt (“MktCap > 50 and MktCap < 2000”) where $50pctin1day is LoopMax (“Close(Ctr)/Close(Ctr+1)”, 252) > 1.5 or LoopMin (“Close(Ctr)/Close(Ctr+1)”,252) < 0.5
This measures the fraction of microcaps and small caps with one-day rises or drops in price of greater than 50% in the last year.
You can see that normally 5% of these stocks experience such huge one-day shifts. Currently the number is 15%. And we’re more than a year past the cataclysm of March-April 2020.
Or maybe I shouldn’t say it’s not normal. Maybe it’s the new normal.
Interesting intel on SMID Inman. Is this in the 10K? I remember earlier this month I googled financial news on SMID and couldn’t find anything, but I didn’t go so deep into the 10K for this type of info.
Yuval, this is a very illustrative chart. I would say that the trend is going in the right direction, i.e. down. If the recovery in 2009/2010 is an indicator then this may be normal for a bust phase and following recovery phase, where the proportion of stocks with 50% moves was +/- 5% of the universe before and after. Thanks for sharing, I’ll check this plot periodically in the near future.
Thanks Inman, I suppose you really need to dig for this intel. As I said, this sort of information for these small and microcaps doesn’t pop up through simple Google searches on a given ticker.
