Bobbing for multibaggers in the small-cap market

IN AGATHA Christie’s mystery novel Hallowe’en Party, a young guest who may have witnessed a murder drowns in an apple-bobbing basket. In the wrong place at the wrong time, the unfortunate partygoer’s fate is a metaphor for that of the unlucky investor who bites into a losing stock and tastes the consequences.

Taking a page from Benjamin Graham and David Dodd, Howard Marks, co-chair and co-founder of Oaktree Capital Management, describes fixed-income investing as “a negative art”: Success depends not on finding winners but on avoiding losers, on not buying those companies likely to default on loans and drag down returns.

In Winning the Loser’s Game, Charles D Ellis draws a similar parallel between professional money management and tennis and golf. In tennis and golf, the winner tends to be the player who makes the fewest errors, not necessarily the one who makes the best shots.