The Small-Cap Advantage: How Top Endowments and Foundations Turn Small Stocks into Big Returns 1st Edition

Brian Bares' book, the Small-Cap Advantage, was a great read for anyone interested in small-cap investing. The content is innovative and informative, but easy to understand and digest with clear examples and visuals. Small caps seem to be overlooked or ignored by many, and the inefficiency created by this creates a powerful advantage for anyone willing to do their homework and focus.Like other experts whose opinions I trust, the author avoids any sense of investing magic or super-systems. Rather, he focuses on an under-served (and therefore inefficient) market and then does his homework to make investments.For anyone interested in learning more about the competitive advantage that can be achieved with a focus on this area, I'd highly recommend it.

I bought this book to learn something new but I really didn't find anything astounding.The writing is ok but there was nothing new. I suggest reading investor letters andinvestment thesis by renowned small cap investors. Those are definitely more informative.

I cannot recall the last time I took so many notes while reading a book. This is not a "how to invest" book, it is a "how to run an investment management firm" book. Bares does a great job of explaining that to have a successful investment management firm, performance alone won't do it. You need a good investment process that can be clearly articulated to investors. Saying "I am a value investor" means nothing to potential clients. There are thousands of value investors, which means hundreds are in the top 10%. What makes you among the best? What separates you from the other few hundred that are in the top 10%? Investors need to be comfortable you have a great process and it is repeatable.

Great Resource. After establishing the super return prospects of Small Caps, Brian provides a completely unique and candid look into the operational side of money management. I do not know of another book like it. A must read for anyone desiring to start of money management firm.Furthermore, this is a must read for anyone responsible for allocating capital (foundations, trusts, pension funds, etc.). Brian provides a road map that will help due diligence teams, at all levels, ask the right questions.

This is a book with the dual purpose of on the one hand teaching aspiring small-cap portfolio managers how to set up shop and on the other hand giving institutional investors a better feel of what to look for when performing due diligence of small-cap managers. In respect to this aim the grade is unfairly low. However, this is not the book that Brian Bares should have written and it quite annoys me.On the sleeve, one of the reviewers claims that Bares “is the Warren Buffett of small and micro-cap stocks” and in scattered sections the writing is very insightful. However, ask yourself, would you rather watch the paintings of Vincent Van Gogh or hear him discussing various ways to organize a studio; would you rather watch Michael Jordan play basketball or read his writing on potential methods to run an NBA-franchise? I certainly would have wanted this book to give me the full account on how the Texas based Bares Capital Management so successfully have managed their small-cap portfolios.The book gives the top down view on the pros and cons of investing in small-cap equity and on the options of indexing vs. active strategies such as either quantitative or fundamental ones. The choices for fee structures, organizational and legal setup are discussed, as is the fundraising process where a number of types of investors into small-cap funds are presented including the endowments. I have almost no objections to what is said and must commend the author’s integrity in debating the many areas where there arise agency issues, i.e. where the interest of the PM and the end-investor aren’t fully aligned.But it’s still fairly dull as a text – the legal entity could be this or that, the traits of a compliance officer should include the following, the pros and cons of outsourcing back office are these etc. The spark arises in the short passages when topics like, how to get an investment edge (quoting Bill Miller’s trio of informational edge, analytical edge and behavioral edge), fundamental investment research, position sizing, the roles of analysts vs. PMs and similar front-office activities are touched upon.Barnes Capital Management invests in businesses with good potential for long term compounding of business value. They focus on moats, exceptional managers and growth driven by the ample opportunities to reinvest capital at high return on capital. Their portfolios are very concentrated with 8 to 12 positions, “weighted heavily” in the highest-conviction ideas. There are certainly things to discuss, say the art form of deciding who are the exceptional managers and if this differs in small-cap investing with more owner-managers than in the large-cap area etc. Which mistakes have they made in assessing management and what did they learn? Or why not describe how to add other measures of safety to compensate for the lack of diversification? Topics like these are quickly glanced over.For financial planners, endowment officers etc. the text delivers a basic checklist in prose on how to evaluate this investment area. For anyone new to professional money management who is in the process of setting up a small-cap portfolio, most practical aspects are ticked off to get him off the ground. The person who instead wanted to get a fuller text on the art of small-cap investing with real-life examples from a firm that has had success in the area will have to wait for the next book.It is probably unfair to judge a book for what it could have been instead of for what the author’s stated intentions for writing the text actually was. However, I can’t help feeling cheated of a chance to learn something much more valuable than differentiating between a hedge fund and a managed account.This is a review by investingbythebooks.com

The Small-Cap Advantage, written by Brian Bares, describes the historical outperformance of small-capitalization stocks, and more importantly, clearly lays out the reasons why this has occurred. Although I work in the financial industry, I was amazed to learn the nuances of this asset class that might not be apparent to most investors. The book also spends a decent amount of time discussing the issues and challenges of running a small-cap long-only or hedge fund. These pressures include implicit and explicit trading costs.Whether you are new to finance or an experienced professional, this book will serve you well.All-in-all, Bares put together a great book. He has clearly has been influenced by the famous deep-value investors such as Greenblatt and Buffett. I would highly recommend that you give this short book a long look.