If there’s one thing that keeps professional investors up at night, it’s being involved in a “crowded trade.” In other words, a position that’s become so popular that there are few investors left to get involved with it, so there’s risk of painful losses for all if the crowd heads for the exits.
That’s part of the appeal of microcap stocks for Patrick McDonough, a portfolio manager at PGIM Quantitative Solutions. He joined the What Goes Up podcast to explain his approach to analyzing these smaller, younger companies whose values are often measured in millions, rather than billions, of dollars. Since many investors are more comfortable with bigger, more-established companies, microcaps offer a unique and overlooked source of growth.
“It’s something that people have historically avoided,” McDonough says. “Which means it’s not crowded. So it’s an area we can go in and get a lot of upside.”
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