hr: Money

In another earlier post, I had discussed the metric of Earnings Per Share or EPS. These allow us to gauge whether or not the share market is currently over pricing them.

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However, there is another strategy to employ when you’re looking for long term growth - Mid Cap companies. The logic works like this - Large companies are already stable, and their growth in the market is more or less assured. This means less risk. Along with this risk, comes lower returns. Assuming all other market factors will be stable, you can expect a growth from them that is not phenomenally above what the market is giving you.

This is also because they have passed their period of rapid growth, and are not in mostly stable markets with stable product life cycles. However, smaller companies have tremendous potential to zoom up. These are the mid cap companies. Firms that have an established business model, and are on a growth path. However, the path is slippery, and not all firms make it. That is why it is a high risk strategy to invest in them.

But if you have a long investment horizon, and a reasonably competent fund manager, it stands to reason that the risk will even out over the long term, and you should be able to get returns that consistently outperform the markets. Of course, substantial research needs to be done before your fund invests in them, but isn’t that what you’re paying them for?