Is it good to be a rookie?
There are a lot of advantages to being new on the job: you see things differently; you’re more likely to network; you look for answers off the beaten track. We’ve all heard about hungry rookies whose determination helped them conquer a steep learning curve. Sometimes all it takes is a naïve question to turn things around.
Of course, there are risks: rookies can be arrogant and reckless, sinking their own careers almost before they start: apprentice actors who argue with directors; graduate students picking fights over discredited theories. They don’t know what they don’t know, and this can make them dangerous.
In the investing world, small-cap stocks are like rookies. They’re not restrained by the old ways, so they can take their business where no one has gone. Sometimes a new market or inefficiency just needs a little exploring to turn it into a big opportunity.
But small companies also fail at a faster rate. They often don’t have the capital or experience to weather a downturn. This is why small stocks tend to outperform large-caps over the long haul, but they do so with greater volatility along the way.
Learning something can beat knowing about it if you’re curious, humble, and determined. Just remember: it’s nice to be rookie of the year, but it’s better to make the playoffs.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!