The Myth of Market Cap

My portfolio returned >200% in 2020. Below is a chart of the the market cap of all my holdings at the start of 2020. As you can see, I didn’t get these insane returns with small caps. Only $DKNG and $SFIX were sub $5B.

Many people believe that you need to have low market cap is a necessity to have huge multibaggers. I think that is using market cap as a crutch for your analysis. I’d prefer to look at management, optionality, TAM, etc… to determine whether something is a great investment. The truth is, purchasing something because it has a lower market cap is just as dumb as buying something because it has a low price to earnings ratio.

My plea to you is to stop using market cap as a crutch. Use market cap as what it is, a piece of the story. Market cap in and of itself tells you nothing. I’d argue that $PTON has more upside than $JMIA, but the market caps would tell different “stories”. $AAPL had a huge market cap when Buffet made his first purchase, yet it has been the Oracle of Omaha’s savior. By no means am I saying valuation doesn’t matter. Valuation is a key part of reviewing stocks. Simply stating a market cap isn’t discussing valuation. Let’s move past market cap and into more fruitful discussions.

Also… long $AMZN

Author: fatbabyfunds