Weakest Relative Returns

Micro caps outperformed the two weakest large cap sectors by an average of 200.97%. However, small caps (56.12%) outperformed micro caps (53.96%) by 3.83% (Table 8.14).

In general, in 2002-2003 small caps performed best.

TABLE 8.14 Comparing Different Firm Types

Medium

Small

Micro

Change

Change1

Change

Weakest

Large Cap

Cap

Cap

Cap

L > Mi

M > Mi

S > Mi

Consumer/Non-

11.36%

26.24%

74.48%

48.69%

328.61%

85.56%

—34.63%

Cyclical

Transportation

28.29%

49.14%

42.28%

59.81%

111.42%

21.71%

41.46%

Averages

17.93%

35.91%

56.12%

53.96%

200.97%

50.28%

—3.83%

INTANGIBLE ANALYSIS OF THE MARKET The Role of -IV

Intangible value has a positive dimension (+IV) and negative dimension (-IV). When intangible value is negative, it means that the book value of the firm is greater than the market value of the firm. Enron is a good example. As of December 30, 2003, the company had negative intangible value of $7,416.73 m and a market value of $22.32 m (making it a small cap firm). In this case, a company supposedly worth nearly $8 billion in its accounting reports was valued at $22 m by investors; a high percentage of intangible value therefore can be indicative of a firm either in liquidation, with a strong potential for bankruptcy, or providing a potential warning sign of immediate short opportunities.

The Worldcom Group (WCOEQ) became a micro cap firm with market value of $59.26 m and a -IV of $59,197.46 m. This means that WorldCom was trading at around 1/10 of 1% of its book value. WorldCom Inc-MCI Group (MCWEQ) was trading at 1/5 of 1% of its book value, namely $4.73 m in market value with -IV of $2,361.77.

A medium cap firm named Mayne Group Ltd (MAYNY) had a market value of $1,911.77 m and a -IV of $12,291.55 m. Mayne was effectively trading at 13.46% of its book value. That its -IV was a substantial percentage of its market value was indicative of serious financial trouble and (typically) strong shorting opportunities.

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