
Caterpillar, 139–140CDC Nvest funds, 177Center for Research in Securi-ties Prices (CRSP), 3Chicago Stock Exchange, 80CIBC World Markets, 163–164CIC Equity Partners Limited,
142–145
Cincinnati Stock Exchange, 80Class action lawsuit, 144Classification of stocks, 1–2Clinical trials, 149Columbus, Christopher, 41Commercial bankers, 67Commissions, 31Common stock, 2Companies
annual report form 10–K,
73–76
biotechnology, 148, 157–158development-stage, 92,
147–154, 157
dot-com, 148equipment rental, 139as information resources,
68–70
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183
organizational charts of,
social relationships and,
57–58
pharmaceutical, 148, 158public (see Public compa-
nies)SBICs, 41technology, 158Company insidersof Garan, 98information advantage,
53–59
job rejecters and, 69–70PIPEs and, 160Pozen Company and, 153principal agent theory and,
51
watching, 169–170
Company officers
annual report form 10–K, 
76
determining material infor-
mation, 72
67–68
Correlation
of assets, 34, 46of real estate, 47
Country Fresh Dairy, 111CRSP (Center for Research inSecurities Prices), 3
Currency hedging, 82Customers
as information resources, 70watching, 170
DDahl, James, 136–137, 
140–142
Daily filing reports, 160, 170Dairy industry, 108–115Dean Foods, 115Deere, 139–140Den of Thieves (Stewart), 136Denver Management Group,
of Gehl Company, 137
113–114
Competition
Gehl Company and, 140as information resources, 70in stock market, 17–18watching, 170
DePrince, Race and Zolo, 98Development-stage companies
case study, 147–154PIPEs and, 157price-to-book ratio and, 92
Confidential information, 72,
Digital Equipment Corpora-
160
tion, 41
Conflict of interest, venture
Dimensional Fund Advisors, 
capital and, 22Corporate governance
inequality of reports, 78–80information resources,
68–71
overview, 65–67public company federal fil-
ings, 72–73
SEC reports, 73–78
98
Discount brokerage firms, 34Diversificationbenefit of, 47importance of, 42, 46real estate and, 47
Dividends
of Garan, 97micro caps and, 83
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Index
Domestic economy
micro caps and, 81–82Russell 2000 vs micro caps,
83–89
Donaldson, Lufkin and Jen-
rette (DLJ), 110Dot-com companies, 148Dow Jones Industrial Average,
2
Drexel Burnham Lambert, 136Driftmier, Clark, 113
EEarnings growth, 89EBITDA analysis, 90, 162Economies of scale, 139EDGAR system, 80, 170, 175Efficient frontier, 27–28Efficient market theory (EMT)
on indexes, 45overview, 13–21, 168semi-strong-form, 18weak-form, 18
8–k (form), 77–78, 160–161Employees
Ethnic background, manage-ment culture on, 68
Excess return, 169Expenses (prospectus),175–176, 178
FFair disclosure regulations,
159–160
Fair game model, 15Fama, Eugene, 15, 19Farm equipment market, 140FDA (Food and Drug Adminis-
tration), 151–154
Federal Express, 41Federal Trade Commission,
128
Fidelity investment manage-
ment firm, 157Fiduciary responsibility
constraints on asset classes
and, 48
directors and, 66Gehl Company and, 
143–144
development and promotion
of institutional investors, 7,
of, 62–63
33
as information resources, 
professional investors and, 7
69
Filings
EMT. See Efficient market 
corporate governance, 
theory
72–73
Engles, Gregg, 109Engles Management Corpora-
daily filing reports, 160, 170public companies, 53–54,
tion, 109
72–73, 95, 160
Equipment rental companies,
SEC requirements for, 53,
139
Equity investment
PIPEs (see PIPEs)private equity, 39–41, 46public equities, 155–165, 169
73–80, 170–171
smart-money filings, 95–96,
99, 134, 136
Financial analysis, valuation
methods, 90–93
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185
Financial Statement AnalysisWorkbook (Fridson andAlvarez), 90
Food and Drug Administration
Goldner, Hawn, Johnson andMorrison, 121–130
Green, Steven, 110Growth style, classification 
(FDA), 151–154Food products industry,
116–131
Foreign economics, micro cap
stocks and, 81–82
Form 4, 54Form 8–k, 160–161Former employees, as informa-
tion resources, 69
Forward Funds, 177401(k) plans, 34Frank Russell Company, 3–4Fraud, nondisclosure and, 
73
Free cash flow, 92–93Fridson, Martin, 90Fundamental investors,
158–159
Fund managers, 174, 176–178
GGAAP (generally acceptedaccounting principle), 162
Garan (GAN), 96–105GE Capital Corporation, 110Gehl, William, 133–134,
137–138, 140–142, 145
Gehl Company, 133–146Gender, management culture
on, 68
Generally accepted accountingprinciple (GAAP), 162
General Re Company, 98–99GlaxoSmithKline, 152, 154Goldman Sachs, 101–104
by, 1
HHard book, 91Harvard, 68Heartland Value Fund, 134,136–137, 141, 143
Hedge funds
PIPEs and, 156, 158Ptek Holdings and, 164as technical investors,
158–159
Hertz, 139Horizon Organic, 112–114Horizon Organic Holding Cor-poration (HCOW), 112
Hunton & Williams, 104
IICAPM (intertemporal capital
asset pricing model), 30
Imitrex (drug), 150Indexes. See also specific
indexes
buy-and-hold approach, 
17
creation of, 47efficient market theory, 45investing and, 18
Individual investors. See
InvestorsIndustry analysis
price-to-book ratio and,
91–92
Russell 2000 vs micro caps,
84–89
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186
Index
Industry consolidationcase study, 107–131farm equipment market, 140rental equipment market,
138–139
Industry professionals, as
information resources, 71
Information advantage
PIPEs and, 157principal agent theory and,
51
Ptek Holdings and, 163real estate and, 47smart-money filings and, 96venture capital and, 43, 47,
169
assessing management style,
Intangible assets
59
company associations and,
65–67
efficient market theory,
13–21
employee development,
62–63
importance of, 11individual investors and,
168, 170
insider information and,
53–59
management changes, 61management reputation, 62principal agent actions,
51–53
resources when researching,
68–71
Pozen Company and, 152price-to-book ratio and, 91
Internet
asset allocation and, 34companies during boom, 8research on, 171
Intertemporal capital asset
pricing model (ICAPM),30
Investment bankers
Gehl Company and, 143–144relationships with, 67
Investment management firms,
33, 157
Investment objective, 175Investment performance
determining, 176low price-to-earnings ratio
strategy and planning sys-
and, 93
tems, 59–60
management changes and,
venture capital theory, 21–24
61
Ingersoll Rand Company, 139Initial public offering. See IPOInsider information. See Com-
pany insidersInsidertrader.com, 170Institutional investors
fiduciary responsibility of, 7,
33
Gehl Company and, 141–142market division by, 19–20
market capitalization and, 32of micro cap mutual funds,
173–174
of micro caps, 36–39, 46monitoring, 178of portfolios, 34, 100red flags for, 178–179small vs. large stocks, 25–26tracking via indexes, 47variables in, 34
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Investors
due diligence list, 170–171fundamental, 158–159institutional (see Institu-
tional investors)
micro cap funds, 173–180professional (see Profes-
sional investors)recommendations for,
167–172
red flags for, 178“take the seed money off the
table,” 154
technical, 158–159, 164venture capital and, 22IPO (initial public offering)
Amazon.com, 9for HCOW, 112industry consolidations via,
107–108
for Pozen Company, 148–151for Ptek Holdings, 162venture-backed, 41
Isabella (Queen of Spain), 41
JJacobsen, Steven, 113J.C. Penney Company, 96, 110Journal of Finance, 15Journal of Financial Manage-
ment, 19
Journal of Portfolio Manage-
ment, 31Junk bonds, 136
KKamiel, Jerald, 103Kaminski, Robert, 110Kaminski Engles Capital Cor-
poration, 109
187
Knoll, Tracy, 110Komatsu Limited, 137
LLand-O-Sun Dairies, 111Large cap stocksdefined, 2, 4information advantage of, 21investment performance of,
25–26
micro cap price relative to,
82–89
returns of, 21, 26, 46S&P 500 Index and, 2
Legal documents
annual report form 10–K, 75as information resources,
71, 171
Lehman Intermediate Govern-ment Corporate BondIndex, 48–49
Lenz, John, 139Leprino Foods Company, 113Lichtenstein, Seymour, 103Lintner, John, 28Liquidity
for Gehl Company, 143micro caps and, 48PIPEs and, 155, 159technical investors and, 158venture capital and, 42Long-term planning, 59–60Lord Abbott & Company, 98,
113
Low price-to-earnings ratio, 93,
175
MMake-whole provision, 164Malkiel, Burton, 17–19
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Index
Management
efficient market theory and,
annual report form 10–K, 76assessing styles, 59changes in, 61communicating with, 56–57confidential information
and, 72culture of, 68directorships of, 66filing requirements, 54of Garan, 99of Gehl Company, 134, 138,
140, 142–145
internal reporting require-
ments of, 60
of Michael Foods, 117–118open-market trades, 55–56of Pozen Company, 151prospectus information,
176–177
quality of, 52–53, 56reputation of, 62resumes of, 57of Suiza, 110–113watching, 170Margin of safety, 91Market capitalizationof Dean Foods, 115defining segments, 2–3, 167distribution of public com-
panies, 3, 5
of Garan, 97of Michael Foods, 116PIPEs and, 157Russell 2000 Index, 4share price and, 8study on performance by, 32
14
market capitalization and, 2weak-form EMT and, 15
Market value
classification by, 1CRSP and, 3efficient market theory and,
13, 21
insiders and, 55market capitalization and, 2
Markowitz, Harry, 26–28Material current events form8–K, 77–78, 160–161Material information, 72Medal Gold Dairies, 114Mega caps, 3Melroe Manufacturing Com-
pany, 139Merrill Lynch
Michael Foods and, 117,
121–122, 129
on nano cap stocks, 3study on stock performance,
32
Merton, Robert, 30Michael, Jeffrey, 120, 123,
125–130
Michael Foods
case study, 116–131price-to-free cash flow ratio,
93
Micro cap mutual funds, 167,
173–180Micro cap stocks
adding value, 45–46asset allocation and, 34–39,
Market price. See also Stock
46–50
pricecurrent, 15
basic financial analysis,
90–93
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189
behavioral differences, 31case study, 95–105corporate management and,
52–53
defined, 5, 167domestic economy and,
81–82
driver behind, 9efficient market theory and,
14
Migraine headaches, 148–149Milken, Michael, 136Miller, David, 110MIT, 68Model Dairy, 108Modern portfolio theory
(MPT)
asset allocation and, 33–34overview, 26–33on risk, 46
Form 8–k filings, 160fundamental valuation tech-
Money market accounts, 180Monitoring
niques, 89–90
getting started with, 
167–172
information advantage of, 
21
information resources for,
68–71
micro cap funds, 178–180venture capital and, 
22–23
Morgan Keegan, 165Morningstar, 6, 180Morningstar Dairy Group,
110–111
investing in, 173–180liquidity of, 48material current events form
Morningstar Foods, 120Mossin, Jan, 28MPT. See Modern portfolio 
8–K, 77overview, 1–5performance of, 36–39, 46PIPEs and, 161price relative to large
stocks, 82–89reason for, 5–11risk-adjusted return of, 32risk and, 7, 147, 174valuation and, 171venture capital and, 23,
41–43, 169
volatility of, 35, 37, 168, 174
Microsoft, 20Mid cap stocksdefined, 2, 4risk-adjusted return of, 32
Middle-tier stocks, 19–20
theory
MT100 (oral therapy formigraines), 149–154MT300 migraine treatment,
153–154
Muir Glen Foods, 113Mustang Manufacturing Com-
pany, 135Mutual funds
micro cap, 167, 173–180Russell 2000 Index and, 4small cap, 4, 6
NNano cap stocks, 3NASD (National Association of Securities Dealers), 7,79–80
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Index
Nasdaq Stock Market
Ostrander, Greg, 120–123,
comparative returns, 36filing requirements, 80OTCBB companies and, 7–8,
79
penny stocks and, 7stocks listed, 5
National Association of Securi-ties Dealers (NASD), 7,79–80
National Quotation Bureau, 8,
79
NAV (net asset value), 175–176Nepotism, 68, 133NES equipment rental com-
125–130
OTCBB (OTC Bulletin Board)
micro caps and, 78–80overview, 7–8
OTC Bulletin Board (OTCBB)
micro caps and, 78–80overview, 7–8
OTC (over-the-counter) marketmicro caps and, 5, 78–79pink sheets and, 8
Outperformance
of micro caps, 36–39rebalancing portfolios and,
179
pany, 139
Over-the-counter (OTC) 
Net asset value (NAV), 
175–176Neuson Ag, 145New Castle Focus Fund Lim-
ited Partnership, 142–143,145–146New Holland, 140New York Stock Exchangefiling requirements, 80penny stocks and, 7stocks listed, 5
Nondisclosure, fraud and, 73Nortel Networks, 8
OOmniquip International, 140Open-market trades, 55–56Opportunity
creating, 168Garan and, 99investor emotion and, 11
markets
micro caps and, 5, 78–79pink sheets and, 8
PPacific Exchange, 80P/E (price-to-earnings), 83–89Peers, valuation relative to, 
90
Penny stocks, 7Pension plans, venture capital
and, 47
Performance. See Investment
performancePerold, Andre, 31Personal liability, 66Pharmaceutical companies,
148, 158
Philadelphia Stock Exchange,
80Pink sheets
Opportunity cost, 31–32Organic Cow of Vermont, 112Organizational charts, 57–58
micro caps and, 78–79penny stocks and, 7–8
Pink Sheets LLC, 8, 79
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191
Pioneering Management Cor-
poration, 137
Private investments in publicequities. See PIPEs
Piper Jaffray, 117, 121, 129–130PIPEs (private investments in
PrivateRaise.com, 161Professional investors
public equities)
overview, 155–159, 172Ptek Holdings case study,
161–165
tracking, 159–161
Plan Sponsor Network (PSN), 6Political affiliations, manage-ment culture on, 68Portfolios. See also Modern
portfolio theorybalanced, 48–49, 180performance of, 34, 100rebalancing, 179–180
Portfolio Selection
(Markowitz), 27
Pozen Company
concentration of, 168law regarding information, 72small cap stocks and, 6, 9–10
Prospectus, 174–175PSN (Plan Sponsor Network),
6
Ptek Holdings, 161–165Public companies
federal filings, 72–73, 95filing requirements, 53–54form 8–k filings, 160market cap of, 3, 5market division of, 20PIPEs and, 157–158Pozen Company as, 148
Public equities
case study, 147–154as development-stage, 83, 92
micro caps and, 169PIPEs and, 155–165
Premier Conferencing, 161Price of security, 15Price-to-book ratio, 91–92, 171Price-to-cash flow, 97Price-to-earnings (P/E), 83–89,
171
Price-to-free cash flow ratio,
92–93, 171
Putnam investment manage-ment firm, 157, 177
QQuality
of analysis, 20of management, 52–53, 56share price and, 7
Principal, venture capital and,
Quarterly report form 10–Q, 77
22
Principal agent problem, 46, 168Principal agent theory
Garan and, 100micro caps and, 168–170overview, 51–53
Private equity
micro caps and, 46overview, 39–41
RRabobank, 121Rachel’s Organic, 112A Random Walk Down WallStreet (Malkiel), 17
Random walk hypothesis
defined, 15overview, 17–18
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Index
Rate of return
micro caps and, 168portfolio performance and,
34
prospectus and, 175
Real estate, as asset class, 47Real estate investment trust
(REIT), 47
Rebalancing portfolios, 179–180Rederobbio, Paul D., 142Regulation D (SEC), 155–156,
158
Regulation FD (SEC), 159Regulation S (SEC), 156, 163REIT (real estate investment
trust), 47
Religion, management culture
on, 68
Rental equipment market,
138–139
Rental Equipment Register,
139Reports
inequality of, 78–80SEC and, 73–78Research analysison Internet, 171micro caps and, 79, 174–175of PIPEs, 155small cap stocks, 6, 10
Resumes of management team,
57Return
on bonds, 35CAPM and, 46excess, 169impact of taxes on, 31of large cap stocks, 21, 26,
46
rate of, 34, 168, 175red flags for, 178–179risk and, 32, 35, 46, 174of small caps, 21, 26, 46volatility of, 34Riley, Frank, 19–20Risk
controlling, 169defined, 34foreign economies and,
81–82
Markowitz model on, 27micro caps and, 7, 147, 174prospectus information, 175returns and, 32, 35, 46, 174share price and, 7small cap stocks, 7, 25“take the seed money off the
table,” 154Risk-free assets, 28Robert Kaminski Interests, 110Ross, Stephen, 29–30Rule 144a transactions (Securi-ties Act of 1933), 161, 163
Russell 2000 Index
average P/E, 83–89comparative returns, 36dividends and, 83overview, 3–4performance of, 26
SSafe harbor, 155SAI (statement of additional
information), 174–175, 178
SBICs (small business invest-ment companies), 41
Schedule 13 forms
for Gehl Company, 136–137,
for Ptek Holdings, 162
142–143
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193
purpose of, 95–96for Suiza, 112Schwartz, Mark, 142Scudder, 177Seaboard, 8SEC (Securities and Exchange
Commission)
annual report form 10–K,
73–76, 108
EDGAR system, 80filings, 53, 73–80, 170–171Gehl Company and, 141insider information and,
53–54
Sharpe ratio, 32, 35SIC (standard industrial classi-fication) codes, 110
Simmons, Harold, 142Simpson Thacher & Bartlett,
104
Skin in the game, 98–101, 137Small business investmentcompanies (SBICs), 41Small cap mutual funds, 4, 6Small cap stocks
behavioral differences, 31defined, 2, 4investment performance of,
material current events form
25–26
8–K, 77–78, 160–161Pink Sheets LLC and, 8PIPEs and, 155, 157quarterly report for 10–Q, 77Regulation D, 155–156, 158Regulation FD, 159Regulation S, 156, 163reports, 73–78Schedule 13 forms (seeSchedule 13 forms)tracking PIPEs, 159–161useful information and, 73Section 4–2 (Securities Act of
1933), 155Securities Act (1933)
defined, 155Rule 144A, 161, 163
Securities and Exchange Com-
mission. See SEC
Security, price of, 15Semi-strong-form efficientmarket theory, 16, 18September 11, 2001 attacks, 11Share price. See Stock priceSharpe, William, 28
material current events form
8–K, 77
professional investors and,
6, 9–10
returns of, 21, 26, 46risk and, 7, 25Russell 2000 Index and, 4
Small Planet Foods,