Buffett's Hidden Secret: Why Ignored Microcaps Could Return 10,000%
And why microcap stocks may be the real asymmetric bet of 2025
"If I was handling $1 million today, or even $10 million, I'd be fully invested... Not being encumbered by a massive portfolio is a colossal structural advantage... The realm that I'm precluded from dabbling in is becoming more alluring than the one I'm limited to. I'm forced to hunt for elephants when perhaps the mosquitoes present more profitable prospects. However, it's the elephant-hunting territory I'm confined to."
Since 1975, virtually every 10,000%-winner in the U.S. stock market has come not from household names, but from the tiny no-name microcaps most investors ignore.
Yet today, investors are stampeding into mega-cap tech like it’s the only game in town.
The Big Tech Boom Left Small Caps for Dead
From 1927 to 2016, the smallest 10% of stocks in the U.S. churned out a staggering 17.5% compound annual return, significantly dwarfing the 9.2% yield from the largest 10% of stocks.
Those returns are faded from Wall Street's memory over the past decade
Since 2014, the S&P 500 has averaged 13.2% per year, juiced by Big Tech’s rise.
In stark contrast, the Russell 2000 — the U.S. small-cap index — has crawled at just 7.2%.
Investors have noticed: they’ve pulled $12 billion from small-cap ETFs this year, while shoveling $150 billion into large-cap funds.
The result?
Large caps are priced for perfection.
Small caps are priced for Armageddon
And microcaps? They’re priced like they don’t even exist.
History Favors the Underdogs
We’ve seen this movie before.
After the dot-com bust, the S&P 500 plunged ~38%. The Russell 2000? Down ~21%. The S&P SmallCap 600? It squeaked out a tiny gain.
After the 2008 meltdown, large caps cratered 37%, small caps fell ~31–34% — and then led the rebound.
From 2000–2010, small and microcaps outperformed large caps by nearly 2:1, as battered giants lagged and scrappy underdogs surged.
To learn more, download my MICROCAP MOONSHOT MANIFESTO.
Why Microcaps Offer Moonshot Upside
“Big companies have small moves; small companies have big moves.”
-Peter Lynch
For investors hunting asymmetric bets, microcaps are the purest hunting ground.
Here’s why:
Extreme Neglect — Most microcaps have zero analyst coverage. Price discovery is primitive. That’s spells opportunity.
Valuation Gaps — Many trade at single-digit P/E or below book value — some even with positive cash flow.
M&A Potential — Big fish love gobbling little fish.
Tech Trickle-Down — AI, automation, cloud — when these tools hit small sectors, nimble microcaps can leapfrog competition.
Amplified Upside (and Risk) — Expect bone-jarring volatility. But just a few winners can pay for dozens of losers.
Most investors hate what’s small, volatile, illiquid.
That’s neglect bias — and it’s precisely where Buffett’s advice kicks in:
“Be fearful when others are greedy, and greedy when others are fearful.”
Right now, small and microcap fear is off the charts.
Low expectations, low valuations, limited downside — but massive upside if sentiment shifts.
Want proof?
Here’s a snapshot of the top 10 holdings in our current Microcap Moonshot portfolio
How Much Should You Allocate?
No, you shouldn’t dump your big-cap winners.
But a 5–10% equity stake in small/microcaps can boost your upside.
Ways to get exposure:
✅ Small-cap ETFs (e.g., IWM)
✅ Microcap ETFs (e.g., IWC)
✅ Select individual microcaps (only after deep due diligence)
What I Look For (and Avoid) in Microcap Moonshots
✅ Strong balance sheets
✅ Clear path to profitability
✅ A high QVM Ranking
✅ Insider ownership
❌ Excessive debt
❌ “Story stocks” with no revenue
❌ Shaky management
The Quiet Smart Play
In the early 1980s, small caps surged 180% over four years as rates peaked. After 2000, they dominated a decade-long rebound.
Today, while the crowd is hypnotized by AI giants, history whispers:
The best bargains are in the overlooked, the unloved — and the micros hiding in plain sight.
The next moonshots won’t come from the Magnificent Seven.
They’ll come from the 7,000 microcaps you’ve never heard of.
Will you have a ticket when they launch?
To learn more, download my MICROCAP MOONSHOT MANIFESTO.