Perritt Capital Management, Inc. has been investing in small/microcap companies since the firm’s inception in 1987.
Academic research provides the background for much of the firm’s history and investment process.
- Our small/micro-cap company investment strategy was built on the research of Rolf Banz, a University of Chicago doctoral student who discovered the first crack in the foundation of the efficient market theory, dubbed "the small firm effect" (Journal of Financial Economics, vol. 9(1), pages 3-18, March, 1981).
- Our investment focus on equities that are not covered by Wall Street analysts is based on the research of Avner Arbel & Paul Strebel, in their paper “The Neglected and Small Firm Effects,” (The Financial Review, vol. 18, issue 4, 1982).
- Our nine-factor evaluation of business fundamentals is based on the research of Joseph Piotroski, from his article "Value Investing: The Use of Historical Financial Information to Separate Winners from Losers,” (The Journal of Accounting Research, “vol. 38, Supplement 2000).
- We strive to benefit from the illiquidity premium that exists in the microcap asset class, as documented by Liquidity Risk and Expected Stock Returns, (Lubos Pastor and Robert Stambaugh, The Center for Research in Security Prices, Working Paper No. 531, August, 2001).
We believe that our key advantage is that we have more than thirty years of experience investing in small/micro-cap companies. History demonstrates that small companies have provided superior absolute and risk-adjusted returns compared to large companies over the same time period. Given these superior returns, we believe it makes solid investment sense to allocate a portion of all investors' portfolios to small/micro-cap stocks. We believe that our key advantage is that we have more than thirty years of experience investing in small/micro-cap companies. In many ways, we are one of the pioneers in microcap investing—only a handful of micro-cap managers launched in the 1980s still exist today.