Small-cap investors enjoyed a great year in 2020.

When looking at small-cap vs large cap-performance, it’s plain to see.

In 2020, the Russel 2000, a small-cap index, produced a 20% return, surpassing the S&P 500’s 16.3% return.

But since March 2021, the small-cap market has moved laterally.

But why are small-cap funds falling?

Between market factors changing, inflation, and the inherent risk that comes with investing in small-cap stocks, small-cap companies had a rough year in 2021.

Have you ever bought a bag of chips but once you opened it, felt like the bag wasn’t even half-full? Or perhaps you grabbed a smoothie after a workout and finished it in little more than a few sips, leaving you feeling that the price you paid was not really worth it?  This phenomenon tends to cause indignation amongst consumers, as it can leave them feeling cheated or ripped off – but as a retail investor you should also be paying attention to what it means for your portfolio. 

SPACs are Special Purpose Acquisition Companies, also known as “blank check companies.”

They are basically shell companies without any business operations that raise hundreds of millions of dollars to then acquire with an operating company.

Asymmetric risk is an investment scenario where the potential for profit or loss is imbalanced: the risk is not equal to the potential reward. As an example, if you were to risk $5 playing slots at the casino, but the potential return is $30, this would be considered an asymmetric risk. Conversely, symmetric risk is where risk and reward potential is balanced—profit potential is the same as profit loss. In a symmetric risk scenario, the casino slots would have a $5 risk for playing and $5 reward for winning.

Have you ever tried eating at a high-class, celebrity-bustling restaurant and found that even after you’ve made a reservation, the likes of Justin Bieber or Kim Kardashian are escorted to the first available table? That’s preferential treatment at its finest. Retail and institutional financings are similar: Retail investors are newbies and institutional investors receive preferential treatment. Is it fair? Meh. But does it happen? You bet.