October 27, 2003

Natural endowments, government regulations and many other factors combine to create pockets of market segmentation/product differentiation. It is in those markets where the smaller cap stocks have the greatest advantage. They are nimble and can adjust faster to the changing market conditions. It is at the small-cap level where the democratic capitalism will flourish and give an opportunity to compete to the emerging nations. Local entrepreneurs will develop products for the niche markets. As they become successful overtime they will expand their scale of operations and move into the more conventional markets. In the process these companies may join the larger cap universe. It is at the niche level that investors have to isolate regional differences due to government regulations and other country specific locations. Alternatively stated it is at the small-cap level that the country effect will be most pronounced.

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