Sometimes it almost seems strange that companies like Amphenol Corporation (NYSE:APH) , despite being part of the S&P Midcap 400 index and having been the company that made the radio tubes that helped win World War II so many years ago, is still a relatively small $11 billion company. Granted, that’s not exactly a couple of guys working out of their garage Jobs and Wozniak style, but it hardly fits for a company that pulls solid 12.9% profit margins and that has been around since the 1930s to not have grown larger. Since Amphenol trades at 20 times its earnings, I have to wonder if obscurity is really the problem here.
So what is it about mid-cap stocks that makes them so, well, middling?
This is definitely a theory that’s going to get me some flak, but here goes. I believe that the reason some companies are quietly successful and some are prominently so isn’t about mysterious forces or solid financials. None of the above companies are bad, and they may very well have better years than Dell or Microsoft. But a really simple way to identify a major problem with many of the small caps of the world comes down to charisma. Who started Amphenol? Who runs it today? If you didn’t cheat and you’re not an industry insider, you probably don’t know who Arthur Schmitt or Richard Adam Norwitt are. There is a definite connection between a charismatic person in the captain’s chair of a company and how much of a sustained buzz it can stir up, which in turn tends to have an impact on where the company’s ticker goes.
If I had to pick the worst thing you could do for your portfolio, I’d say picking a company with an average business model, average financials and an average CEO. That’s the kind of company that will be slogging around for a long time while your money could be doing so much better.
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