Tiny Titans: an O’Shaughnessy microcap stock screener

Tiny Titans is a micro cap investing strategy by James Patrick O'Shaugnessy which combines momentum and value investing and for which we have a stock screener available in our trading ideas screen library

About James O'Shaugnessy

James Patrick O'Shaugnessy is an American investor and venture capitalist, currently serving as the CEO of O'Shaughnessy Ventures and has written several books on investing. In this article we will focus on the so called 'Tiny Titans' strategy which was created and refined by O'Shaugnessy in several of his books.

Microcaps

O'Shaugnessy described various value investing combined with momentum approaches and typically those strategies stay far away from microcaps. The Tiny Titans however focusses exclusively on microcaps because:

• These microcaps are often completely ignored by Wall Street analysts and are not traded by larger funds, which makes them often ignored.
• Microcaps have a very low correlation with the S&P500 index, which makes them ideal to add more diversification to the overall portfolio.
• Microcaps are quite volatile and this is why the strategy identifies 25 stocks to buy together and hold for 1 year, taking away the individual risk. We should stress again here that the diversified 25 microcap portfolio is only a small part of the overall portfolio.

That said, while the strategy is originally intended as additional diversification, the performance and volatility also makes the individual stocks well suited for day trading and swing trading. More on that below.

Performance

From 1951 through 2004 the strategy had a average annual return above inflation of almost 19%, but the downside is a huge volatility. You can read more on the strategy and the historical performance here.

Tiny Titans Stock Screener Criteria

Microcap

In our screen we have used the Microcap Only filter which selects companies with a market capitalization between 50 and 300 million. The original rules use a market cap between 25 and 250 million. It is possible to use custom expressions to match the original rules exactly.

Price/Sales < 1

The price to sales ratio should be below 1. This is the only real filter used and makes sure we are selecting cheap stocks.

Liquidity: at least 100K shares average volume

Just to make sure there is enough liquidity we require an average trading volume of at least 100K shares per day. You can adjust this to any level you are comfortable with.

Sorted by 12 month performance

Finally the results are sorted by 12 month performance and the top 25 makes the selection.

In our implementation, we are using ChartMill Relative Strength as an additional filter. We require the Relative Strength to be above 70 and we sort the results by relative strength. This should be aligned with the intentions of the screen and the additional filter makes sure the list is already limited to 20 to 50 stocks.

To match the original criteria you can easily remove this filter and sort by 12 month performance instead.

day & swing trading

As we mentioned, the typical volatility of these microcap stocks is also attractive for day- and swing traders. You can easily filter for technical setups in the list by adding a the requirement that the ChartMill Setup Score is at least 6 or 7.