| Editor's Note: 2023 is upon us, and we want to share some fresh trading ideas as we head into the new year. In today's guest editorial, our friend and The Oxford Club's Chief Investment Strategist, Alexander Green, covers one asset class that should outperform next year. And if you are looking for more, Green is showing traders his "#1 investment for 2023." The best part - Wall Street can't touch this one. So if you're bearish on the markets next year, you won't want to miss this. Green has already invested hundreds of thousands of his own money into this strategy - and right now he's showing investors why he's going "all-in" on this $3 play in 2023. Click here to learn more. Happy trading. - Ryan Fitzwater, Associate Publisher
Alexander Green, Chief Investment Strategist, The Oxford Club Despite the recent market rally this week, most sectors of the market - with the exception of energy - are still down sharply for the year. Some equity classes have fared worse than others. Yet one class, in particular, is likely to seriously outperform in the year ahead. It offers the best opportunities in the market right now, in my view. Let's start with a bit of background... In a bear market, large cap stocks hold up better than midcaps. Midcaps hold up better than small caps. And small caps hold up better than microcaps, the smallest of small cap stocks. However, history also shows that when the market lifts off in earnest, midcaps outperform large caps, small caps outperform midcaps, and microcaps outperform small caps. In other words, the whole process reverses. Microcaps are the most volatile class of stocks. They are also the most profitable in a rising market. As you can see in the chart below, microcaps outperform everything else over the long haul. It isn't very close: $1,000 invested in large caps a century ago is worth $12.3 million. The same amount invested in small caps is worth $38.5 million. And $1,000 invested in a diversified portfolio of microcaps is worth $67.8 million. The trade-off for this $55 million in outperformance is - you guessed it - greater volatility. This is especially true of those microcap companies that are not yet profitable. But pre-profit is not the same as pre-revenue. I have never recommended a microcap that doesn't already have substantial sales growth. Those microcap firms that have not yet turned the corner on profitability saw their shares suffer the most in 2022. It's not hard to see why. Companies that are unable to support their growth with their own cash flows must tap stock and bond markets periodically to raise fresh capital. But interest rates are a lot higher than they were at the beginning of the year. And it's harder to complete a secondary stock offering in a down market. Plus, low share prices make raising capital more expensive. More dilutive. Here's an example. Let's say a company has 5 million shares outstanding at $20 a share... or a market cap of $100 million. If the company needs to raise $20 million, it can issue 1 million new shares at $20. That would dilute existing shareholders by 20%, since there would then be 6 million shares outstanding instead of 5 million. But look what happens if the share price declines to $5. To raise $20 million, it now must issue 4 million new shares. That would take the total number of shares outstanding to 9 million, a far greater dilution. That's a big reason why small, unprofitable companies get such a haircut in a down market. But here's the good news... | 
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