Like all areas of the economy that rely on information, the investment industry is experiencing a rapid wave of decentralization, as information gatekeepers race to keep up with the relentless march of technology.

Those of us with grey hair feel this all too well, remembering the slower, pre-internet days. There was a time—just a couple of decades back—when you had to mail companies to request financials. And then wait a couple of weeks.

If you wanted to invest, you had to get a broker, relying on them for everything from buying and selling to getting information on a company or product. It was expensive and time-consuming. And, as a company, if you wanted to raise money, you had limited options.

Of course, the internet changed everything. Any broker with early access had an immediate advantage, with the latest information at the click of a button. The decentralization accelerated from there, putting all aspects of investing in the hands of the average Joe, and rendering many jobs near-obsolete. With that, the power dynamic started to change hands.

But while the power to buy and sell is now instantly available to anyone who cares to pursue it, an age-old theme of human behaviour has reasserted itself.

Group Dynamics

You’ve no doubt heard the wise advice that you should take your emotions out of investing. There’s a whole body of research on “behavioural investing” that points out the countless mistakes brought on by letting feelings take over.

But what we don’t often hear about is the human instinct to seek out and form groups to learn and advance our goals. This tribalism is, ironically, even more apparent now with the decentralization of the investment industry.

It’s what causes groups to coalesce around an idea or theme. The result can be quite dramatic, as we saw with the 2021 GameStop short squeeze, where a large group of Redditors rallied behind one member’s investment theory, driving the stock higher and causing major financial consequences for hedge funds and short sellers.

GameStop is just one example in an extensive list of events that have helped cement a growing awareness that online investment communities can have significant influence.

A Paradigm Shift for Retail

There’s an amazing variety of microcap investment communities spreading across the internet. In addition to our community, there are many trailblazers still out there like Joel Greenblatt’s Value Investors ClubIan Cassels’ MicroCapClub and Maj Soueidan’s GeoInvesting.

In addition, there are waves of new “experts” on social channels like YouTube, X, Discord and Reddit. Some have no credentials, while others are quite accomplished; either way, they are all using the latest mediums to create a following and advance their goals.

The downside is that it’s a bit of a wild west, knowing that you can type keywords into Google, listen to a stranger, and then buy a stock—in just a couple of minutes. Without the type of regulation or gatekeeping that kept us from making quick and uninformed decisions in the past, there’s a very real chance that an amateur retail investor can easily lose their way by following a YouTube channel promoting hot stock picks.

It’s also easy to let the tribalistic allure guide you into an online echo chamber, leading you to believe in narrative over substance and resulting in crowd-sourced delusion. We’ve seen it many times, and without naming names, it’s common in the small-cap space.

But the flip side is that, if you have a commitment to learning about sound investing and finding communities that will help you, the opportunities are incredible.

Harnessing Information

By sharing information, these investing communities are changing the landscape, helping retail investors navigate the good from the bad and democratize access to reliable information.

This is where a community like ours shines. We seek out growing, profitable, and well-run businesses, whose market fit shows opportunity for investors but may not be well known by the investment industry. As a community, we have greater due diligence capabilities. We work with our members and industry peers to better understand the good from the bad.

Another advantage is that companies are slowly turning to these tribes directly for investor engagement and even financings, cutting out the middleman. While this movement is still in its infancy, you see it through various arrangements in the microcap space.

Of course, the big players have caught on to this and have ways to turn it to their advantage. We have seen this with New Listed Issuer Finance Exemptions, or LIFE financings, which allow an issuer to raise money from any person, not just accredited investors, with no minimum investment amount. These sound great in theory, and while this type of financing exemption is relatively new, they are likely to get abused.

This is why it’s important to have a community of like-minded investors. A group like Smallcap Discoveries can gain access to opportunities that many traditional gatekeepers can’t, including financings that many brokers cannot facilitate. This is much more appealing for a small company because it means saving fees (no commission), dealing directly with investors, and getting good investors who understand your business and are investing with a clear understanding of what they are getting into.

We have been involved in several recent financings for companies we follow, and we are happy to say each received considerable interest. We look forward to providing more of these opportunities in the future, so stay tuned.

In the past few months, we’ve completed two financings, Ztest Electronics (CSE: ZTE) and Simply Solventless Concentrates (TSX.V: HASH), both financings included a warrant and share prices are much higher. One of the financings is already up over 150% including the warrants.

The Road Ahead

Retail investors have a lot to be excited about. The investment industry is continuing its evolution, moving from a time of gatekeepers to a new system where anyone can find—and verify—solid investment ideas through a broad range of communities and channels. Almost any investor can now get as much information as an analyst, from the comfort of their smartphone.

It’s a power shift from the select few to the many, pushed forward by a tribal nature we all share that allows us to crowd-source due diligence while simultaneously serving our own self-interest. We are seeing it more, and with the coming bull market, it will be an exciting time to see how this plays out in the small-cap space.