Last Thursday, Chris wrote about Big Mother Mutual Funds and pointed out some reasons why you might not want to buy the “biggest and best” when it comes to mutual funds. Another problem with large mutual funds is that they lose their flexibility to invest in small-cap stocks. These funds are making investments in the tens of millions, which could add up to a sizable percentage of a small-cap’s total shares. It’s hard for a larger investor to make (or pull out of) an investment worth 5% or more of a company.

If large mutual funds won’t invest in small-caps, who will? We will.

Stock screeners can be used to find interesting small-cap (or any other) stocks. Chris wrote a post in the forums about stock screeners, which has some links to popular ones.

Now what do we do with these screeners? This SmartMoney article suggests a recipe for using their screener to find good small-caps to investigate. In general the screen is looking for small-caps with high annualized returns and low expense ratios. We’re still playing with these things, but once the team here comes up with our “optimal” screen we’ll be sure to share it with you.

Notice I said “investigate” rather than “invest” earlier. Because once get a list of stocks from the screener, the real homework begins. Treat these stock suggestions like any others you would consider investing in. Research their business, the analysts opinions, and what’s going on in the news.

Now, I encourage you to find some decent small-cap screens (and share them here) and find some great small-cap investments (and share them here).