Thankfully, it seems like many people (including even some institutional investors) don’t get it. With microcap stocks, it’s very important to examine the company’s general and administrative spending. The companies with excessive G&A spending are typically doing one or all of the following:
- Lining insiders’ pockets or supporting their lavish lifestyles (e.g. private jets, unusually expensive meals, etc.).
- Paying for stock promotion.
- Operating inefficiently.
All of these behaviours are bad for shareholders. Excessive G&A is a sign that at least one of these value-destroying activities is happening. Examining G&A will help you avoid stock promotions and really awful management teams.
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