Even as we continue to see havoc in the smallcap and the midcap space, ace investor Porinju Veliyath notes that there is still potential to create value in the space. \u201cSmart investors have started exploring values in the big-potential small & mid-cap space regardless of the challenging environment,\u201d Porinju tweeted. In a recent report, UBS noted that the small and midcap stocks (SMIDS) have underperformed the Nifty in the current year. \u201cWe recently reiterated our underweight on SMIDs for 2018 in an environment of rising rates and moderating flow (see Fading rate and flow support: underweight SMIDs).\u00a0Inflow into local equity mutual funds remains positive but started slowing in Q118; inflow in Q2 did not slow further. Our analysis suggests SMID schemes have not seen outflow yet. However, Portfolio Management Services (PMS) schemes (high-net-worth individuals are the investors) have started to see outflow,\u201d UBS said in a note. However, Porinju Veliyath is unfazed, and says that \u2018stock-picking without 'caps' is the best long-term strategy,\u2019 to create wealth in the market. The idea is to think beyond the market-cap of the company. In a recent letter to shareholders, Raamdeo Agrawal of Motilal Oswal advised investors to differentiate between quotational loss and permanent loss of capital. \u201cPermanent Capital Loss refers to a massive fall in stock price because the value of the underlying business is significantly eroded. The proxy for value is a company\u2019s profits and profitability. Value erosion (i.e. lower profits), and hence, Permanent Capital Loss in a stock may happen due to a variety of reasons, both industry-specific and\/or company specific,\u201d he explained. \u00a0 In contrast, quotational loss is merely a short-term fall in the stock price with the underlying value broadly intact. Hence, it is imperative to evaluate the likely reasons for the price fall. \u201cIf there are signs of a Permanent Capital Loss, cut your losses and run. However, if it is just a Quotational Loss, back up the truck and load. You will most likely end up with a Permanent Capital Gain,\u201d he said in the letter.