I agree that investing in small caps is likely more risky than investing in a S&P 500 "blue chip", like say Johnson & Johnson.
I'd also argue that the potential for outsized gains (and losses) is far higher in the small caps.
For people that are true buy and holders, a mix of large cap blue chips can be very rewarding. JNJ raises its dividend by around 10% every year. Granted, the yield is around 3%, but clearly if you hold it over a 10, 20, 30 yr period, the dividend income stream alone can be significant. The same holds true for many large companies like Coca-Cola, Pepsi etc. That being said, I would rather take more risk.
I lose very little sleep when I invest heavily in small caps, because, when I invest heavily, I have usually done hundreds of hours of research. When I bet big, I do my homework. Buffett once did an analysis and found that he always made more on his big investments because he bet big when he was absolutely sure of himself and made smaller bets when he was less certain.
As for Magnum Hunter, I honestly believe it will be a $10/share stock within 12-18 months. With the acreage position they have in the EFS and Marcellus, they have the ability to ramp up production for many years.
Your statements about what kind of production growth rate MHR has experienced from the drill bit is misleading. MHR has not done much drilling since management took over. They drilled a well or two in East Chalkley and a few in the now divested Cinco Terry field that was operated by Approach, but other than that, they were living off of the increasing production in North Dakota, which was a direct result of the water flooding that was done under previous management. The real uplift was, as you pointed out, the Triad acquisition. Gary Evans spotted an opportunity where he could buy cheap production. How can you fault them for not having organic growth when they only recently acquired acreage to be drilled on?
They made the Sharon and Triad deals and now he is drilling 3 or 4 wells in the Eagle Ford as well as the Marcellus. With any luck, results will be good, but even average results will be dine given the fact that oil is slowly creeping up to $90/bbl. Hard not to make money on the EFS wells at $90/bbl. Are thse EFS wells going to be prolific producers like the Bakken? Probably not, but a depleted EFS well will probably be producing 40 boe/d. Given that they get full payout in a year or 2, that will be fine. MHR has something like 100+ locations. So, even after they are all drilled and in the flat part of the curve, you could expect 3000+ boe/d. That alone is 50% above current production. Add in the Marcellus potential and I think you will soon see the enourmous acreage/share exposure that MHR has in its portfolio.