Why do investors routinely avoid small cap stocks when they are the easiest to analyze?

It is far easier to analyze a business consisting of one factory than a mega cap multinational diversified industrial conglomerate.

Is it?

If the business consists only of one factory, you have to analyze many things:

• What if the factory will not be competitive in today's marketplace? A blue chip company having 100 factories will most likely have some that will be shut down and some that will stand the test of time.
• What if the product the factory produces suddenly changes its market price? A blue chip company having 100 products will see many differences all the time, some increasing profits, some decreasing profits. A 1-factory company could go bankrupt due to slight changes in market price of the product.
• What if the product the factory produces will go out of fashion? A blue chip company having 100 products will see many such events all the time, but all the time 99 of its other products won't go out of fashion so the factory producting the out-of-fashion product can be closed to be replaced by a newer factory producting something else.
• What if exchange rates change unfavorably? A blue chip company has production in different areas using different currencies. Thus, exchange rate fluctuations rarely are a reason for a blue chip company to go bankrupt.
• What if refinancing debt cannot be obtained, and the dividends the company usually pays are not enough to pay back the loan? Soon the investors lose their dividends. Some time after that, the company is in possession of its debtors. In contrast to this, a blue chip company may lose 1 of its 30 sources of debt. The remaining 29 won't usually be lost.
• What if the factory is destroyed by a large-scale explosion that destroys so much other buildings that the local insurance company will fail because it cannot pay for all the damages? In contrast, a blue chip company may have access to other insurance companies, bigger global ones, and as a matter of fact a blue chip company may not even need insurance! A blue chip company may be so large that it can act as its own insurance company.

In fact, I would say the easiest company of them all to analyze is Corporate America. You know it has a certain gross domestic product. You know that usually the gross domestic product increases at a rate of 2% per year in real terms, or 2+i% per year nominally where i is the inflation rate. You know certain percentage of the gross domestic product is corporate profits. You know certain percentage of the corporate profits are reinvested to operations and other percentage of the corporate profits are distributed back to shareholders of Corporate America. Thus, obtaining valuation for Corporate America is very easy.

You can invest into Corporate America by investing into S&P 500 index fund.

Investing into Corporate America is always a wise choice, unless the valuation can clearly be said to be excessive.

In contrast, investing to an individual company may or may not be a wise choice.