What Are Microcap Stocks?
Many investors steer clear of these often volatile stocks called microcap stocks, which have a market capitalization of between $50 million and $300 million. However, anyone interested in making a profit may want to look at these stocks, and the following points may convince you that they are worth looking at:
Three Reasons To Invest In Microcap Stocks
Under The Radar
Because many institutional investors do not bother investing in many of these stocks, they often tend to remain under the radar, or largely go unnoticed. If you are an individual investor, it can be a great chance to make some money by focusing on something that the bigger investors often tend to overlook.
Investors Tend To Lose Interest
Partly because these stocks are typically under the radar, they tend to disappear from the financial pages and news stories fairly quickly, even if the story is concerning something big. Most people are understandably more concerned with what is going on with much larger and more well known companies, such as Google, IBM and Facebook. This means that these smaller stocks are often undervalued and they can be a great opportunity to make money for the wise investor.
A smaller company has more potential to grow than a larger one does, and this extra growth potential can make microcap stocks an attractive proposition as an investment. This is one big advantage of these companies being small; their potential for growth is all ahead of them, whereas large and established companies such as Microsoft are simply not going to grow that much. You can realistically double, or even triple your money by investing in one of these companies; something that is not really possible with a large and well established company.
Disadvantages Of Microcap Stocks
Two of the big disadvantages of investing in microcap stocks are as follows:
They Can Be Time Consuming
It can take a lot of your time and energy simply researching all those smaller companies and evaluating their growth potential and determining whether they would be a good investment. Many analysts choose not to follow these smaller companies, which means that you will have to do a lot of the work yourself.
A Higher Risk
Of course, there is no guarantee that all of these small companies will expand to become large companies, despite the fact that the potential is there. If you make a point of investing in smaller companies, there is some risk involved and only a few of these companies will go on to become huge billion dollar companies. You are potentially risking your money more than if you invested in an established and already successful company, such as Microsoft.
Higher risks go hand in hand with a higher rate of growth, and to be profitable with these microcap stocks, you have to accept that there is an element of risk and that the chosen company will not succeed. However, you can make a lot of money in a short time and minimize your risks, by doing as much research as you can before investing.
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