subject: It's Worth it to Invest in Small Caps? [print this page] It's Worth it to Invest in Small Caps? It's Worth it to Invest in Small Caps?
When someone hear the words "investment" and "stock exchange", in a few moments, everything translates as: invest in shares of Google or Microsoft. Nothing else.
This reaction is common, after all, those are two great stocks. Plus, everybody knows Google and Bill Gates so taking in account all of his fame and prestige, it is natural that an investor thinks the shares of those companies are a safe bet for the future.
I will not enter into the question of whether this is true or not. It is possible that they are really good investments, but... that's it? Your going to invest in only two stocks?
Stocks and Growth Potential
A small cap share is a share from a small company. It is true that many small businesses do not go anywhere, but others, become giants in no time. Google was not born a multi-billion-dollar giant. Those companies were born, matured and became today's huge and lucrative business. But when they weren't big, way back then... wouldn't be a great idea to buy Google stock when no one ever heard of it?
The answer is yes, but only a few did.
People like to invest in already big companies. The good thing is that these companies typically offer more predictable risks because they are already stabilized in their respective sectors and got the approval of the general public. The downside is that the potential for growth may be much smaller than a company that is starting now. After all, it is much easier for a small company to become bigger than a larger company to become enormous.
The Risk of Loss
At the same time that small cap stocks, when well chosen, can enrich any competent investor, those who do not know how to invest in the stock market can lose money. It's smart to invest only in companies with good fundamentals and not because they are small and can grow in the future. That would be stupid, and stupidity leads to financial losses.
So the answer to the question of title is: yes, it is worth investing in small companies as long as you study these companies and generally know what you're doing. If your homework is done well, you can find more profitable investments than if you had just bought several shares of Google or Microsoft only because they're popular.
So I suggest you to open your mind and look for alternative investments in smaller companies. You may end up never finding the next Microsoft, but if you keep your eyes wide open, maybe you can find it.
