subject: Investing With Small Cap Shares [print this page] Investing With Small Cap Shares Investing With Small Cap Shares
You need to conduct an assessment of your own risk profile in order to work out if micro cap shares will be the best investment path for you .
Micro cap share investing involves risk and if you feel you have the capacity to be able to withstand this risk and you find that you actually do well in this environment then you will most likely do well . If you however only have a little spare money and are in a difficult financial situation then you will be better off putting your money into other safer investment vehicles such as bonds or more established shares .
It is also best to stay away from investing in small cap shares if you do not like taking big risks even if you have a lot of money to invest with.
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The definition of a micro cap stock is that company that has a share price of less than $5.00 . If you are just starting out then investing in penny shares can be a great way to learn about the stock market as you do not need a lot of money to begin with however as with any investment vehicle it is crucial you only invest what you can afford to lose .
So as soon as you have determined that your risk profile fits in with investing in penny stocks then you should start off by conducting some research to find profitable shares to purchase .
There are a number of different factors you need to consider before investing into a company.{You need to check the reputation of the company and its management, the past history of the company including company financials, profit and revenue streams}.
This type of analysis is referred to as fundamental analysis which is used to define the intrinsic value of the company .
It is important to know that the actual trading price of the share is a reflection of a combination of market factors at that time but through your due diligence you should be able to determine what the fair value of the company is .
You can reduce your risk by isolating companies that have a good intrinsic value and only investing in those.
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You need to diversify into a number of stocks and not just invest in one company in order to minimise your risk as you can wind up losing your entire investment if things do not go according to plan .
To summarize investing in penny shares carries with it a greater risk compared to investing in other more conventional stocks .
You can minimise your risk by ensuring you conduct your due diligence and do not overexpose yourself to one stock and eventually you can make good money from small cap stocks .
