Looking for big returns?
Returns that you don’t have to wait forever for?
It’s time to take a look at the small-cap market.
Small-cap stocks aren’t for everyone. In fact, most brokers and investment funds ignore them.
That’s a good thing for individual investors.
There’s reduced competition, for one thing. Which means more opportunities for investors like you. Let me explain…
Investors are often willing to take a risk for better short-term returns. Small-caps can be risky. But don’t let that deter you. Because small-caps can make you a fortune.
Small-caps have the potential for huge growth. The kind of growth that most large companies can only dream about.
Triple-figure percentage gains. Sometimes more. And sometimes in as little as six months.
So why doesn’t everyone jump on the bandwagon? And how are small-caps so potentially profitable? Let’s start with the basics.
So, what is a small-cap?
A company’s market capitalisation is its overall value. Investors call large companies ‘large caps’. They are the big companies you most likely know. For instance, Telstra and BHP.
On the other hand, small-cap companies are tiny. Most people don’t know about them. They are companies with a market cap under $500 million.
Large investment funds don’t invest in small-cap stocks. They see them as too risky. Also, buying too much stock would increase the price. The amount of money that large funds have to invest are just too high for small-caps.
So most analysts don’t bother with them. They stick to the larger stocks, which they know all about.
The trouble is, it’s also harder to find bargains among those big stocks. Not least because so many funds are scrutinising them so closely.
Meanwhile, the small-cap market is full of undervalued stocks…and great bargains. As such, small-caps have the potential for big returns. But also big losses, if you’re not careful.
What most people don’t realise is that small-caps often outperform the bigger companies. For example, in 2015 the S&P/ASX Small Ordinaries (companies ranked between the top 100 and 300) returned 7.83%. While the S&P/ASX 200 (top 200 companies) gave a return of -1.83%.
As good as these figures are, there are better returns. The Small Ordinaries index covers companies with a market cap above $100 million. Even smaller companies (those below the top 250) can offer even bigger returns.
Small-caps are not as restricted by the marketplace, either. They can react and change quicker to market demands than bigger companies.
Small-caps have more room to expand
Obviously, it’s easier for a small company to double in size than a huge corporation. That’s why the returns in small-caps can be so big. And so quick.
Remember, small-caps often go unnoticed by mainstream investors. Brokers largely ignore them, opting for larger, safer stocks.
And that’s a good thing. It leaves the small-cap market open to individual investors like you.
Individuals who are willing to accept a little risk to potentially generate high returns.
How to minimise the risk
To minimise that risk, there are a few things to think about. As with any investment, never risk any more than you can afford to lose. And don’t take a punt on just any company.
Do some homework. Check out their balance sheet. Work out how they make money, and figure out their prospects for growth.
Are they on the way up? Do they have the products or patents destined to become the next big thing? Is their management sound, and do they hold shares in the company?
If so, you could be on to something big. Many small companies grow into big companies.
But not all of them. That’s why you have to pick and choose. And why you should be careful. And informed.
So, small-caps aren’t for everyone. They’re risky. And there are no sure things in investing.
But small-caps have the potential for huge growth. Perhaps triple-figure percentage gains. Or more.
Sometimes in as little as six months.
There are unbelievable opportunities out there. Opportunities that you won’t find with traditional blue-chip stocks. Opportunities that are virtually unknown to most investors.
So, why wait?
Take a look into small-cap investments. You might be surprised at the returns that are possible.
Publisher, Money Morning
PS: Like in 2017, the highest returns for 2018 will likely be found in the smaller end of town. To help you get started on your hunt for 10-baggers, check out these three small-cap stocks trading on the ASX.