Welcome back to your Extreme Small-Cap Profits email course.
This is Day 11 of 12.
If you missed yesterday’s email, we had a look at two small-caps. Granted, I glossed over the financials, industry and potential.
But the idea was to reassure you that you’ve got all you need to become a small-cap investing legend!
Today, I’m going to do my best to convince those fence sitters that they absolutely need exposure to small-cap stocks.
So sit back and strap in, we’re going to take a look at the highly probable world of small-caps.
Yes, you want to be rich!
Do you want to be rich? Of course you do. Anyone who says otherwise, is lying.
Let me explain why.
The luxury of being rich is not to pine over your back account. It does nothing to elevate your social status.
Being rich isn’t about money. It’s about what that money can do for you.
With money you can give your loved ones the best care if they fall ill. You could give your kids the best education money can buy. You could become an influential force for good in your community.
That’s why I say anyone who says they don’t want to be rich, is lying. Sure, they might not want a fat bank account.
But who doesn’t want to care for their family or leave a positive impact on the world?
How to get there
I’m sure it wasn’t too hard to convince some of you that being rich has its benefits.
But how do you get there?
I’ll let you in on a little secret, saving isn’t going to get you there. Especially not if inflation kicks up.
One of the best paths to riches is to invest your hard-earned money. Let your money do the work, so you don’t have to. But where should you invest?
There are three investments you could easily buy right now:
OK, the third is more of a bet. But stay with me.
You might be familiar with all three, but let’s just run through them quickly.
Bonds are fixed income securities that offer reliable stable income. The income you receive on your investment (yield) usually depends on what price you pay for the bond.
The second is my favourite path to riches. I’ll show you why in a moment.
As a shareholder, you are a part owner in a business. That means you’re entitled to the earnings, dividends and assets of that business.
The third is one which could’ve made a boat load of money in 2017. Bitcoin and other cryptocurrencies climbed more than 1,000% last year. But that ship seems to have sailed as we head into 2018.
Had you bought bitcoin late last year, you’d now be down more than 48%. Who’s to say you can’t lose even more money on cryptos?
So why are stocks the best investment? I think the risk-adjusted returns speak for themselves.
While you’re taking on risk, becoming rich through stocks is a time tested method.
As we’ve seen, there are many ways to try and minimise your risk in the market.
You can use stop-loss orders to literally limit losses. You can choose to take profits off the table and protect your original investment. And when it comes to small-caps, you only really need small sums to make huge profits.
More 10-baggers than ever
Imagine you had $5,000 to invest. It’s a sum many can afford to spare. Where would you invest in?
As you’ve seen, stocks will get you the most bang for your buck, without taking on huge amounts of risk. If you just go by averages, small-caps will run up far more than bigger stocks.
From the graph above, you can see the annual average return of small-caps is 2.1% higher than their larger cousins.
But if we dig deeper into the smaller end of the market, you can potentially find companies to turn your $5,000 into $50,000. And this is from just one investment.
Imagine over time, finding just a few stocks that shoot up 1,000% or more. Over four years, nabbing four 10-baggers could turn four lots of $5,000 investments into $200,000!
It’s realistically enough money to take a four year break from work. Alternatively, you could continue investing $5,000 lots, making your living from just a few small-cap stocks a year.
Now I want to show you a table. It shows the top 10 highest returning stocks on the ASX from 2013–17:
You’ll notice that last year was a great time to be a small-cap investor. More than nine stocks on the ASX rose 1,000% or more.
Will 2018 be just as good?
I personally think it’ll be even better. Stocks have fallen initially. But it’s only a matter of time until they rebound. And when they do, it will be you on the other end of massive gains.
So where could you see these 10-baggers for 2018?
Where to put $5,000 in 2018?
My bet is on Asia — China, specifically.
Why? Because China continues to rapidly grow. OK, so their economy isn’t growing above 7% anymore.
But Chinese entrepreneurs and businesses are investing like crazy. They’re creating new emerging industries, which give businesses plenty of opportunities to profit.
Take a look at China’s technology industry. Decades before there was little to nothing there. Now China has 17 tech incubators.
Source: South China Morning Post
South China Morning Post wrote late last year:
‘As many as 17 national-level innovation demonstration zones, from coastal Shenzhen to inland Chengdu, have been handpicked by the State Council, or China’s cabinet, and allowed to offer favourable policies to spur innovation and drive regional economic growth based on their respective strengths and geographical advantages.
‘…The mega cities, with a sound economy and rich pool of talent, are also home to some of the most valuable tech Chinese firms.’
Or what about China’s massive consumer market. Just take a look at this parabolic chart of Chinese consumer spending over the years:
Source: Trading Economics
And what’s more the government is planning to add leverage to the mix, giving Chinese consumers even more buying power.
And of course, there will be a ton of Aussie small-caps profiting from this mega trend.
I can’t wait to see what 2018 holds for Aussie small-caps. I wouldn’t be surprised if 10 or more small-caps rise more than 1,000%.
Don’t you want to capture some of that grow?
Well, after tomorrow (Day 12) you should have all the skills and knowledge to potentially make those kinds of returns.
See you there.
Editor, Money Morning