When institutions (Hedge Funds, Mutual Funds, Money Managers, etc.) decide to buy micro caps they often tend to “build a position” in an individual stock over a certain period of time rather than purchasing the entire amount in 1 trade or in 1 day.
Depending on the strategy, many funds will buy up to 30% of the allocation in a day and see how the stock performs over the next few weeks. Over time they will add to the position by purchasing more stock until the total allocation is completed.
There are many reason institutions purchase micro-cap stocks this way but the most obvious is because of the general lack of liquidity in micro caps. For individuals, this strategy can still be useful because if a stock is performing well and you are adding to your position before the total dollar amount of allocation is complete you are essentially adding to a winner.
If you only add an initial 25% allocation to a stock and if begins to perform poorly, there are also advantages because you may want to still add to the position and are buying the stock at a lower price or if there is adverse news or market conditions that make you want to cut the position you have only invested a quarter of your overall allocation.
Investing in micro caps certainly has higher risk, more volatility, and the potential to have much higher returns than the general market. ISWR believes if you create an investment strategy similar to institutions when buying these stocks you can give yourself certain advantages most individual investors don’t know about or may not care about. Either way, ISWR wants its members to be able to make better informed decisions when considering these types of investments.