Small Cap stocks are shares in companies with capitalization typically between 300 million and 2 billion, which is more than a micro-cap, but less than a mid-cap company shares . Over the years, the categories of stocks have changed. For example, in the 1980s a company of this size would have been considered a large cap stock. Small cap companies may trade on the NASDAQ, the NYSE, or the OTCBB.
Some in the investment community say that small caps (and below) are boring and un-known companies, mainly because these companies may not get a lot of press attention. These companies also garner less coverage on Wall Street because of their smaller capitalization. Small cap companies may not be highly capitalized or they may be under-recognized, but that doesn’t mean they should be overlooked by individual investors. Many investors consider this class of stock to be great value stocks because this small caps generally out-perform the market long-term. There are bad investments in each stock category, but those investors who do their due diligence and invest wisely can do well in each category, including small caps. Research for small caps means reviewing company filings, annual reports, financials, and gaining perspective on the valuation of the company.
Think of Wal-Mart (WMT) in the 1970s. Had you invested just $10,000 in Wal-Mart during its first few years on the market as a public company, you would be very wealthy today. In 1970, the stock price was $16.50 per share. Not only has the stock increased in value, but there have been 11 2:1 stock splits as well, and an increased dividend every year. One of the biggest technology companies is Apple (AAPL). They went public in 1980, and they were a small-cap stock. When the company went public, the opening stock price was $22.00.Now, this technology giant is a Mega-Cap stock, a multi-national corporation, and has been instrumental in creating technologies which have changed our lives. Today, it is trading at over $500 per share, and was priced over $700 per share in 2013. The market capitalization of Apple is near $500 billion! These are just two small-cap home runs over the last several decades.
Many individual investors and hedge fund managers look closely at small caps as a part of their portfolio. Small caps offer many investors the opportunity to get in on the ground floor, since many small caps are overlooked by institutional investors. Many of these companies may be under-valued and have the potential to grow at a more significant rate than a large cap stock. Other small caps may already have brand recognition, but offer great growth opportunities.
Here’s what Deutche Bank has to say about long-term investing in small cap stocks: “We believe after three years the performance potential of small-cap stocks may outweigh their volatility, therefore, in our opinion, investors with time horizons of greater than three years may wish to consider allocating a portion of their equity portfolios to small-cap stocks.”
Sometimes it is challenging for investors to access current and reliable sources of information on small cap stocks, because they don’t often get much exposure on traditional news and media outlets, which cater to institutional investors. Most investors who Our goal here at IWSR is to provide our readership with the latest news, information, and resources on the OTC and small cap market so that you can make more informed investing decisions.
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