The whole idea of investing in these turbulent times makes most people stand back and see where the general mood of the market is heading. Nasdaq or even the beloved blue chips on today’s market are no longer safe with such companies like Circuit City, Chrysler and General Motors going completely out of business or into bankruptcy. What I can tell most folks is that going into small cap investing is more research than just spinning the wheel of fortune. By the time you read this, the market has made this wild correction of over 30%. Five years ago, if a novice investor had came to me with the question of “Are small cap companies a sure bet now these days?”, I would probably say yes. But with so many small cap stocks to choose from, it would have been hard to pinpoint that one bombshell that will help make a fantastic return on the investment. This in turn has “weeded out” most of the less recession proof companies, of course what is left over are the strong small to large companies that weather storms as big as this. Here are a couple tips in choosing the smart small company stocks to enhance your investment portfolio.
First take in the idea that there is more money to be made through small cap investing than just buying up shares of fortune 500 companies. Through basic math, an investor would realize that it’s much easier to make more money buying 1000 $5 shares with a $2 bump in price with a good week than it would to buy 100 $50 shares of that blue chip and see the same price increase. Off of that initial $5000 investment, your small cap will have made a total profit of $2000 than say the $200 profit off of the blue chip investment. So there’s quick, easy money to be made here. But juicy statistics aside, investing in small caps requires work and research. Here’s what you must research to find that “niche” market.
First and foremost, find a niche area that some small companies accel at. With the hundreds of small companies finding their exit in the collapse of the economy, this should be easier to do. Next, it would help to find a company that you would already know information about. What type of product or service do they provide? Did they make an advancement or improvement on a current product or service? Find out what makes this company stand out and make sure there is minimal competition. And finally, call up the company and do some fact finding and obtain a profitability statement/report(10K and 10Q reports. How many shares do the managers or owners keep? Do they plan on scooping up more in the future?(This is an indicator that you might want to buy stock because their management team is) What latest advances in technology do they use to implement production? Are there any kinks or glitches that prevent them from any further production. Collectively, all the right answers will give you the okay to consider the small cap stock. As a result, you can find out how profitable a company will be and therefore make the decision easier for you to invest and less riskier because you’re not blindfolded.
The great thing about small cap investing is that it’s simple and cheap enough that you can do a 100 share trial buy. The key to success is the implementation of patience. Because what separates a day trader and an investor is the amount of time you keep your investments. If you can apply some of these research tools in finding the right investment, you’ll become a more confident investor. Follow some of the common research topics and investors alike will gain confidence in buying small caps. Even in the midst of a recovering economy, now is the time to buy these stocks before they rebound.