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Kristien Wilkinson asked:


Putting your money on companies with big market capitalizations is often touted as one of the safer ways to invest in stocks. After all, these blue chips and mega cap companies are generally stable, secure, and are well-known industry leaders. They are traded on major exchanges such as Dow Jones and Nasdaq and are widely covered by the media. Thus, investors can easily get their hands on a wealth of corporate information about these companies. Clearly, playing with the big boys in the stock investment arena has its perks.

For the stout-hearted and adventurous investor though who can handle much higher risks, micro cap companies are worth looking into. Micro caps, also known as penny stocks, have market capitalizations of $50 million to $300 million although some companies can have as low as $6 million in tangible assets. They often trade for less than $5 per share but this range fluctuates depending on market performance. Penny stocks could outperform large and small cap stocks by as much as three percent. Because of their low stock prices, these stocks are quite attractive to retail and novice investors.

Micro cap stocks are traded on the Over-the-Counter Bulletin Board. While companies listed in the major exchanges need to meet minimum requirements such as net assets and number of shareholders, penny stocks are not subjected to any listing standards. The Securities and Exchange Commission requires micro cap companies to file financial reports except for those with less than $10 million in assets. These are helpful sources of information for investors although the accuracy and timeliness of the reports could at times be disputed.

Micro cap stocks are generally not covered by mainstream media and analysts which makes it difficult to obtain information about these companies. Investors must then do their own research. Relevant factors to look into are the 52-week high/low trading range, the price/earnings multiple, and the net profit and cash flow. Note also if the company files its financial statements on time and on a regular basis.

Most companies in the micro cap range aren’t raking in major earnings yet and may take a long while to do so. The key is to study a company’s business model and to be aware of any potentially marketable product or technological innovation that it plans to launch into the market.

Investing in micro caps requires a lot of effort in research and patience in waiting for the company to develop. Penny stocks have relatively low liquidity and as such, cannot be sold quickly to minimize losses should things go wrong. A lot of micro cap companies also tend to have short life spans and could fold up anytime.

The market of penny stocks is also teeming with fraudsters who illegally profit from unsuspecting investors. Unscrupulous brokers would buy stocks from a micro cap company at very low prices and re-sell them with an outrageous mark-up. Some micro cap promoters also create hype about a certain company to start a buying frenzy and increase the stock price. The overvalued stocks would eventually plunge back to its penny price once the hype is over and consequently wipe out the investors’ money.



NOAH

Nir Dotan asked:


Stocks investment is not an easy subject, especially if you do not know what to look for. Stocks investment in micro capital stocks is even harder, because information about microcap companies - or penny stocks companies as they are often called - is not easily available whether in print or online on the internet.

However, micro cap Stocks investment can be learned, and can be a lucrative way of making money if you know the guidelines and stick to them. Here are a few that you should follow.

Rule number 1 - Do your homework.

Sometimes you will come across Stocks investment information that will catch your attention like a eureka moment. Don’t jump at making Stocks investment right away; make sure you do your homework first. Research everything you can about the company, especially about the stocks investments. Look for information about the people running the company.

Study how many stocks the company has on float in relation to the total number of outstanding stocks, and how many belong to the insiders. Look at the demand for the stocks. See how long the company has had the stocks on float and look at the trend - is the price steadily going up, is it flat, or is there a downwards trend?

Rule number 2 - Use a disciplined strategy when deciding on stocks investments; don’t involve your emotions.

Think of this as a game of strategy. After doing your homework and you find a stock you like, decide on a buying price and stick to it, no matter what.

It may happen that before you could buy the Stocks investment you want, the price shoots upwards or downwards even if there is no new significant news to influence the fluctuation. Don’t buy if the price shoots up, just because you think you might be missing out if you don’t buy it now. If the price zooms down, think twice and look at it as a signal to take extra caution. Don’t get carried way into buying just because you like the stock.

There are thousands of Stocks investment that may be more worthy than this one. If you cannot get this one, move on and look for something else. If you still want to buy the stock, wait until it stabilizes or goes back to your predetermined buy price.

Rule number 3 - Don’t wait for a perfect price.

Don’t look for a perfect price; there probably won’t be one. Study the historical price charts and decide on a bottom and ceiling range for your buy price. If the prices fluctuate, take the average.

After you have researched the company and you are sure the price will move upwards in the short term or long term, go ahead and buy it if it meets your price range.

Rule number 4 - Invest a smaller portion of your portfolio in micro cap stocks, and keep a bigger chunk for big cap stocks investments.

If you plan to build a portfolio of stocks investment, keep no more than a maximum of 50% of the total value of the portfolio to micro cap and penny stocks. If you can make big cap stocks a bigger chunk, that’s even better.

Big capital stocks are more stable, but may not earn as much as small caps. Small cap stocks have the potential to earn more, but they are riskier and will take up a lot of your time. A portfolio with a bigger percentage devoted to big cap stocks will be easier to manage and will cause you less stress.

Rule number 5 - Don’t get greedy; lock in your gains.

Now that you are getting the hang of stocks investment, don’t forget your disciplined strategy. Once you earn enough, lock them in with trailing stops these are stop loss orders to protect your profit and sell out while you still can.



ANGELO