SHARETIPSINFO >> Articles Directory >>Small Cap Stocks - Why to invest


Stocks are primarily divided on the basis of the market capitalization of the company that is calculated by multiplying the current price of the stock with the number of outstanding shares of the company. Depending on the market capitalization stocks are classified as large cap, mid cap and small cap. Generally if a company has market capital of less than $1 billion then the stock of that company is called small cap. In almost all the stock market small cap companies are traded in a specific category and there are large numbers of investors who prefer to invest in these small cap stocks and there are so many reasons behind it.

The primary reason behind investing in the small cap stocks is that all the big enterprises in the world were small start ups at a point of time. So those stocks that are small cap these days are most likely to become big in the future. So you are searching fro the biggest opportunities at the stock market and ready to invest for long period – small cap stocks are best option that you have got.

Small companies are more likely to grow rapidly. For simple reasons it is easier to double profit margin for a company worth $ 1 billion or less than a company with a market capital of few billions. So for obvious reasons small cap stocks give good return to the investors as they rise in the market more quickly than the large cap stocks.

Small cap companies sometime can take risk and benefit from opportunities that the bigger companies can not afford to take because of their huge set up and responsibility. This is one of the reasons that the small cap companies more profit in significantly short period of time.

Small cap stocks are more market sensitive than the large cap stocks. That means they react to the market trend more intensely than the large cap stocks. So it is quite natural that you can be more confident about the movement of the small cap stocks, if you have done your research well.

Small cap stocks go mostly unnoticed by the larger portion of the investors and moreover the mutual funds never invest in the small cap stocks. So the small cap stocks are hardly over priced. So even with a minimum investment portfolio you can own large number of shares and gain from it.

These are some of the benefits of investing in the small cap stocks and it is always wise to have 20% to 30% small cap stocks in your portfolio.

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