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  • Investing In Small Cap Stocks: A Good Decision 0 comments
    Jun 13, 2013 8:31 AM

    Small Cap stocks are generally understood by their names. These are the shares of smaller companies. Small -cap stocks are often cited as good investments due to their low valuations and potential to grow into big-cap stock. These stocks can be a great supplement to any portfolio as long as an investor puts in their due diligence researching the dividend stocks and is comfortable with the increased risk that comes with investing in smaller companies.

    To understand about small cap stocks first we need to define "cap". It refers to market capitalization which is calculated by multiplying the price of a stock by the number of shares outstanding. Generally this represents the market's estimate of the "value" of the company; however, it should be noted that while this is the common conception of market capitalization. To calculate the total market value of a company, you actually need to add the market value of any of the Company's publicly traded funds. There are many different definitions of what constitutes a small cap stock but a good rule of thumb is any company with a market capitalization of less than $1 billion and more than $250 million. These stocks give many benefits to the investors. Some of them are -

    Many Institutional Investors Ignore Them -

    Institutions like mutual funds and pensions funds don't invest much money into small cap investments. They make investment decisions that see hundreds of millions of dollars moving one way or another and your average small caps don't have the size to absorb this kind of investment easily. This leaves opportunities for individuals to invest in a sector of the market that is ignored by a huge proportion of the investor pool.

    Growth -

    Small cap stocks have a lot of potential for growth. At some point most of the large cap stocks that are traded on the market were small cap investments that took off. If one manages to make an investment in a company like this early the benefits are substantial. It is very easier for a company with a capitalization of $500 million to double in size than it is for a company work $50 billion to do the same.

    Lack of Coverage in the Market -

    Market analysts naturally pay a lot more attention to the major players in the market as by their nature far more investors have an interest in those companies. This creates as opportunity for individual investors who put in the time to identify small cap stocks that are mispriced in the market or that have large upsides that other investors simply haven't had the chance to see.

    Small caps often get re-rated -

    If the market believes earnings are going to raise a lot in years to come, it will pay more for shares in that company now, compared to a plodder going nowhere. In other words, the P/E ratio will be higher for the fast-grower.

    Final thoughts -

    So, as you can see that small caps stock are beneficial for the investors. They give many opportunities and dividends to the investors. Every investment portfolio has a degree of risk involved and as long as your portfolio and your investment strategy can absorb the risks of investing in small cap stocks they can be a great opportunity.

    You can get additional data related to dividend, dividend date and preferred stock from the site http://www.dividendinvestor.com/

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