Categorized | Investing

Investing In Micro Cap Stocks

Share Button


What To Focus On When Investing In Micro Cap Stocks

Micro Cap Stock Investing
The key to investing in micro cap stocks is timing, as they are very sensitive to the economic business cycle, due to the very small size of the companies behind them.  Proper due diligence to find the diamonds in the rough is also key to succeeding with micro cap stock investments.

According to the United States Securities and Exchange Commission (SEC), a micro cap stock is a publicly traded stock that is valued in the range of $50 million to $300 million.  It is a common misperception that micro cap stocks are penny stocks.  They can be penny stocks, but in most cases penny stocks are actually valued much lower than $50 million, and fall into the nano cap stock category.

Unlike many penny stocks, the companies behind micro cap stocks tend to be operational companies with real businesses.  The businesses can be rather small, which presents both investment risks and rewards.  The risks are that small companies may have problems obtaining access to capital, especially during times of economic stress and recession.  The rewards are that small companies have plenty of room to grow, and therefore, in good economic times, the appreciation of their stocks can outpace the broader stock market.  To be successful with investing in micro cap stocks, it is important to understand how these stocks perform in relation to the economic business cycle and the broad stock market, so that you buy and sell at the right times.

What Is Appealing About Investing In Micro Cap Stocks

While micro cap stocks are on better footing than their smaller nano cap cousins, they still tend to be quite small companies that are much smaller than many investors are accustomed to investing in.  What is appealing about micro cap stocks is that they are so small that if an investor finds micro cap stocks in the right sector at the right time, just before they enter their explosive growth phase, considerable money can be made by investing in these stocks.

Performing proper due diligence is extremely important before investing in micro cap stocks.  Unlike larger companies, the small companies that are represented by micro cap stocks should have management that is accessible and available to discuss their business plans.  Do whatever online research you can do regarding the companies represented by micro cap stocks, and then call the companies directly to obtain additional information about the companies that can be shared publicly.

Some Micro Cap Stock Investment Ideas

Micro Cap Stocks ETF
One of the things that makes investing in micro cap stocks compelling for individual investors is that many money managers and large investors shun micro cap stocks.  Many of them just completely ignore the class of stocks that fall into the micro cap stock category, since they consider them too small to invest in or to consider following.  This creates an investment opportunity for individual investors, as they can use the power of the Internet to uncover undiscovered micro cap stock gems that can grow into big winning investments over time.

There are a number of micro cap funds available to investors that want to spread the risk of investing in micro cap stocks amongst many micro cap stocks and let professional fund managers make investment decisions.  While it is always a good idea to diversify when investing in stocks, it is especially important to diversify when investing in micro cap stocks, since the companies behind these stocks are highly susceptible to failure, which could cause a total loss of investment capital, if proper precautions are not taken.  Diversifying investments is one of the key precautions that investors in micro cap stocks can take to protect their investment capital from significant losses.

Micro cap stock investments should be well thought out investments, not just bets on the hope that a single micro cap stock will be a home run and generate thousands of percent in investment returns.  Investing in micro cap funds means money manager professionals make investment decisions based on their years of investment experience.  Of course, prior to investing, it is important to research micro cap funds and the money managers that run the funds carefully to ensure that they have a winning track record.


Micro Cap Exchange Traded Funds:

  • iShares Micro-Cap ETF (NYSE:  IWC)
  • First Trust Dow Jones Select MicroCap Index Fund (NYSE:  FDM)
  • PowerShares Zacks Micro Cap Portfolio (NYSE:  PZI)
  • Wilshire Micro-Cap ETF (NYSE:  WMCR)


Micro Cap Mutual Funds:

  • GAMCO Westwood Mighty Mites Fund (WEMMX)
  • Royce Micro Cap Fund (RYOTX)
  • Perritt Micro Cap Opportunities Fund (PRCGX)
  • Heartland Value Fund (HRTVX),
  • Schneider Small Cap Value Fund (SCMVX)
  • Wasatch Micro Cap Fund (WMICX)
  • Oberweis Micro Cap Fund (OBMCX)
  • Managers Micro Cap (MMCFX)
  • Catalyst Value Fund (CTVAX)
  • RBC Micro Cap Value Fund (TMVAX)


Some Additional Advice Regarding Investing In Micro Cap Stocks

Investing In Micro Cap Stocks
While using funds to invest in micro cap stocks is advisable for most of an investor’s investment capital, it is a rather conservative way to invest.  For micro cap investors looking for a little more excitement, it is not a bad idea to allocate a small amount of investment capital for direct investments in individual micro cap stocks.  Just make sure you do proper due diligence on all micro cap stock investments before investing any money.  Do not buy into any short-term hype.  Find micro cap stocks that are consistently growing and have strong future prospects for further growth, and your chances of succeeding with investing in micro cap stocks will be greater.

Keep in mind that micro cap stocks tend to make most of their gains in the first half of an economic recovery, as their revenues grow and liquidity in the stock market is plentiful.  Micro cap stocks can be quite risky investments during the later portion of an economic recover and during an economic recession, as the companies may not have sufficient capital to survive an economic slowdown, so pick your investment entry and exit points carefully.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

This post was written by:

- who has written 536 posts on StockRockandRoll.

Contact the author

Comments are closed.

© 2020 MJ Capital, LLC | All rights reserved