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Small Cap Investing Tips

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Small cap investing calls for strategic planning

small cap investing

Most market players venture into small cap investing in the hope of finding tomorrow’s winners today. However, an injudicious investment plan can make you throw away your money on unstable and speculative companies rather than the future gems of the stock market. In order to maximize your profits by small cap investing, you need to build a good risk appetite and work on a time horizon that is apt for playing in the market, which essentially involves taking calculated risk in a given period.

Things to look for while small cap investing

If you want to earn high returns on your investment in small cap stocks, you should pick companies that have strong founders with large personal stake in the organization. In addition to that, you should ensure that the company enjoys a significant position in its niche vertical, has easy to read financial statements and good liquidity.

Furthermore, you should check to see if the company generates surplus cash flow from its operations, has a strong asset foundation and negligible or no debt. Lastly, but most importantly, you should select the stock of only those companies that seem to have plenty of room for growth and are already striving to expand their footprint.

While the above-mentioned tips are worth noting and following at the time of stock selection, you need to learn when to quit a well. Knowing when to sell your stocks is as important as knowing what, when and how much to buy. Ideally, you should sell your stocks when they are offering a profit margin of 50%. This is important in view of the fact that often even the most promising small cap does not achieve enduring success. Thus, it is best not to be greedy and to bow out of small cap investing when you have earned reasonably good returns.

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