Investing For Beginners – Free Investment Articles and Tutorials

Most investors prefer to invest in companies that are established and have large market capitalisation. However, there are many companies that are small but have good bottom lines and deliver good yields. These companies are known as micro-cap companies. Their market capitalization ranges between $50 million and $300 million though some analysts and fund managers put it between $10 million to $500 million. To get good returns you should know how to invest micro caps.


The first thing is that they should not be confused with penny stocks. Penny stocks are shares that are low-priced and are not listed on major exchanges. They are usually traded over the counter. They can also be risky, because unscrupulous operators may artificially boost their stock prices.

Although most investors prefer to invest in big companies because of their reputations, micro caps can be just as solid investments. This is due to the fact that many of these companies are industry leaders, even though their market capitalization is much lower than that of the bigger companies. They are also not closely tracked. This opens up the possibility of locating micro caps in unknown areas.

Micro caps can bring in big gains, particularly in the long run. According to data provided by Merrill Lynch micro caps have invariably done better than large caps over a 20-year period. Micro caps are also known to do well when large company shares may be taking a tumble. Two highly successful micro cap stories are those of Wal-Mart Stores and Cisco Systems. Both these companies arrived as micro caps but soon became share market giants.

However, an investor needs to do considerable research before investing in micro caps. He needs to study their fundamentals, and their future markets carefully. He should also be willing to wait. He must remember that the possibility of a windfall, as in the case of large caps, is much less. But then the risk is comparatively less. Overall, micro caps make good investments.

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