Hi, what a day,
This is an exciting time to be looking at small-cap stocks. That is, stocks that have a market capitalization of less than $2 billion. But first, let me give you three reasons why it might NOT be time for you to invest in small-cap stocks.
First, if you’re going to need the money from your investments in the next 12-24 months, you need to be very careful with small-cap stocks. That’s because they tend to be more volatile than mid- or large-cap stocks. And during market corrections, small-cap stocks can drop much further than the broader market.
Second, many small-cap companies are not profitable and may be years away from having a business model that will take time to catch on at scale. This means that these companies are at a higher risk of bankruptcy. And even if they don’t go out of business, many small-cap stocks never get beyond penny stock status.
And third, because of their volatility, small-cap stocks can be a favorite of day traders and swing traders who are only concerned with short-term price movement. That, in turn, can contribute to the volatility in the stock.
But if you have a longer time horizon and are committed to a buy-and-hold strategy, quality small-cap stocks have historically provided investors with an opportunity for high growth.
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