Small Cap Stocks – A Brief Guide

Posted on by

An investment strategy that includes small cap stocks is a high risk endeavor—which could also entail high profit. Stock promoters may advertise micro cap stocks as an opportunity to get involved with the investment of a start-up company that is about to make a huge leap in profit. Small cap stock promotion is a common way for potential stockholders to learn about the investment into new publically traded companies with low net worth. Or, a financial advisor may suggest certain micro cap stocks as part of an investment portfolio.

Such stocks lack the reliability—and stability—of blue chip mega cap stocks traded on Wall Street. Investment into small cap stocks entails the financing of typically low net-worth companies that are either just starting out, or attempting expansion for the first time. These companies hire stock promoters to help their net worth by increasing the amount of investors through targeted and concise small cap stock promotion efforts. As with any advertising effort, the company will be presented in the most positive light. However, even a potential surefire opportunity has risks involved. It’s not uncommon for new corporations to go bankrupt or vanish. These types of investors must understand fully what they’re getting into.

The reliability of the investment into small cap stocks depends on many factors, which includes the growth sector of the company, the history of the company and projected expansion. Underfunded companies that appear out of nowhere, in a low growth industry, are going to be a much riskier endeavor. The best companies that small cap stock promotion firms want to work with are companies with a reliable chance for growth and market expansion. This way, stock promoters can represent the company in a completely honest light, and bring about happy investors who receive financial rewards for their investments.

Small cap stocks are numerous, and can be located through a variety of websites. And, potential investors often discover these types of stocks through the promotional campaigns of small cap stock promotion companies as well as in-house stock promoters who work for the company in question. Although, it’s suggested to do research on any low net worth company before sponsoring it. Despite the risk, investing into the correct company could create a huge payout. Or, the investment opportunity could rapidly diminish if the company fails to meet its goals. Investors typically assess the risk versus reward before jumping into the deep end of the pool.

Penny Stocks – What They Are

Posted on by

Penny stocks, or micro cap stocks, are defined as company shares with low market capitalization. While large, blue-chip stocks often trade on Wall Street at $17 a share and higher, the stocks that belong to small public companies with low market cap sell for under $5, and frequently under $1. Investment in the micro cap market entails the same risk as investment in any other area of the stock market. Frequently, these stocks are purchased by investors who hope a particular company will meet its expansion goals and raise their net worth.

A low priced stock has the potential for a huge gain in investment. If the price of a stock rises from 10 cents to 50 cents, this is a huge return on your investment. In addition, micro stocks can be purchased in bulk quantities, with a thousand dollar investment buying thousands of shares. For these reasons, some people believe an investment in penny stocks can lead to quick riches if the investment is placed into a company that is about to rapidly succeed and expand.

However, the flipside is that if a $1.00 stock drops to $0.20, this is an 80% loss of profit in your investment. The tricky part about penny stocks is that there’s less information and reliability concerning the companies issuing the stocks. While an investor can rely on stocks in Wal-Mart remaining fairly stable (albeit slow-moving), a new, small firm is rather unpredictable in its growth patterns. Although big companies like Enron have crashed hard in the past—it’s typically believed that large, established companies are more reliable as long-term investment options. The shares for an upstart or small corporation may yield high appreciation if the company is appropriately managed and belongs to a high growth sector, or it could practically disappear overnight—along with the entire investment. Therefore, a penny stock investment is somewhat unpredictable, and could either bring huge riches, or huge depreciation.

Penny stocks are sometimes part of “Pump and Dump” schemes. A promoter may sell stocks that belong to companies with absolutely no growth. However, through wide-scale internet marketing ploys, a hollow company may appear on the verge of a breakthrough—temporarily raising the stock price. After the price of the stock is “pumped”, the stocks are quickly sold by the schemers, and when the marketing techniques end, the price suddenly drops. That being said, not every investment is a scam, and typically micro stock shares are completely legitimate, and an investor could yield massive returns for a micro stock that booms. Therefore, as with any investment opportunity, the investor must remain discerning, and make decisions that are not based on marketing hype.