04 March, 2008

Small Cap Stock Investing For Beginners

This Article is provided as a primer to Small and Micro-cap Investing by Mike Zhmudikoff, writer and PR advisor for Invest Source Inc.

Most stock investors trade in the small cap stock market with the same chance, but only few of them make really good money in penny stocks. Many of these people, who don't make enough profit don’t possess a high level of small cap market understanding. Before your first steps in micro cap investment, it's vital to understand the great advantage and risk of trading stock of companies with a market capitalization of between $200 million and $2 billion.

The main advantage of small caps trading, is the opportunity to outperform institutional investors. Because mutual funds have restrictions that limit them from buying large portions of any one issuer's outstanding shares, some mutual funds would not be able to give the penny stock a meaningful position in the fund. To overcome these limitations, the fund would usually have to file with the SEC, which means tipping its hand and inflating the previously attractive price. So now it's the time to shed some light onto these terms.

The term "micro-cap stock" applies to companies with low or, so called, "micro" capitalizations, meaning the total value of the company's stock. Typically, penny stock companies have limited assets. They tend to be low priced and trade in quite low volumes.

When we are talking about the penny stocks, we can define them as stocks that have very low value, highly speculative stocks, unlisted on the stock exchange, and with small market capitalization. If a stock has any of these it can be called penny stock.

Although penny stocks do have a very low value, it is very difficult to say how low the value should be for some stock in order to be described directly as penny stock. There are a lot of opinions about the price of the stocks. They're not listed on the stock exchanges, they have a low market cap and, as it was said before, are highly speculative.

Disclosure: Opinions shared in the above article are strictly those of Mike Zhmudikoff of Invest Source Inc., the online directory of top performing micro-cap companies and provider of the latest news and analytics on small-cap investing.

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