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Small Cap Investing Strategies Suggested by CL King Experts

July 23, 2015

Before you begin investing in small cap stocks, you’ll want to know what they are. The term small cap makes reference to the market capitalization of a business. These numbers can vary, but small caps are usually companies with a market capitalization between $200 million and $2.5 billion. As a side note, don’t confuse small caps with micro caps. Micro cap fund and mutual funds; for example, invest in companies with a market capitalization of $50 million to $300 million.  

 

You can find small cap stocks nearly everywhere. They’re the small cap startup companies that sprout up nearly every single day. Due to their small size, these companies have the potential to scale quickly. This can mean huge rewards for early investors. Small-cap stocks are ideal for individual investors because of the small amount of competition from institutional investors. Institutional investors tend to have massive funds, and they’re typically only interested in investing in bigger companies that will move their bottom line.  

 

There are many small-cap investment strategies out there that can lead you to success. With the proper strategy and proper research, you’ll be able to get started on the right foot. Here are a few sound small cap investing strategies, which our experts at CL King always suggest. 

 

Keep an eye out for paradigm shifts 
Try to search for paradigm shifts in any area of business that provides a new, unique solution that is provided by an individual company. Then, seek a supplier who would also play a part in this paradigm shift. An excellent example of a paradigm shift would be the transition from CD to DVD. 

 

Invest in companies before they’re discovered by institutions 
You want to do your research and find a small business with potential before a large institution takes notice. If an institution has begun to invest in said company you only want to go in if they have less than 50% ownership. You’ll want to avoid businesses with heavy institutional investing because their investments will cause the value of the stock to shoot up in price.

 

Only Invest when there is huge market opportunity 
You only want to invest in a company that serves a massive, growing market. You want to focus on company’s in flourishing markets because the potential for massive growth can be exponential with even a small market share. The very size of the market is what creates the potential for major gains. It also reduces the investor’s risk profile. 

 

Only focus on stocks that offer both value and growth 
When investing in a company, you always want to look at the numbers. Idealistic business goals aren’t a solid enough proposition to make a sound investing decision. You want to search for companies with significant growth in their sales and despite their success, are still undervalued by the market. It’s a huge plus if the company has cash on hand and low debt. Cash on hand demonstrates that a company can likely carry itself if something unexpected happens. 

 

Control massive losses
Small cap stocks are infamously volatile. Some small caps have been known to skyrocket by over 100% overnight, yet the same can happen in a downward trend. To protect yourself while investing in these stocks, you want to use stop losses. A stop loss is an order placed with a broker to buy or sell once the stock reaches a certain price. It’s suggested that you create stop losses with a 25% to 30% margin. This way you can avoid catastrophic losses if a stock decides to take a dive.

 

If you have any doubt or query consult us at C.L. King & Associates.
C.L. King & Associates is a full-service investment bank and self-clearing broker-dealer founded in 1972. We provide investment banking, equity research, sales and trading, and investor services to corporations and institutions.
When combined with our strong capital base, we are an active securities underwriter. We co-manage bond offerings, IPOs, follow-ons, secondaries, convertibles, and preferreds. In addition, we transact directly in the capital markets on behalf of corporations through our Corporate Services business focused on share repurchase and continuous share offerings ("ATMs").  CL King is also a leading woman-owned securities firm and is WBENC-certified.

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