What Are Small Cap Stocks?

What Are Small Cap Stocks?

If you are thinking of investing your money in the stock market, you will probably come across two distinct types of stocks sooner or later.  The first type is known as big cap stocks and the second is known as small cap stocks.

In the case of the latter, these small cap stocks are the stocks of companies which are – as the name would suggest – smaller in nature.  So for example if you think of all the big well known companies worldwide, they will be big cap stocks.  The small ones are those which you won’t have heard of for the most part.  They are much smaller businesses and thus have a much smaller amount of shares as well.

The question really is whether it is worth considering investing your money in this type of share.  After all, if you don’t know anything about the company and it isn’t hitting the headlines on a daily basis, is it really a good investment to be thinking about?

But the key here and what you need to remember is that some small cap investments end up being extremely worthwhile.  They may provide a better return than you would get from a selection of big cap stocks, and as such you need to think about all your options before investing in one or the other.

The attraction with small cap stocks is that there is the potential for them to grow by huge amounts.  Remember that word ‘potential’ though – as with any other kind of stock this type cannot be guaranteed to bring you huge profits by any stretch of the imagination.  The idea is to identify those companies that are small now but have the potential to grow into large companies in the future.  Many investors will say they wish they had invested in companies like Microsoft when the shares were low, but of course you never know which ones will eventually pay dividends.

So if you want to get involved in small cap stock investing, you need to do your research.  Try to identify which type of company you want to invest in and find out as much as you can about it.  The trick is to spot a potential trend before it even begins, so you can buy the appropriate small cap stocks and watch them grow before your eyes.  This is what every stock investor hopes to see.