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Sunday, August 8, 2010

Should you Invest in Micro Cap Stocks?

For a stock market investor, it is financial information of the company which guides him whether he should buy or sell the company’s stock. For a micro cap stock, this information is sometimes not available since some micro cap companies do not even file their financial reports to stock exchanges. Therefore, it is hard to evaluate a micro cap company using normal technical analysis methods.

What is a micro cap stock?

A micro cap company is a company having low or micro market capitalization. The term micro-cap stock (also micro-cap) is used to describe publicly traded companies which have a market capitalization of roughly Rs. 100 crore or less. Micro cap stocks are usually not able to satisfy the eligibility criteria of being listed on major exchanges.

Micro-cap companies are known for their volatility and many such companies are involved in fraud. Since the institutional investors are rarely involved in these stocks, the stock price can be manipulated by the investors. Even though these stocks come in high risk category, investors can’t turn their eyes away from them since these can be highly profitable as well. These stocks have given higher returns than large cap stocks since last 10 years. This is the reason there are a few indices specially create t track the performance of micro cap stocks globally. Some of these indices are Russell Micro-cap Index, the Dow Jones Select Micro-cap Indexes, and the Dow Jones Wilshire U.S. Micro-Cap Index.

In India, BSE Small Cap is a well known index. Its good to point out that most of the fortune investors invested in micro cap stocks in early stage of their lives, hence a small pie of your portfolio could be of micro cap stocks, which can have the potential to change your forturne in years to come.

At Saral Gyan, equity analysts keep on exploring investment opportunities in small cap and micro cap space. Last 3 Hidden Gem recommendation are of micro cap stocks which we offer to our paid subscribers only.

Note: Saral Gyan - Hidden Gems is a micro/small cap stock research report which is released on monthly basis by team of equity analysts and is provided to Saral Gyan paid subscribers. To read more on subscription charges & payment facilities for annual subscription, Click Here.