What Are Small Cap Stocks and How To Evaluate
What is a Retail Investor?
A retail investor is an investor who is buying into the stock market for the long-term. Retail investors typically invest in low-risk stocks or indexes as their goal is to have their money perform over longer periods of time. Retail investors can be new and younger investors, but can also be seasoned and older investors who aren’t looking to play the “stock market game.”
Retail investors are not professional investors. They have their own brokerage accounts and are buying ETF’s, mutual funds, and other securities. In the short-term, the stocks and indexes they are buying into will not make them “rich quick,” but are good options for long-term money-making goals.
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What is a Small-Cap?
Small-cap is short for small market capitalization. The meaning of small-cap can vary on a broker-by-broker scenario, however, most small-cap businesses have a market capitalization of between $300 million to $200 billion.
Small-cap companies provide retail investors with a greater ability to have their money grow, as their market returns typically outperform large-cap stocks. The S&P600 along with the Russell 2000 are two indexes that include small-cap companies. It has been proven that these two indexes outperform large-cap indexes, such as the S&P500.
A Breakdown of Capitalization Categories
Small-Cap
$300 million to $2 billion
Mid-Cap
$2 billion to $10 billion
Large-Cap
$10 billion to $200 billion
How to Evaluate Stocks to Buy in the Small-Cap World
Small cap stocks can be the best stocks an investor will ever own.
They offer greater growth and returns over the long run than any other major stock market sector.
Investing in small cap stocks, successfully, however, can be more challenging than just buying shares of the world’s largest businesses.
Dear Retail Investors has refined the four most important criteria to review when evaluating the quality of small cap stock investments.
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The Core Business: What Can You Learn?
Cap Tables: Understanding the Company “Snapshot”
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What is an Antifragile Portfolio?
The word “Antifragile” comes from author, Nassim Taleb’s, book “Antifragile. Things That Gain From Disorder.” The meaning of antifragile is anything that isn’t fragile: china dishes are fragile, plastic plates are antifragile. Anything that benefits and survives from uncertainty is considered Antifragile. With investments, having an Antifragile portfolio is the key to making money.
Retail investors benefit from having an Antifragile portfolio because the indexes, stocks, and mutual funds inside these portfolios are able to survive long-term from the fluctuations and uncertainties in the market. Unlike fragile portfolios—which are typically measured quarterly—Antifragile portfolios are long-term and reap benefits over longer periods of holding times.
