Part Three of Learn How to Invest in Small Cap Stocks and Make Triple Digit Profits

 Part Three of Learn How to Invest in Small Cap Stocks and Make Triple Digit Profits

Are you sick and weary of having your stock portfolio yield yearly returns of 5%, 8%, or even 15%? Do you want to profit by triple digits from your stock selections? With a few sound tactics, it is not just feasible but rather likely.

I discussed the need of having tight purchasing guidelines in Part Two of this post in order to reduce risk when making investments in small and micro company stocks. In this section, Part Three, I will elaborate on and alter Rule Number Two even more.

Third Rule: Avoid attempting to purchase at "perfect" prices.

Recognize that you will nearly never purchase small and micro cap stocks at the "perfect" price. Do not wait for a "perfect" pricing if you have done extensive study on a firm and are certain that its price will increase in the near or long run. It's highly unlikely that you will purchase something at the ideal cost. There will undoubtedly be days when the price of small and micro cap stocks fluctuates more quickly than that of large cap equities. Furthermore, it is impossible to predict with 100% accuracy when these spikes will occur.

Furthermore, when investing in tiny and micro cap stocks, the law of averages should eventually work in your favor. Occasionally, after investing in a stock, the price will decline, and you might instantly regret it. In other cases, the price of the stock will increase as soon as you invest and you won't be able to purchase it at a lower cost. It does require a strong stomach to invest this way, but if you've followed rule number one, even a situation where the price drops just after you buy in shouldn't make you lose faith in your choice of stock. In certain cases, I've bought stocks that dropped 10% the day I bought them and then gained 60% the following month.

Therefore, employ a price range rather than a precise price point when purchasing a stock that piques your interest. Using the hypothetical company YYY as an example, if you are really excited about the company's future possibilities, look at its past price charts to decide a price range that you would be comfortable with. Go ahead and purchase the stock if you determine that you would be content to purchase it between $2.90 and $3.10, given that it is now trading at $3.

There are financial advisors, including some I know, who will argue against this advice and advise waiting for a price decline before making a purchase if the stock's technical charts indicate declining indices. I completely disagree, unless those technical charts show negative values in nearly every indicator. Technical indicators frequently provide "false" positives and "false" negatives since they are never entirely accurate. Furthermore, due of their intrinsic volatility, which makes it more difficult to assess their technical charts for ideal buy-in prices, they are even less accurate when it comes to volatile tiny and micro cap companies. An "unknown" stock's price could rise sharply without any technical signals if its tale eventually makes it past media filters and into the general public. You would be left behind in the dust if you were to base your decision about the ideal buy-in price only on technical analysis. Because of this, you ought to establish a buy-in range rather than a precise price.

Rule #4: Allocate a lesser percentage of your portfolio to higher-risk small- and micro-cap stocks.

Even though this guideline should go without saying, I'll reiterate it because greed has the power to drive even the most sensible people to act irrationally. I advise allocating to tiny and micro cap stocks no more than 50% of your portfolio's entire worth. You can easily beat the S&P 500 by combining safer large cap equities with micro and small-size stock selections. However, you will undoubtedly start to wonder the following when your portfolio's small- and micro-cap stocks begin to perform better than the large-cap portion:

Why not aim for 75% gains across my portfolio if my small and micro cap stocks are up 75% but my large cap equities are only up 15%?

The only reason I advise against it is that you should have a better understanding of how time-consuming and research-intensive it is to find excellent small- and micro-cap companies from part I of this essay. To be honest, it's not that hard, but it does require a lot of time. If you fill your entire portfolio with stocks like these, unless you have an inordinate amount of time to watch them all the time, it's a far better idea to simply add great small- and micro-cap opportunities each year to your portfolio performance, along with some less volatile stocks to help you ride it out.

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