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3 Truths About Tax Lien Certificate Investing
Truth #1 - It is going to take some work on your part to succeed. If you have done some research into tax lien certificates and tax deeds you may have heard some so called "gurus" bragging about how easy it is to make a fortune. While it is...

7 Simple Steps To Real Estate Investing
Whether you are BRAND NEW to real estate investing or an expert in the game, it's critical that you understand these 7 Simple Steps to real estate investing. First things first... * Real Estate is NOT a get rich quick...

Investing In Tax Foreclosed Properties
Tax Properties Every property that is owned is assessed property taxes that must be paid every year. Property taxes are paid to local and state governments based on the appraisal value of the real estate. All states, the District of Columbia,...

Prospering with Mutual Funds: How anyone can “Afford” an Investment Advisor
Recently I was invited to appear on a live CNNfn television show to discuss my article “How to evaluate Load vs. No Load Mutual Funds.” (You can read that article on my website http://www.successful-investment.com/articles21.htm) As the...

Real Estate Investing Myths That Steal Profits From Your Pocket
One of the things that distresses us about our industry is the amount of wrong or incomplete information available to investors. Some myths block what otherwise would be a great deal, while others would have you believe that a bad deal is...

 
Small Cap and Big Cap Investing

To be honest, it doesn't matter what type of stocks we invest in. Common stock with small capitalization (defined as having market capitalization of $ 500 Million or less) and big capitalization (market capitalization of $ 5 Billion or more) can give you outsized returns provided that you bought it under fair value. But if you were only given one choice, which one would you prefer?

Small cap common stock historically returned a higher rate of return than its big cap counterpart. All household names that you are familiar with were a small cap stock. Microsoft, Dell, IBM, Johnson & Johnson were all small companies. When a company is small, a few millions of additional sales may contribute to explosive growth in earning. Therefore, the reward of investing in small cap stock is high. How about the risk? The risk is plenty. 90% of all new business will fail during the first five years of operation. The statistic for the number of small cap public companies that fail are not widely available. But, my guess is it may involve about half of the publicly traded companies.

Big cap stock is a bigger and steadier companies. For some, bringing in one billion dollar of sales may not move the profit meter. Therefore, earning growth has slowed and the potential return is lower than small cap

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investing. The risk in investing in big cap stocks however is low. Sure, some companies fail from time to time. Polaroid, Enron and Worldcom came to mind. But for most occasion, big cap stocks can turn the ship around when they are in trouble. The phrase 'they are too big to fail' comes to mind. IBM, Altria, Bestbuy, General Electric, Walmart, Chevron have its ups and downs. All of them recover. Some of them were acquired later on. Therefore, the risk of failing is lower with these companies. Perhaps, it is as low as 10 - 20 %.

Now, it is your decision time. Which one do you prefer? I am more comfortable in investing in big cap stock. I still had plenty of investing time but big cap stock helps me sleep better. It matters more to me than higher potential return. The best solution of course is to mix your portfolio with both big cap and small cap common stocks. However, do not over diversify to the point where your return will be mediocre no matter what your stock prices do.



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