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PARACHUTE INVESTING
PARACHUTE INVESTING by AL THOMAS Ever jumped out of an airplane? It’s OK if you have on a parachute. Pretty dumb if you don’t. Every buy any stocks, mutual funds or Exchange Traded Funds? It’s OK if you know how much you are willing to...
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Ethanol And Its Significance In The Stock Market Investing World
In the bid for the world's search for alternative sources of
energy as time is currently running out given the current
scarcity of crude oil, there have been numerous initiatives by
companies to develop the potential of different alternatives...
Investing in Stocks and the Game of Monopoly
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Investing: The Art Of Making Your Money Work For You
There is a lot to know about investing. It all depends on what type of investing you are interested in as well. There are many different types of investment options out there. So what is investing, specifically? When you invest, you are paying in a...
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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
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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