Are small cap stocks for the "pros"?

Question

Are small cap stocks for the "pros"?

Answer 1

no, why would an asset class be only for the "pros?"  I would, however, underweight in them right now.

Answer 2

Small caps are for anyone. The nice thing is that you can buy in at a cheaper price – more for your money if you play it right. I think it's best to distribute your cash among several investments, that way if one plummets you won't lose all – might be a good start if you're not a "pro" or don't feel comfortable investing in a pricey stock. If you're still not confident you can use a broker, or learn the ins and outs of the market through research of your own. http://beaconequity.com/ has a lot of good information regarding small-cap companies. The site doesn't make investment recommendations but it will expose companies that may not fall under your radar.

Answer 3

Generally speaking, both yes and no.

Yes...

Small cap stocks are far riskier, as the companies less established and therefore more likely to fail.  This means it requires great expertise to pick out the best of the bunch, or those most likely to succeed.  Even if the non "pros" can do this, it still requires good management and skills to be successful (as with any stocks, but as I said smalls are riskier).

No...

The "pros" on wall street are generally larger investors.  There are strict limitations on how much an individual can own in any specific company.  Also, large amounts of money flowing into smaller stocks can have very profound impact on prices.  As a result, the larger money tends to stay away from small caps in a very general sense, otherwise they have to be extremely diversified (owning hundreds and hundreds at one time) to avoid these downfalls.  

Despite these issues, plenty of large-time buyers like mutual funds do have and actually specialize in small cap stocks, but there are usually some difficulties associated with it (as the fund grows, more and more diversification results in sometimes over 1000 managed stocks).

Small cap stocks do tend to produce greater returns than the larger stocks, and with ample diversification and good asset management (avoiding above pitfalls, reducing risk), anyone can invest in them successfully.

Good luck.

Answer 4

Yes.  The "pros" are like everyone else.  They invest where they think they can make a profit.

However, the large institutions generally do not invest in small caps.  The reason is that they deal in large volumes.  When buying or selling a hundred  thousand shares (or more)  they would have to spread their buys/sells over an extended period to avoid producing an undesired influence on the share price.