Small Cap Thoughts for the New Year

By IBTimes Staff Reporter | January 05 2010 7:26 AM

In a recent post it was suggested that there may be opportunity in several sectors of the economy as it begins to find its footing. In this respect, consider retirement, capital appreciation, collage plans or just getting started. In this realm, getting started is perhaps the most important concept to consider. Getting started, in this sense is not directed at an investor that has yet to invest (although it could be) but more so at looking at where the investor is and where they would like to be at a certain point in time. Older investors nearing retirement is one consideration while a college age child may be another. Yet another area to consider is aggressiveness, or the slightly more interesting world of small cap investing.

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This particular world of small caps might be defined as investing in companies that have opportunity to generate large long-term profits but with more risk. This means longer-term lead-times but with the potential for larger returns.

One must first indicate that these types of companies are watched over very carefully by government authorities. The question is which, where and when. This is the basis of investing. There are a few ways to go about deciding which, where and when. Each opportunity really depends on personnel circumstance with full knowledge that there is opportunity for loss and gain.

As one gets started, the trick is to understand what is to be accomplished. The next thought is to understand what you really understand. Never invest in anything that is not fully understood by rationalizing “well Joe next door is investing in it.” Does gaming technology come easily to you? Does high tech silicon chip manufacture make sense? Or does multinational structure just sort of make sense? These types of questions are perhaps where focus should be located as one thinks about when and where. This is not to suggest diversification to a variety of investment vehicles should be ignored but rather that investment in what one understands is a somewhat more appropriate approach. Small cap investments are a way to accomplish this task and can be fairly lucrative if they are investments that are understood and used as a part of a strategy that has direction.