How to Invest in Small-Cap Stocks
Amazon.com is an e-commerce giant today, but it was a $5 stock with a $1.5 billion market cap in 1999. Similarly, Netflix is a household name now, but it was only a $2 stock with a market cap below $1 billion in 2004. Finding stocks like those early on makes small-cap investing incredibly enticing, but for every Amazon.com or Netflix, there are countless other companies that have started out as small stocks and failed.
Investing in small-cap stocks successfully means understanding the risks associated with them and how to separate good investments from bad investments. Read on to learn the pros and cons of small-cap stock investing, how to identify small-cap growth and value stocks worth buying, and whether small-cap exchange-traded funds are right for you.
First, it's important to understand that it is market participants that determine a company's value. When investors talk about large-cap, mid-cap, or small-cap companies, they're referring to the size of a company based upon its market capitalization (the "cap" in "small-cap"). To calculate market capitalization, simply multiply the number of shares outstanding -- the shares currently held by all shareholders, including those owned by the company executives and other insiders -- by the current share price listed by a major stock market exchange.
Quelle Fool.com
