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A rise in stock value is the familiar profit that most will understand. Stocks are bought at a specific price, through business growth, whether that be a new product or overall performance, the value of the company increases, represented by an increase in the stock price.
For investors, they can then sell stock, with profit being the difference between
A dividend is an additional payment for each share that is held, a reward for investing in the business, and usually, but not always, reflects the profitability of the business. Not all stocks receive a dividend, and as it is somewhat tied to performance, even those that pay dividends may not do so every year.
In the case of
A dividend is an additional payment for each share that is held, a reward for investing in the business, and usually, but not always, reflects the profitability of the business. Not all stocks receive a dividend, and as it is somewhat tied to performance, even those that pay dividends may not do so every year.
In the case of small cap stocks, very few pay dividends, instead they tend to use profits to reinvest for growth, such as new product lines or improved capabilities.
Small cap, as we have discussed, means companies with market valuations below US$ 2 Billion.
That usually translates into a lower price per stock, which is why some refer to the market as penny shares, but it also applies to the number of shares available to buy.
It doesn’t always apply of course, but in general, the number of shares on the market are relatively low when compared to the established businesses and global brands that markets often focus on.
The reason this makes a difference and puts the institutional investors at a disadvantage is because of how they purchase stocks and enter positions in the market. An institutional investor would normally make stock purchases in a company is large blocks.
For a
By contrast, a large purchase like that for a small cap company can represent a significant market share, enough to trigger regulator filing requirements and other legal issues that can drive the purchase price up significantly.
For the majority of individual investors, those levels will never be reached.
This allows smaller investors to take full advantage of the opportunity
There are risks, the dot com boom at the turn of the century showed how volatile
But the diverse range of stocks available allows investors to take positions in any industry or market with a relatively low initial investment.
This ability to seize opportunities in emerging products, technology or ideas is a key advantage of
This is because small cap businesses have more room for growth. They also tend to be younger organizations, and here is where the increased risk appears.
These businesses are statistically more likely to fail than the established,
Because newer, growing businesses tend to have
For investors, depending on the severity of the issue, this could mean stock price falling below the price they were purchased for, generating a loss.
How much depends on the severity of the price fall. In the case of the organization completely collapsing, stock prices will fall to zero, meaning the entire investment would be lost.
As with any stock investment, however, there is always a risk element when purchasing
