Is Microcap Investing Right for You?

What exactly is microcap investing? Let’s first look at two types of investing. Traditionally, investors will invest in a stock if the company is already profitable. Such investments are a low risk/slow reward way to invest and typically works well for the more conservative investor. Others are looking for high risk/high reward types of investments which turn around more quickly.

Depending on the type of investor you are, will determine if you should make microcap investing a part of your overall investment strategy.

The excitement of investing in microcaps is a heady experience and many traders love the thrill of a roller-coaster ride.  The truth is, you can make a lot of money in a very short period of time.

There can, however, be some drawbacks with microcap stocks. Microcap companies  are typically small, young companies just starting out; they are in the process of building capital and may not be profitable at the moment.  They may issue stock to raise money for business expenses needed to move their business into profit mode. In that scenario, it may take a long time before they realize major revenue earnings. Thus, you’re not likely to make money quickly on these stocks. Doing so can be quite a gamble.

Another problem lies in the fact that many microcap companies have short life spans. They could shut down very soon and very fast.  You are going to have to rely on your own skills as a stock researcher and have the patience to watch these stocks to see if the company has what it takes to survive and thrive. If you have reliable information on a microcap company that leads you to believe that it will profit in the future, then by all means invest in it.

For instance, if you study a company’s business model and find they are
planning a potentially marketable product or new technological innovation then that may be a case where microcap investing will pay off for you. And, sometimes this may happen rather quickly.

When investing in microcaps keep in mind that even if a company is in the red it does not mean it is not a good investment.  There are several factors that might have a company in the red.  In your research you may find that in any given quarter the company may show unusually high expenses.  But that may be because the company has invested heavily in research and development.  That shows they have confidence in their product and it is a good sign.  Microcap investing in a company that is investing in itself is a good thing.

There are other factors you should consider as well. Always look at the market capitalization, trading volume, volatility, and management experience of the company before you decide to invest.

You might also try to stop thinking in terms of microcaps as investments but rather in terms of “trades” or “short term” investments. Because they are so volatile you should be prepared to get in and out quickly unless you have some other compelling reason to stay in the trade.

Often people will ask if microcap investing is a good idea. My usual reply is affirmative. Especially if you diversify. Though I would not recommend engaging in micro cap investing as your only trading strategy.

If you’re looking for help with microcap investing, consider a microcap membership service that performs the research for buying and selling microcaps; a good resource is worth their weight in gold, or lots and lots of pennies. ;)


Here are some other penny stock and stock informational sites for you to browse. Thanks for visiting Microcap Millionaires Hot Stocks.


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10 rules for picking stock winners - MSN Money
Texas Southern University: Penny stocks
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A G.O.P. Power and His Penny-Stock Boards - New York Times
Penny stock - Wikipedia the free encyclopedia
Penny Stock Brokers - YouTube