Small Caps: What is meant by small caps
Small Caps are simply Small Cap stocks. That means that they have a small market capitalisation. At Under the Radar Report: Small Caps we define small caps as small companies with a market capitalisation from $50 million to $500 million.
Why do we only look at small caps with a minimum $50 million market capitalisation?
Before a small cap reaches a market cap of $50 million they are very small, which means in reality that these ASX shares are very hard to buy and sell – in other words the small cap stock is illiquid. So when you want to sell a very small small cap there isn’t much of a market or demand for the shares and so it is hard to sell.
A small cap is also more established and not a straight start up when it reaches $50 million although it is still very small at that point.
Small Caps and ASX Shares Small Caps are traded on the ASX and there are over 2,200 small caps on the ASX to choose from.
Are small Caps riskier than Blue Chip ASX shares?
Small Caps are known to be riskier than other Blue Chip ASX shares or large cap companies. Small Caps are known to have more growth potential and they offer better capital growth, especially over the longer-term. They really can boost the return you get from your ASX shares. But Blue Caps do have bigger resources, better access to debt financing and small caps are more susceptible to bearish sentiments and negative events.
How can I manage small caps and any risks?
Sometimes you invest in small caps because of their risks. You can buy med-tech or biotech small caps very cheaply while the small cap is still in development phase. You buy the ASX shares knowing that you are either going to make a lot of money from the small cap stock, or that the drug or device that had potential, for one reason or another, hasn’t been approved and you have lost your money.
But you are smart, you know the risks in each small cap stock you invest in and it is part of your bigger ASX share portfolio.
You wanted to invest in that particular ASX small cap stock because you were going to make serious multiple returns on your original investment. And sometimes you really do, and sometimes when the risks are binary like that, you don’t.
But as part of a diversified portfolio, high risk stocks can really outperform and bring stellar results.
Can you find Small Caps that are less risky?
Of course, not all small caps offer binary win all or lose all returns. A lot of small caps are genuinely strong and stable small companies that offer ASX investors genuine growth plus dividends. Over 50% of the small caps that Under the Radar Report: Small Caps has analysed and recommended to our Small Cap Report subscribers give regular dividends. These are strong and stable companies often in niche industries that provide a genuine service to the market they operate in.
Small Caps can deliver stable returns to investors. At Under the Radar Report our average return is 30% across over 200 small companies that we have recommended.
Read more about our performance of small caps here.