Investing in smaller companies

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4. The aim of investing in smaller companies

The objective of investing in small caps is simple: to achieve big capital growth that couldn't normally be achieved by investing in large companies.

• Consider not investing in small caps if you are looking for steady dividend income.
• Consider not investing in small caps if you want, at all costs, to preserve the value of your investment.
• Consider investing (some of your portfolio) in small caps if you are prepared to take a higher than normal risk in return for the chance of higher than normal capital growth.

In general, you should consider looking for the capital growth over the medium and long term. Medium term means 3 to 5 years; long term means 5 to 10 years. This doesn't prohibit short-term investment in small caps on a selective basis, but if you expect to run an entire small cap portfolio in the expectation of quick capital growth you are likely to be disappointed.

1. What is a small cap? 2. The arguments in favour of smaller companies 3. The arguments against smaller companies 4. The aim of investing in smaller companies 5. No single method 6. Is it a good business? 7. Can you buy at a reasonable price? 8. Penny shares and other speculative stocks 9. A note about tax 10. Other tips 11. Conclusion