| Analysts find it useful to group stocks by their | | | | investors. On the plus side, this means that mis-priced |
| market capitalization, because stocks of the same | | | | bargains are relatively plentiful. However, investors will |
| size tend to have similar characteristics and | | | | have to spend more time investigating and doing |
| performance. Market cap is found by multiplying a | | | | research. |
| stock's share price by the number of shares | | | | 3. Very risky - Micro caps are the riskiest |
| outstanding - i.e. if IBM was trading at $100 per share, | | | | capitalization group because they are the most likely |
| and it had 100 million shares outstanding, its market | | | | companies to lack stable cash flow, management |
| capitalization would be $10 billion. In this article, we will | | | | talent, and infrastructure. They tend to be the most |
| examine micro cap stocks. These are companies with | | | | vulnerable to economic down turns and failed |
| market caps below $300 million. Micro cap stocks | | | | corporate strategy. Public investors may never have |
| take the advantages and disadvantages of small cap | | | | all the information necessary to sell off bad |
| stocks to an extreme: | | | | companies before the share prices tank. |
| 1. High potential growth rates - Like small caps, micro | | | | 4. Illiquid trading - Micro capitalization stocks may |
| caps are either selling a new product or service, or | | | | trade with thin volume. This increases trading |
| else they are well-established in a certain region and | | | | expenses through wider bid-ask spreads. Since many |
| are looking to expand geographically. Unlike small | | | | micro caps do not trade on an exchange, retails |
| caps, most micros haven't started to enjoy fast | | | | brokers may charge extra commissions and/or fees. |
| growth rates. They are still plodding along before | | | | In the event of negative news, exiting a large |
| they hit critical mass and take off. This means that | | | | position may be difficult and costly. |
| investors willing to take more of a risk have a chance | | | | Micro cap stocks should only make up a small |
| to jump on-board early, and catch the full move. | | | | percentage of your portfolio. Remember that |
| 2. Less information and analysis - While small caps | | | | well-diversified portfolios contain stocks from all |
| may have some Wall Street analysts and followers, | | | | market cap categories. Success in stock trading |
| micro cap stocks suffer from a dearth of information. | | | | depends on both stock selection and having a proven |
| They are almost never owned by institutional | | | | system for knowing when to buy and sell. |