As an investor you should not limit your portfolio to only large and mid cap stocks.
Why should you invest in small cap? All the midcap and largecap companies started their business as small & micro cap. With time small caps evolve and increase their size of operations and revenues to become large cap or gaint cap. If you want to spot a multi bagger, it is only possible with small cap stocks.
Value investing is different from multibagger investing. Without multibagger stocks in your portfolio, your returns will be limited.
But the only problem with small caps is their volatality. They are the first ones to collapse on a rumor or market correction due to their low market size.
You can do your own analysis about buying a stock using market capitalization to sales, Book Value, Debt of the Company, Peer Comparison as explained in Chapter 6 : Spot Undervalued Stocks.
Find multibaggers using Mutual Funds
I am not asking to invest in Mutual Funds.
There is one simple trick to easily spot the good companies from small and micro-cap segment stocks by following fund houses and mutual funds. Every mutual fund publishes their portfolio. And every quarter you can see the companies added and removed from mutual fund. All these funds are managed by a selective team of fund managers, specialized in securities, who choose stocks after proper research only. So you can confidently say that any company listed in a mutual fund selected after proper research.
Each mutual fund is monitored by CRISIL and rating is given by CRISIL. Only choose top rated funds, I only suggest rating 4 and 5 to go with as a beginner.
Hurray….I found 20 small and micro cap funds from top 5 Mutual Funds…Should I invest in all these 20 companies ?…. NO
Never invest blindly in a stock. Even Ace Investors also cant predict the performance of any stock. You should do your own research before investing.
If you read the concept of finding undervalued stocks Once again I remind you that there is nothing like intrinsic value of a stock. Stock Value is decided on demand and supply.
Hi, I’m Sreekanth Thattikota. I use only Fundamental Analysis to find undervalued stocks. I share the stocks that I trust and I invest. Investing in Stock Market doesn’t require any financial expertise, provided it is long term. For any help regarding Stock Market Investing, reach me @ thattikota.sreekanth[at]gmail.com. Happy Investing.