Asked on 08 Dec 2019
Pros and cons? which is better? any recommendations from first-hand experience?
Microcaps would be a tactical allocation in my portfolio if I went in to any.
To me, downside risk management is very important. So if 10%-15% of my portfolio was allocated to microcap, I would be limiting my exposure to this sector, but all it takes is one or two microcaps to become a 5 or even 10 bagger for me to make a decent return. That's better than 50% in microcap and praying that I invested in the right company.
I will ultimately be satisfied with a decent return, rather than losing sleep over my investments.
Microcaps, generally needs more due dilligence on research as they can be wiped out due to competition.
But they have higher growth earnings potential. So if a microcap has a market cap of 50mil, for it to 10x, it only needs to grow to a 1/2 billion dollar company.
But if you talk about large caps like FB, FB's market cap is about 500mil, to 10x, it needs to be a 5 trillion dollar company!
I prefer microcaps because every large cap out there started with micros. It is the best way to compound your money when you manage to find a high quality microcap, sit tight on it and let the management execute it for you. Of cuz a lot more due deligence and in-depth understanding you must have in the company because most of the microcaps doesn't last long.
Saying so, i don't completely ignores large caps. Example Facebook, despite how large it is, it still can grow 20%+ YoY. Some of the large caps are definitely worth to look at.
I started out with large caps because they were easier to understand.
But I still wouldn't go for micro-caps as they might be small. Considering small to mid caps for now!
I like having access to the management! I try to do that but sometimes I may not be successful.
10 Dec 2019
Microcaps tend to be volatile and most of the time their price movement is due to manipulation by a team of traders from brokerages. If you ever invest in microcaps, most of the time is to hope to be caught in the upwave of traders trading and sell off
Large caps on the other hands are harder to control due to the large amount of cash needed to buy large caps, therefore their prices follow more towards fundamentals
I love microcaps!
However, 80-90% of the microcaps are crap companies with loss-making operations. Within those few, you have to work really hard to find business models that make sense and a strong path to profitability.
It is tricky and it requires a lot of time, however, the rewards are very rewarding. I shared about this company called PaySign to most of my investing community members. Since then, their plasma and pharma businesses have grown tremendously and I am still looking forward to another 50% growth in earnings by next year.
It started as a small market cap. It has grown about 10x within 2 years.