Investing in small stocks tips.

[thomsoad]

Been investing for awhile and looking to put away some side money to take a stab at micro companies.

First off this is just side money so im not using it for college education or anything... in other word i dont want to lose it but wont cry if it happens.

Now ... I already invest in individual companies along the S&P500 lines. I personally low at low PE, high ROI, low debt as well as cash flow and other things ... plug in my formula... and BAM ... got a list of my top 5 which I further investigate.

My question is what I should put more priorities in. Case in point is i like low PE's.. however, not sure if this is gonna fly in the small stock world... Low to no debt while important isnt all important... so not sure if I should put more emphasis on that.

Thanks for any insight.

[Mr Nice Guy]

Been investing for awhile and looking to put away some side money to take a stab at micro companies.

First off this is just side money so im not using it for college education or anything... in other word i dont want to lose it but wont cry if it happens.

Now ... I already invest in individual companies along the S&P500 lines. I personally low at low PE, high ROI, low debt as well as cash flow and other things ... plug in my formula... and BAM ... got a list of my top 5 which I further investigate.

My question is what I should put more priorities in. Case in point is i like low PE's.. however, not sure if this is gonna fly in the small stock world... Low to no debt while important isnt all important... so not sure if I should put more emphasis on that.

Thanks for any insight.

Well industry most definitely plays a role in all valuation and ratios. I don't know if it is wise to compare your screener's top 5 choices as if they were equal and in competition with each other.

Some other factors to consider is inventory turnover, how fast they can sell whatever it is they are selling? Also look at margin's. Are they spending too much to make sales?

[Nobulladvisor]

Been investing for awhile and looking to put away some side money to take a stab at micro companies.

Micro companies are good investments and there are lots of money to be made. However many micro cap stocks are very hard to research. The SEC does not require some micro cap company to report their numbers in a timely manner and many don’t report. So, Many numbers out there on the web are out dated and irrelevant to the future. That best way is it call the company itself and request there quarterly and annual reports as well as the conference call transcript.

The micro cap world is very different then the large caps. The volume are low and the level of speculators are high. You should look the in industry first, find out of the industry to doing well and if its growing. Second, look into the sector. Third, find a couple of companies then are making money with high growth, how fast they are paying off their debt ( if they have any, most micro cap has), and their future plans for growth. I would also research the management. Looking into the CEO track record. If the CEO ran other companies to the ground, that’s a red flag. Last, look to see if there are any institutions buying or selling that stocks. They are they ones who move the market. so stay in the same side as the institutions.

Avoid all stocks on the pinksheets and OTC. There is a reason why they trade on those exchanges. Its because they SUCK.

Good luck!

[SeW50]

As you are already investing in S&P 500 companies, why not continue expanding on that? Most micro stocks are just pure speculation, so if you have excess money to risk, why not try something else?

Perhaps invest in an upcoming IPO, or some kind of JV/venture capital.

[JBinKC]

They are a very tough animal and should be considered as trades or cyclical trades. I would stay away from US pinks and bulletin boards (unless the stock is in the process of graduating to a better exchange) or illiquid foreign pinks unless your broker has direct market access to the country of the stock you are buying. Timing is also very important.

In a bullish environment your best bet is to avoid a stock that issues shares or has a need to issue shares in addition to needing to find something with explosive growth for a chance of out performance of beta. In a tough market where risk is being penalized you need to find a stock with similar parameters in addition to having a deep discounted accounting value to have a chance to get noticed. Very hard to find both.



Over the long run 99% of the time the companies are nothing but dilution sinks and most of them make horrible buy and hold forever candidates.

With that said I would also avoid the IPO market long term because most of the time the best IPOs are done when the businesses are too mature or they are toxic goods. Private equity sells out very near a valuation top. I can not think of a US IPO in the last 10 years that has gone up more than 10 fold. Where in the days IPOs were done at earlier points of their growth the stock made people plenty of money.

[ninasen]

Investing stocks is risky especially in the curent stock market, even though the price is a lot rising. We all should be caucious.