Glossary
Small Cap
Shares of small companies with room to grow
Small caps are shares in companies with low market capitalisation. Their names are often unfamiliar, and many operate in a narrow field or depend on a single product.
The appeal is room to grow. Doubling revenue from 10 million is far easier than doubling it from 10 billion, and most of the biggest gainers come from this end of the market.
Sparse coverage is another opportunity. Large caps have dozens of analysts; a small cap may have none. Where information gaps exist, mispricing follows.
The risk is considerably higher, though. With the business concentrated in one thing, trouble there shakes the whole company, and thin finances mean some cannot survive a downturn.
Low trading volume is a practical problem too. Spreads are wide, and when you want to sell there may be no buyer without cutting the price sharply. Spreading across many names matters especially here.