|
|
 |
Here
are some basic rules you should adhere to in order become
a successful investor in this market:
-
NEVER
INVEST MORE THAN YOU CAN AFFORD TO LOSE. Since micro
cap stocks are highly risky, only a small percentage
of your assets should be committed to micro cap stocks.
Consult a professional licensed financial advisor if
you are unsure about a suitable amount to invest in
this high-risk end of the market.
-
BE
PREPARED TO INVEST WITH AT LEAST A ONE TO TWO-YEAR TIME
HORIZON. Peter Lynch, one of Wall Street's most
successful fund managers, has stated he made his best
returns during the second year he held a stock, often
waiting five years to fully maximize his profits. While
one month might seem like an eternity to a "short-sighted"
investor, one year is a merely a small fragment in the
life cycle of a successful company. A specific example
is Comverse Technologies (NASDAQ: CMVT). One of our
editors traded this stock in 1987 at $.375. Today (July
28, 2000), the stock is trading at $78 ($234 split adjusted)
after a 2:1 and 3:2 split. 10,000 shares purchased for
an investment of $3,750 in 1987 would be worth $2,340,000
today, truly a reward for those investors with the patience
to stick it out.
-
LEARN TO ACCEPT LOSSES.
There is a much higher failure rate among micro cap
companies. Successful micro cap investors need to develop
the capacity to tolerate a loss. You must be secure
in the knowledge that a few really large winners will
result in success. Most unsuccessful investors become
pre-occupied with their mistakes, Rather than accept
responsibility and moving on, they blame their broker,
analysts, company management, or the SmallCap Network.
Successful investors expect losses and learn to manage
them. Most successful investors enjoy the process of
investing as much as they enjoy making money. Stocks
can go up infinitely, but they can only go down to zero.
Investing for the long-term in a micro cap stocks provides
upside potential much greater than the downside risk.
Cut your losses. Let your winners run.
-
LEARN
TO TOLERATE BEAR MARKETS. Small and Micro cap stocks
may trade higher or lower than you might have thought
possible. We go through extended periods of time when
market conditions are unfavorable for small and micro
cap stocks. This can be psychologically damaging to
undisciplined investors. These issues generally trade
less volume than their mid- and large cap brethren,
allowing market makers to adjust price levels to favorable
extremes in both up and down markets. The absence of
buyers in small and micro cap stocks during a bear market
enables market makers to lower prices on little volume.
High percentage pullbacks on light volume can create
excellent buying opportunities. However, in order to
take advantage of such opportunities, you must have
capital, the courage of your convictions, and the patience
to wait for an upturn in market conditions. You must
discipline yourself against allowing the psychological
impact of tough market conditions to affect your belief
in the future of the companies you own.
|
|
|
