The sad part is these traders' instincts are basically correct. Low-priced stocks do offer the biggest potential returns. (Although you won't earn them flipping shares every few hours... or minutes.) Run your finger down the list of the best-performing stocks each year and you'll find that the vast majority of them - if not all of them - are microcaps. Microcaps are small companies with a total market capitalization - calculated by multiplying the stock price by the number of shares outstanding - of well under $1 billion. I'm not talking about worthless (and easily manipulated) penny stocks, zombie firms or companies struggling through bankruptcy. I'm talking about real companies - with real products and services and rising sales and earnings - that are early in a high-growth phase. These have the potential to generate some of the market's biggest returns. It's not hard to see why. They are tiny, so mutual funds and hedge funds can't buy them. Wall Street doesn't follow them. And the mainstream media doesn't report on them. This information vacuum creates vast opportunities for those willing to do a bit of due diligence. For instance, let's go back and look at an example. Here are the two-year returns through January 2020 for the five top-performing stocks in the S&P 500... - Fortinet (FTNT): 82%
- MSCI (MSCI): 83%
- Paycom Software (PAYC): 101%
- Chipotle Mexican Grill (CMG): 101%
- Advanced Micro Devices (AMD): 354%.
Not bad. But compare those returns - the best of the best - with the top-performing microcaps over the same period... - Paysign (PAYS): 1,185%
- Relmada Therapeutics (RLMD): 1,464%
- Emisphere Technologies: 2,544%
- Fastbase (FBSE): 3,483%
- Nocera (NCRA): 7,799%.
Investors everywhere want to earn higher returns. But many are going about it the wrong way. No, they are not gambling like the testosterone-fueled day traders. They make the opposite mistake. They look exclusively at huge companies that should give decent returns in the weeks and months ahead, but almost certainly will not generate extraordinary returns. Take Apple (AAPL), for example. It's a fine company. I've owned shares of it for more than 25 years now. The annual dividend is many times my original investment. But today it has a market cap of $2.4 trillion. It will not become a $4.8 trillion company anytime soon. I bought Apple when it was a small company. Now it is the world's largest. Personally, I'm much more interested in finding the next Apple than arguing about whether Apple is a "Buy" or "Hold" today. There are plenty of publicly traded companies out there with the potential to rise severalfold in the months and years ahead. But they tend to be microcaps, not megacaps. If you're not earning the outsize returns you'd like, don't focus entirely on large firms. And don't waste a minute on little ones without stellar fundamentals. Instead, devote a portion of your portfolio to fast-growing small companies with successful products and services - and superb prospects. If you're going to cast a line, that's the pond where you want to fish. YOUR ACTION PLAN Now, for the first time ever, I'm going "all-in" on one investment for 2023. And this is an investment that I'm personally pouring thousands of dollars into in pursuit of "the next Apple"-like gains... Go here to discover all the details now. Good investing, Alex |
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