Small companies offer the highest possible potential returns, as a matter of scale, since it is far easier for a company with $10 million in sales to double its revenue, than for a business with $10 billion in sales. Most of the innovation introduced in the private sector is through small-cap companies, and innovation is not only a target for investment but a fuel for overall economic growth. Matter of fact, in 2010, the Kauffman Foundation published a report that showed that without fast growing, early stage companies, job growth would have been negative in America for the past 35 years. According to the National Venture Capital Association, 92% of the job creation that occurs with small businesses is after their initial public offering and they are already trading.
It can well be argued that large-cap companies are net job destroyers. For example, when a Wal-Mart moves into a neighborhood, studies have shown that even after the initial hiring of new employees, once the store is in place, the community has 15% fewer jobs. Large cap companies are more likely to offshore jobs to a third world nation to cut labor costs. Profits are less likely to go into developing new facilities to create jobs. Over the past ten years, the companies in the favored large cap index, the S&P 500, spent over $3 trillion buying back shares of stocks. This benefits the stock options of their CEOs and the hedge funds that trade the majority of their shares, as it shrinks stock supply to raise valuation. However, those were funds that could have been placed into retained earnings, used to innovate, and create jobs.
Small-cap companies can provide the highest rewards to shareholders, and yet they get the least respect. Last year was considered an exceptional year for initial public offerings with over $60 billion dollars raised. Yet, the average day of trading volume on just the New York Stock Exchange alone is over $110 billion. Innovation and growth is highly valued, yet how Wall Street allocates capital is questionable at best.
With well over 20,000 companies that publicly trade, 80% of Wall Street analysts follow a mere 20% of the largest companies. So the burden of research is placed on you, the individual investor.
To help guide you through the vast forest of small companies, TinyGems provides exceptional growth ideas and aid in the research process to building a portfolio of successful small cap stocks.
For more information, visit www.TinyGems.net