MICHEL PIREU: Does buying small caps make one penny-wise and pound foolish?
While many have burnt their fingers investing in little counters, others have made huge profits
Who should consider investing in small caps? The quick answer is, everyone, (bar the institutions) because while small caps might encompass more risk, they also provide the greatest opportunity for spectacular returns. And while it would be foolish to be overweight in penny stocks, it doesn’t make sense either not to take a punt on a stock for the sole reason that it trades below a certain price. I remember getting an e-mail from Trader Vic saying it was best to ignore all shares trading below 100c. Fair enough, I thought, we’re all entitled to exclude whatever we want from our portfolios. But then he went on to say that we’d all be better off not looking at "the rubbish that trades below 100c". The only reason given for this assertion being that he’d bought Command at 30c and following the release of a disappointing set of results couldn’t find a buyer above 18c. Vic was mistaken in thinking the dumb thing to do was buy a stock at 30c, when in fact the dumb thing to do was to buy i...
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