Microcap Stock Investment
As the word suggests Microcap (Micro Capitalization) stock refers to companies whose entire and total stock value is low.
Such stock is generally issued by new or small companies, said to be on average a net of $6 Million in assets. The major concern with microcap stock is they are usually unproven, and because of the lack of financial reports, it may be hard or impossible for potential investors to gather information on the company they wish to invest in. Another problem, far more nefarious is the issue of fraud. It really doesn’t take much effort for fraudsters to set up a small company, give misleading and false information to potential investors who purchase the shares at highly inflated prices, before the plug is pulled – the investors money funnelled into the coffers of the conspirators and the investors are out of pocket. This is commonly known as a “pump and dump” operation.
In order to trade in microcap stocks, one does so through the OTC (Over the Counter) market, through such stock quotation systems as the Pink Sheets® or the OTCBB (Over the Counter Bulletin Board). Such systems are accessible over the internet.
For big companies to trade on the biggest markets such as the Nasdaq or the New York Stock Exchange, minimum requirements must be met such as the number of shareholders and also the amount of net assets. Also, financial reports must be filed to the SEC (Securities and Exchange Commission), thus allowing the public complete access to their financial data. No such regulations or minimum requirements exist for companies to be listed on the OTCBB or the Pink Sheets®, therefore finding true and accurate financial information and other information on the company is very difficult. As a result, microcap stocks are considered high-risk.
Having said so, lets not forget that every multi-billion pound company started out small. The key to all successful stock market investment is knowledge gained from thorough research and good advice, and microcap stock investment is no exception. While microcap stocks are generally high risk, picking the right microcap company to invest in could certainly yield a tremendous growth.
Other general classifications for stocks are:
Capitalization of $50 Million or below – Nanocap
Capitalization of $50 - $300 Million – Microcap
Capitalization of $300 Million - $2 Billion – Smallcap
Capitalization of $2 Billion - $10 Billion – Midcap