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📈 Small Cap ETFs and Stocks 📈 #marketcapitalizationcollaboration A small cap is usually a company with a market capitalization of between $300 million and $2 billion. The idea to investing in small cap stocks is they have a larger margin for growth, therefore could bring larger returns. Small cap ETF's historically have outperformed large cap ETF's but are also more volatile and riskier. One misconception about small caps is that they are startups or brand new companies. In reality, many small-cap companies are well established businesses with strong track records and great financials. And because they are smaller, small-cap share prices have a greater chance of growth. Last year $VB severely underperformed $VOO and even $VO , but why is that? 📊 Shareholder Dilution 📊 Most of these smaller companies need to raise equity to continue growing, which can be done by taking on debt (Most of these companies do this) and/or they can issue new shares of stock which dilutes you as the shareholder. 🛑 Too many IPOs and the SPAC attack 🛑 Unlike $VOO which has a criteria to make it into the fund, $VB can't differentiate quality companies from low quality companies and adds every company with a 300 million to 2 billion market cap. The sheer volume of companies going public this year though direct listings, IPOs, and SPACs was surely a record breaking number (@sydward made a fantastic post about this) 1,006 companies went public in 2021 alone most of which have been added to $VB . SPACs are a way to sidestep the IPO process, and avoid the vetting process. Look at the chart history for $TALK $VLTA $SOFI $DNA $BZFD $ASTR all SPACs. The real question is how many of these companies will even be able to maintain their public status in the market? "When you see a lot of companies going public, especially a lot of low quality companies, then that is a very bad sign for averages because it means the stock market is getting flooded with new supply" -Jim Kramer (I'm not a huge fan of Jim Kramer, so take this as you will) ⁉️ Who does well under inflation? ⁉️ "Small cap stocks, which, since 2010, have beat out large-cap competitors when inflation forecasts pointed up, according to CME Group. The theory behind small-cap stocks' success in times like these is simple: It's easier to turn a mid-sized yacht around than a giant cruise ship. Small companies can pivot fast, manage inflationary pressures by quickly increasing prices or altering where they source goods and materials. So right now, smaller companies are making speedy option calls to get the best out of choppy waters" ⚫Earnings from companies on the Russell 2000 index are projected to grow 475% in the third quarter from last year, according to data firm Refinitiv. Compare that to a 42% increase for large-cap S&P 500 earnings 💸 Investing in small cap ETFs 💸 Here are some options if you're interested in investing in small cap ETFs $IJT $VB $VBK $VIOG $SLYG $RZG $XSMO $ISCG $DWAS 🔻 Microcap stocks 🔻 The term “microcap stock” (AKA “penny stock”) applies to companies with low or micro market capitalizations. Companies with a market capitalization of less than $250 or $300 million are often called “microcap stocks” – although many have market capitalizations of far less than those amounts. The smallest public companies, with market capitalizations of less than $50 million, are sometimes referred to as “nanocap stocks.” Microcap stocks are in many ways different from other stocks since they are from companies with a small market capitalization and are usually traded on stock exchanges that do not require minimum standards, such as a minimum amount of net assets or a minimum number of stock holders Investors and finance experts have proposed microcaps can be good investments. David Maley of Ariel Investments argues that ample evidence indicates holding a portion of a portfolio in micro-cap stocks can offer advantages. Micro-caps as a group tend to out-perform stocks from larger companies over time, Daley notes, and micro-caps are not closely correlated with larger company stocks or index funds and thus potentially offset broader market volatility. Furthermore, micro-caps being relatively neglected by analysts offers more potential opportunities for value investors, some of these companies fail to execute their business plans and go out of business. Fraud and market manipulation are not uncommon and the transaction costs in trading can be quite high. Pricing is more likely to be inefficient, since fewer institutional investors and analysts operate in this space, due to the relatively small dollar amounts involved and the lack of liquidity. @arbitrage 's collab post: @sydward collab post:
Feb 10, 2021 - Feb 10, 2022
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