Is It Worth Investing In Small Cap Stocks At The Moment?
Topics: stocks, shares, investing, share trading, small cap stocks, small cap companies, stock market investing
2008 has been a really terrible year for the world’s stock markets. Large and small companies alike have seen the value of their businesses slashed by falling share prices, but small companies have really been hit the hardest. So is now a good time to be investing in these smaller companies?
Well I personally do not think it is for a number of reasons. The first reason is simply because these smaller stocks are really out of favour with investors at the moment. For share prices to rise you need them to be in demand from investors, but that simply isn’t the case. In fact a lot of investors are ignoring the stock market together.
The investors that are buying shares are generally sticking to the biggest and most profitable stock market listed companies. It’s easy to see why because these companies are obviously the ones best equipped to cope with and survive the weak economic conditions that we are experiencing at the moment.
Another reason why I am not currently tempted to buy small cap stocks is because a lot of them have real fundamental problems. The biggest problem is that of credit. The banks are still not lending as much money as they should be to small businesses, and this is creating a huge problem. These small companies need credit to grow their businesses in a normal trading environment, but with the economy close to being in a recession, a lot of these companies need finance just to survive.
There will of course be some smaller companies who are debt free and profitable, but they are definitely in the minority. Furthermore there is always a chance that even the strongest of these smaller companies could run into problems in the next few years if the economy remains weak. Some economists are predicting a hard recession that could last a good few years so even the best of these smaller companies will struggle in this environment. Therefore I think it’s currently too much of a gamble to put your hard-earned money into small cap companies because the future is too uncertain at the moment.
So my overall investment strategy is currently to avoid these small cap stocks altogether and stick to the large well-established companies that have long historical records of growth, in terms of profits and dividends. These companies are much safer investments because they are much better equipped to deal with weaker economic conditions and a shortage of credit.
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