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Microcap Stocks Should You Invest in These Stocks?

Jun 25, 2008
People make money in the stock markets based on the information they get from all available sources such as the newspaper, internet, TV and of course the company itself. These companies publish their annual reports and also release information to the analysts from time to time.

Based on that information investors act and either buy or sell a stock. But there is one set of stocks that is particularly not investor friendly when it comes to dissemination of information. These companies are called microcap stocks or low priced stocks and they in a very typical manner do not publish information. Most of these microcap companies do not even bother to file information with the Securities and Exchange Commission so it becomes very tough to find information about the management of these companies much less any information about the finances of the company.

They are called microcap as these companies have very low market capitalizations. These companies by virtue of their low market caps do not get listed in NYSE or the American Stock Exchange but they are listed in the Over The Counter market such as the Over The Counter Bulletin Board (OTCBB) or the so called "pink sheets". On these exchanges like the OTCBB there are no minimum listing standards and what that means is that companies can list their shares without any regulation.

Compare that to NYSE where the companies have to have a particular market capitalization as well as certain amount of revenues. When the companies list in NYSE they have to comply with GAAP principles and that in all means very stringent criteria for listing. So if you are investing in NYSE companies you are reasonably sure of the quality of the stock. Plus the benefit that there are a number of investing gurus who track the stocks on NYSE and that means more information about the company and more view points form investors also.

Microcap companies have no track record so you will have to take that extra risk while investing in them. If you want to invest in microcap stocks you will have take time to learn more about the company. You need o research well if you want to invest in the microcap stocks. There is huge amount of risk involved and you can end up losing money on the stocks very easily.

So invest wisely and after careful consideration to all types of stocks and also diversify which means never put all your eggs in one basket.
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The author gives information on stock market for beginners and has put together a resource for people searching for online stock market for beginners guide.
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