Who’s Monkeying Around With Your Money?
Have you heard the one about the chimpanzee that outplayed the world’s greatest investment firms in the stock market? No, it’s not a joke. It was actually a study performed by Russian experimenters. The subject of the experiment was a Russian circus chimp named Lusha. Lusha was shown pictures of various stock options and asked to choose where to invest her money. The result was a portfolio that out earned ninety-four percent of Russian investment firms. Ninety-Four percent, now that’s bananas!
Many professional investors and brokers argue that Lusha’s portfolio was simply the byproduct of luck. And while luck surely had a lot to do with Lusha’s success, the moral of the story is financial knowledge isn’t the be all end all when attempting to predict market changes.
When sorting through Investor relations firms it’s important to identify brokerages that have specialized areas of expertise and to educate yourself on market trends and developments so that you can help your investment team identify areas you feel comfortable contributing your money. Specialized investment companies are a particularly good choice because unlike major stock brokerages they are able to focus on and track developments in a specified market and make quick fire adjustments their larger counterparts can not.
It’s simple math really. It takes major firms handling giant portfolios a significant amount of time to buy and sell stocks. If they move money too fast from a particular stock it will appear to the market as if the bottom is falling out and will potentially create a selling frenzy driving prices down rapidly. Which means by the time a major brokerage is able to remove all their holdings from that particular company they will have lost considerable money for their clients. On the contrary, if major investors move too quickly on a new stock, they effect will be an instant jump in the stock and they will not get the bargain value they were hoping for. As a result major firms must move money slowly and carefully from one investment to another, so as not to draw considerable attention or create a run on stock.
A smaller firm with savvy investors is able to better read the market trends and notice market indicators created by major investment conglomerates early and often. As a result these specialized firms are able to react quickly to market changes their major competitors can not notice or react to, primarily because they are the indicators.
Also important when considering investing is to know the differences between large cap, mid cap, and Micro cap stocks. Micro cap stocks are simply companies with market capitalizations greater than $50 million and less than $300 million. In other words, micro cap stocks are just about the smallest classification.
Although they are less publicized than large caps, microcap investing is one of the best methods for the aggressive investor. The reason being is micro caps carry slightly bigger risks and extremely bigger rewards than the traditional large cap. While a large cap stock will typically cost upwards of three times as much per share, micro caps have significantly outperformed large caps consistently over the better part of the past decade. The reason micro cap stocks aren’t pushed by traditional firms is the lack of commissions they generate for the brokerages and thus, suggesting micro caps is bad for the business, even if it’s good for the customer.
If you are thinking about investing in micro cap stocks you should approach it the same way you approach any investment. Research, research, and then some more research. The best method for investing successfully is understanding the company, who they are and what they do. Financial performance is only a small part of the whole picture. Find a company you believe in, with offerings at a intriguing value and then diversify. Micro caps should be viewed as aggressive opportunities, and not long term retirement investing. Just as in any type of investing, it’s important not to over-commit and put all your eggs in one basket.
The best way of getting involved in micro cap investing is to speak with an investment firm which specializes in the micro cap market. These firms have the knowledge and skill sets to analyze the market and provide you with the best investment options, maximizing potential for return while minimizing risks. Or, if you feel more comfortable you can buy a ticket to the circus and ask Lusha. Either option will probably outperform the major brokerage house that’s been hounding you for your retirement account.
About the author:
This article is written by Jayson Bailey.
