Author : Alexander T.
Date Posted : 2014-21-09
Lower trading fees, combined with well managed and profitable companies like Air Canada, Bombardier, and Just Energy, make large caps a better consideration, when choosing companies to trade.
An interesting trend appears when you study the differences between large cap and small cap companies. Large cap companies are more stable, small cap companies are more volatile.
You need to buy a greater quantity of shares when trading small cap companies, than large cap companies. When you calculate the amount of shares you need to purchase, the money you invest will is the same whether you’re investing in a small cap company or a large cap company.
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Any company with a stock price below $1.50 is not making money. It doesn’t matter what index you search through the result will always be the same. Only a half dozen or more companies show up in your search results.
According to a posting on Keystone Financial there are fewer shares to buy or sell. That means small caps can move fast on small pieces of information. The savvy and well researched investor, they can make allot of money fast, but those who aren’t can also lose lots of money
Try an experiment. Look through the financial statements of each company, and note the profit or loss on each company, you selected. Next go through the lists of large cap companies above $3 a share. The average volume should be over 250 000.
Many companies will in your search will be profitable. Small cap companies are a disappointment. They survive on private placements, and share consolidations.
Large cap companies are solid investments. They are focused on the investor, they keep their expenses in check, and keep the investor informed.
According to Michael Murphy, in 2001, “There are these great companies that are significantly undervalued”. Small cap companies don’t get traded regularly and are ignored by many investment firms. According to U.S. Bancorp Piper Jaffray, small cap companies with a market cap under
$250 000 is to look for a strategic acquirer, or go private in a management led buyout.
Although small cap companies are undervalued, and very volatile, they should not be entirely discounted. Some show significant progress like Lorus Therapeutics now known as Abtose Biosciences.
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It is a clinical stage company with a focus on the development of new therapeutics, and molecular diagnostics targeting the mechanisms of cancer. It recently changed its name to reflect the development of its leading product, called APTO-253 (formerly LOR-253). The term, “Apoptosis” represents the cells self killing mechanism of cells on the outset of cellular damage, and the cancer cells ability to stop this mechanism.
Abtose Biosciences, is still losing money, but is keeping the company on track with their focus on the leading product APTO-253. Investor interest in Abtose has steadily increased from two years ago. Currently at around .50 cents a share, this company rose from a value of .20 cents to .50 cents a share two years ago. In 2010 this company fetched a price of $3.00 a share, and has made a tremendous comeback with the ongoing development of its leading product, APTO-253. This is a company to keep an eye on, it is not a good time to buy in right now, but may be a consideration when it starts making money again; however, this company may become a perfect target for a buyout, when it starts posting profits.
Small companies that slowly increase in value, become a greater target for a takeover by a larger company. When they get taken over, shares are consolidated, and you may end up losing money in the end.
Companies on the TSX are more likely to do share consolidations, than companies on the junior exchange. The rules for companies on the TSX are stricter, and companies are forced to consolidate if there share price keeps falling.
Profitable large cap companies, will always be the standby of investment firms. They are solid and dependable. Throughout the course of the year they usually trade around the same stock price, and volumes always remain constant. When looking from a large cap company to invest in focus on companies with volumes of 500 000 to 1 000 000. Volumes can give you some idea of the type of movement you can expect.
Sometimes the stock price will fall after you buy it. Don't despair, it will return; however, you may need to wait a month before it does, and you may have to wait longer before you can cash out.
The trick is to wait, track the company you're interested in, and jump in at the lowest point over a 3 month period. Your trades should be in quantities of 25 to 100 shares. Large cap companies, usually bounce around between .20 and $1. Take a look at Air Canada and Just Energy for an example of what I mean.
Its all about risk. Don't be greedy, and do your research well. When investing, focus on large caps, consider mutual funds, don't take other peoples advice, and don't buy losers.
