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Saar Pilosof Explains Why is Investing in Small Companies the Right Choice for You

Published On March 20, 2018 | By Gustavo Howard | Finance

Majority of times, it has been seen that investing in small companies is the right choice for investors. In fact, it has been observed by experts that value of small companies has increased by an average of over 12% annually from 1927 to 2007, whereas large companies have increased by just more than 10% during the same period.

Here Saar Pilosof explains why is investing in small companies the right choice for you.

Temporary Disconnect

Small companies may outdo large companies over time, but here the operative words are “over time.” This is because small-sized companies, basically due to their lack of visibility in the investment community usually undergo a disconnect between their fundamentals and their stock prices. This inconsistency between fundamentals and prices provides a great opportunity that can be of a great advantage to investors.

Thin Market

Small companies tend to be thinly traded and though it’s a characteristic that can slice both ways, it usually provides a great opportunity for sharp investors. With the growth in the revenues and earnings of the company over time and awareness of the public about its existence and with its future growth prospects, demand for their shares certainly grows up. And when a huge number of investors begin demanding a very limited number of shares, it gives the small company shares a scope to rise quite quickly.

Less Infighting

Remember some of the infighting that occurs in large companies. You may remember famous organizations which had to see their top executives leaving because of formation of camps within the company that oppose each other. In this fight, one camp may win ultimately, but the other camp that leaves the company may result in a significant loss of revenue.

Although small companies are not totally devoid of such infightings, there’s often not much at stake to fight over in terms of publicity, responsibility, bonuses, perks and salaries. Companies that can stay away from infightings and reduce bureaucracy usually have an inherent benefit over companies that cannot.

Acquisitions

Although large companies can and do acquire or merge with other companies, it’s a rare occasion, whereas smaller companies often merge with other companies. By doing so, they can not only survive but can do well even during economic crises.

It’s also much simpler for a large company to purchase a small company that’s already running than starting another company from scratch.

Taking all these points into consideration, you can always keep an option open for you to invest in small companies that can be so profitable for you.

 

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