In his book – Learn to Earn, Peter Lynch discusses why you should invest in small-cap stocks instead of large-cap. Here’s an excerpt from the book:
Over time, it’s been more profitable to invest, in small companies than in large companies. The successful small companies of today will become the Wal-Marts, Home Depots, and Microsofts of tomorrow, It’s no wonder then that funds that invest in small companies (the so-called small caps) have beaten out the “large cap” funds by a substantial margin. (“Cap” is short for “market capitalization”—the total number of shares issued by a company multiplied by the current share price.)
A couple of Wal-Marts is all they need to outperform the competition. That one stock is up more than two-hundred-and-fifty-fold in twenty years. Since small-cap stocks are generally more volatile than large-cap stocks, a small-cap fund will give you more extreme ups and downs than other types of funds. But if you have a strong stomach and can take the bumps and stay on the ride, you’ll likely do better in small caps.
For all the latest news and podcasts, join our free newsletter here.
Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple: