Should you invest in Microsoft or Mazel Stores? IBM or Kilroy Realty?
For many investors, small-cap companies like Mazel and Kilroy are welcome ports in a stormy market. Last year, Small-Cap Funds (investing in publicly traded companies with market capitalization under $500 million) rose an average of 16.4 percent, while the average stock fund lost 10.9 percent. The good news rolled on this year. The Russell 2000, an index that tracks companies with an average market cap of $530 million, hit a 52-week high in late April.
Investment banker Dan Rubin, who specializes in small-cap stocks, says the Wall Street tech wreck and the recession have made today’s investor increasingly aware of small caps, like it or not. Rubin advises small-fry seekers to use the common-sense tactics Warren Buffet applies to giants like Coca-Cola: “Buy companies you understand completely. If you don’t understand what they make and what they sell it for, don’t invest.”
Like many financial advisors, Rubin stresses that small caps should make up no more than 10 percent of a portfolio. “You look for small caps to enhance your returns, not make them,” he cautions. “They should be going up 100 percent, 200 percent, not 5 or 10 percent. The risks are high, so you want to be getting high rewards.”