Small Companies, Big profits: a guide to investing in smaller companies

Small Companies, Big profits: a guide to investing in smaller companies

Investing in small shares raises all the issues associated with large and medium sized companies and many more besides. Smaller companies offer far greater opportunities for investors than larger ones.

Their shares may well be undervalued, perhaps significantly so, giving patient investors considerable scope for large capital gains as the rest of the stock market belatedly realises a small company’s real worth.

Smaller companies are more likely to attract takeover offers from larger ones, partly because they cost less to buy and partly because it is easier to persuade successful management to stay on within the larger group. Such takeovers will normally be at a premium to the prevailing stock market price.
If the company is not performing up to expectations there is a greater possibility of a management buyout. Risks of smaller companies are:

Many small companies have one substantial, possibly majority, shareholder. This may well be the founder who has retained control and who may be less suited to running a listed company than a private one. It will be difficult to attract highly experienced directors, especially executives who can earn higher salaries with larger companies. On the whole, therefore, smaller companies tend to offer greater risks but greater potential rewards than larger ones. While all investors should maintain a day-to-day watch on how the companies they have invested in are faring, the need is particularly pressing in the case of smaller companies. Stay alert, and there is great scope for success.

Read full details about Small Companies, Big Profits on the Harriman House website at:

More detail on the Harriman House website