How to spot the next big thing

Some simple rules can help identify small-cap companies with big prospects. Although many investors believe there is more risk because the companies are smaller and the shares more volatile, the risks of an individual failure can be mitigated by focusing on quality and value, and by diversifying across a number of stocks. Because smaller companies have a lower base, there is simply more growth potential than larger companies. Another advantage of investing in smaller companies is that they tend to be less well researched than their larger peers. This is because analysts typically work for brokers who generate more brokerage from trading the large-cap companies. This dynamic has evolved because large companies are more liquid and fund managers must restrict their efforts to companies they can trade large positions – which have a meaningful impact on returns – in and out of easily. Read the full story to find out how to identify great companies, includes 3 ASX-listed examples. (VIEW LINK)