As an investor it is important to read and understand how markets work and although you may have a bias towards larger profitable dividend companies, it is still important to thing about the small companies. One book of many on the subject is called How to Become a Microcap Millionaire written by Justin Waite, published by Harriman House, Hamshire Great Britain, 2024.

The book has 3 parts – What – fundamental analysis; When – technical analysis and How – portfolio management.

How to Buy: Portfolio Management

1. Put a meaningful amount of your trading capital in a low-cost diversified fund. This means you’re guaranteed to capture a chunk of market performance no matter how the rest of your portfolio does. It takes pressure off. Everything else is gravy.
2. Aim for 10-20 low-risk companies with meaningful potential. Low-risk is more important than high potential, because high potential is by definition not highly probable. And diversification is your ever-present help in times of trouble.
3. Avoid denial when things go wrong. Cut losses. Learn lessons. Move forward.
4. Make equal bets by giving initial weights to your investments. And avoid risking everything by keeping those initial positions small 2-3% of your trading capital.
5. Don’t neglect your portfolio. Trim losses, secure wins – stop losses will do both for you automatically. Set them 20% away. Do not sell your winners – guarantee them by moving stops us as they grow.

We all want to make money on the stock market, but reality is some decisions we make will lose money. What do you do? You need discipline armed with facts.

This is the gain you need to breakeven a drop

% drop % rise to breakeven

10 11

15 18

20 25

30 43

40 67

50 100

If a share price drops 50%, you need a 100% gain to get back to breakeven. This is an uphill struggle. Sometimes you have to accept you got it wrong and move on. The financial press which shows a stock market in a newspaper has a column % gain over the year. How many are over 100?

One solution is to use stop loss, because investing is about avoiding big losses. Then it’s about making gains. Big losers wipe out gains, so wipe out the big losers and you are left with the gains.

Eggs and chickens

The author invests in eggs (microcaps) with the hope they will hatch and grow into chickens. However, by investing in a big fund, which owns mature companies you get the benefits of owning chickens.

1. Stability – it reduces portfolio volatility. Holding many big companies will always be less volatile than a few small companies.
2. Diversity – holding a fund means you can achieve instant low-cost diversification.
3. Probability – you will have a higher chance of a positive return.

Linking to dividend paying stocks, at the early stage of investing you looking to make money but the reality is that you need an anchor which takes time to build up. Along the line, it is very hard not to look at microcaps but before you jump in have an anchor if the price of the stock price goes down. The dividends allow you choice but the discipline and portfolio management skills need to be complemented.

There are more questions than answers, till the next time – to raising questions.