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.

How many stocks should you hold?

If you hold a low-cost, well-diversified fund, then you are diversified. It’s important to remember that.

The more stocks you hold, generally, the less risk there is to your portfolio value. That is because holding many stocks means they take up less of a percentage of your total portfolio value. If a stock only takes up 1% of your total portfolio value and the business goes bust, you have only lost 1%.

The author personally finds it hard to manage more than 20 companies. You are investing in businesses. Everyone is unique, with different management, products, services, and financial metrics. There is a lot of information to absorb on each one. Jim Cramer of the Mad Money on CNBC talks about the best in the breed, quality over quantity.

Maximum exposure?

There is no hard and fast rule to this but as long as a company’s share price keeps going up, you should keep buying it- but there are 3 caveats to this:

Caveat one – as long as the company keeps releasing excellent financial results showing they are still growing at a good rate, and they are not overvalued.

Caveat two – 1-3%, but that is not the same as having a company take up more than 10% of my portfolio due to its share price rising.

Caveat three – if you are investing in a microcap, you should always pay attention to the average daily volume of that company. You do not want to be unable to sell if you want to sell.

Limit your downside, never limit your upside – let your winners run. If you manage to find a company that goes on to be a superstock – or rises by 1,000 or more, if you play it correctly you only need one big winner in your lifetime. Superstocks are rare.

A superstock formula or traits

1. Revenue – all these companies generated revenue (not hope, hype or potential)
2. Growth – all these companies experienced revenue growth
3. Value – all these companies were of a good valuation
4. Momentum all these companies’s shares prices had momentum
5. Size all these companies’s market capitalization sat below $100 m when the journey to 1,000% began

You should not fight the market; it will always win.

Linking to dividend paying stocks, no matter what company you buy, doing your homework and buying quality, for the idea is to lose less money. You can always learn from the small companies because they have hope, hype and sometimes actually revenue.

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