The beauty of stock market is that there are always new technologies and new companies out there offering a different spin and a different way to do specific tasks and offer specific services. We look at the likes of Amazon, Google and Apple and it is easy to forget that at one time these were relatively small high risk companies but look at them now. Apple is the largest company on the US stock market followed by Amazon – Apple even has a war chest of $250 billion for expansion and acquisitions. So, out of small acorns….
Investing too early
No matter how efficient stock markets appear (on the surface they are highly efficient) some of the smaller potentially large stocks of tomorrow can be overlooked. We have seen this on many occasions and we will see this on many occasions in the future. Sometimes when you think you have spotted a new technology before the market has fully appreciated the company offering the service, it is tempting to go all in. Give yourself a large position before the stock market and other investors realise exactly what is on offer. Simple?
While many people would suggest that stock markets are more efficient than investors this is not necessarily the case. As we touched on above, there are many situations where stocks and new technologies are overlooked until they are able to deliver significant results. The problem is that even if you were to find a company on the verge of something big, how long would it take the stock market and other investors to appreciate this? One month, 6 months, 1 year?
Small steps
If you do find a company which you believe could be the next big thing of tomorrow then rather than going “all in” why not dip your toe in the water. Slowly build up a stake over the weeks and months ahead ensuring that you have at least a position when the market fully appreciates what is going on. There may be times when stock markets are depressed and the “jam tomorrow” companies can be marked down. Therefore, there may be opportunities to pick up stock at lower levels and wait for the new technology to be delivered.
In a perfect world what you would do is look at a number of companies which are on the verge of something big and spread your investments and your risk. If for example you were to find six companies which could potentially be enormous companies further down the line, why not take a small stake in each one. It would only take one or two of them to be successful and you would more than make your money but if your research is correct then you could aim a little higher.
Markets don’t always get it right
Smaller stocks do not receive the kind of focus that the likes of Apple, Amazon and Google demand from analysts and investors. It is therefore quite plausible that with extensive research you could uncover a company or companies which have massive potential for tomorrow. These might be the next Amazon and could make you extremely rich in the longer term. Some investors will suggest this is not possible in this day and age because of the Internet and the fact that all research is out there but don’t believe them!