Whether looking at unit trusts, investment trusts or some other kind of collective investment, you can gain exposure to any area of the market and any specific type of share. As these funds are managed by heavily funded groups they can very often offer an insight into the next big shot. Yes, rather than researching small companies yourself why not look towards the small company collective investment vehicles available today?
Research, research, research
We all have a different style of researching but the main problem is finding the best companies to research. Do we look at companies hitting their 52-week highs, do we look at companies oversold and perhaps hitting their 52-week lows or do we simply stick a pin in a list of small companies and research that particular company? It is difficult to find the best company to research even if you do have the best research system.
Follow the experts
There may be some interesting companies if you follow the individual investments of small company collective investment vehicles. These investment groups are obliged to make public their individual shareholdings in different groups and also announce any major changes. So, if you can get your hands on an annual report and accounts for some of these collective investments it is possible to get some good pointers towards the next big shot.
When looking at a group of small companies held by a small company collective investment vehicle it is imperative that you are unbiased. Do not simply look at companies you have come across before, take them all into consideration and perhaps one by one look at the recent share price performance. At the end of the day, as we have said on numerous occasions, it is the share price performance which will ultimately give you an idea of how the company is performing.
Do not be afraid if a share has doubled or quadrupled
Let’s be honest, how many of us have looked at a company and seen that the share price has doubled or quadrupled in recent times? How many of us have walked away thinking there is no mileage left in a particular share because it has doubled or quadrupled? Well, forget the past and look towards the future. Just because a share has doubled or quadrupled does not mean there is no further milage, the game is not necessarily over and you should still consider it as a potential investment.
We’re not suggesting you chase shares which have doubled or quadrupled, as some may experience short-term profit taking and consolidation, but do not discount them. Some of the most successful companies of all time have returned “10 baggers” so a doubling, tripling or quadrupled of a share price is not as special as some would have you believe.
Knowing when to sell
If you find a small company via the report and accounts of a small company collective investment vehicle then ensure that you keep an eye on any share acquisitions or disposals in the future. It is all good and well knowing when to buy a share but it is as important knowing when to sell a share, bank a profit and move on.
Those who find a good share to buy and are often sitting on significant paper profits have not made a profit until they have sold the shares. Sitting on shares forever and a day may turn out to be the best move but for many shares there will come a period when short-term growth is flattening and the company is consolidating. Remember, it is not always good sense to continue growing at a significant rate because very often systems and sometimes cash flow cannot keep up. We have seen many small companies with great futures falling by the wayside because they ran out of funds and simply grew too quickly.